<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 26, 1999
----------------------
Kevco, Inc.
---------------------
(Exact name of registrant as specified in its charter)
Texas 000-21621 75-2666013
----------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1300 S. University Drive, Suite 200, Fort Worth, Texas 76107
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 332-2758
-----------------
<PAGE> 2
ITEM 5. OTHER EVENTS.
On July 26, 1999, Kevco, Inc., a Texas corporation (the "Company"),
consummated the transaction contemplated by the Securities Purchase Agreement
dated as of July 14, 1999 with Wingate Partners II, L.P., a Delaware limited
partnership ("Wingate") (the "Securities Purchase Agreement"). Pursuant to the
Securities Purchase Agreement, Wingate's assignees acquired common stock, notes
and warrants on terms more fully described in the Company's current report on
Form 8-K dated July 14, 1999, and such assignees assigned such common stock,
notes and warrants to The Kevco Partners Investment Trust, a Delaware business
trust.
Further, on July 26, 1999, the Company issued the following press
release:
KEVCO COMPLETES WINGATE TRANSACTION; REPORTS SECOND QUARTER RESULTS
FORT WORTH, Texas--(BUSINESS WIRE)--July 26, 1999--Kevco, Inc.
(Nasdaq/NM:KVCO) today announced that Wingate Partners II, L.P.
("Wingate") has completed its $37 million investment in Kevco's common
stock, convertible debt and warrants announced earlier this month. As a
result of this transaction, Wingate now owns approximately 28% of
Kevco's outstanding voting stock. Assuming full conversion of the
convertible debt and exercise of its warrants, Wingate would own
approximately 46% of the voting common stock and all of Kevco's
non-voting common stock.
Fred Hegi, a partner of Wingate, has assumed the
responsibilities of chairman of the board, president and chief
executive officer of Kevco. Jerry E. Kimmel, previously chairman,
president and chief executive officer, will continue to serve as a
director and has assumed the newly-created position of vice chairman.
The Company also announced financial results for the second
quarter and six months ended June 30, 1999. Net sales for the three
months ended June 30, 1999, totaled $231.8 million compared with $232.0
million in the year-earlier period. The Company reported a net loss of
$754,000, or $0.11 per diluted share, for the second quarter of 1999
compared with net income of $3.2 million, or $0.47 per diluted share,
in the prior-year period.
For the six months ended June 30, 1999, net sales totaled
$454.6 million compared with $444.0 million in the year-earlier period.
The Company reported a net loss of $2.0 million, or $0.29 per diluted
share, for the first six months of 1999 compared with net income of
$5.3 million, or $0.76 per diluted share, in the first half of 1998.
<PAGE> 3
Jerry E. Kimmel, vice chairman, commented, "We are excited
about the investment by Wingate and what this new partnership will mean
to Kevco's long-term opportunities. Although the past 12 months have
been difficult financially, we believe the Company is well positioned
for the future. Wingate's considerable industry knowledge and
management expertise, coupled with Kevco's established leadership,
provide a solid foundation for our future."
Fred Hegi, chief executive officer, commented, "Our immediate
priority must be restoring Kevco's operating profitability. The
apparent slowdown in manufactured housing production presents a
challenging backdrop over the near term, but we are confident about the
longer term prospects for this vital segment of the housing industry.
We believe that Kevco has a fundamentally strong position with
well-established working relationships and look forward to the
opportunities to restore the Company's positive momentum."
Related to this transaction, Kevco's Board has been reduced
from six to four directors, including Hegi and Kimmel. Jim Johnson, a
principal of Wingate, has been elected a director; and Richard Nevins
will continue to serve as a director. The Company intends to add
significant outside capabilities to its Board by naming several new
directors with extensive experience in such areas as distribution
operations, finance and corporate strategy. These additional directors
are expected to be announced shortly.
Kevco, headquartered in Fort Worth, Texas, is a leading
wholesale distributor and manufacturer of building products for the
manufactured housing and recreational vehicle industries.
<PAGE> 4
KEVCO, INC.
Condensed Consolidated Financial Results
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Sales $ 231,777 $ 231,967 $ 454,562 $ 444,018
Net Income (loss) (754) $ 3,187 $ (1,970) $ 5,315
Earnings (loss) per
share
Basic $ (0.11) $ 0.47 $ (0.29) $ 0.78
Diluted $ (0.11) $ 0.46 $ (0.29) $ 0.76
Weighted average
shares outstanding
Basic 6,856 6,843 6,856 6,837
Diluted 6,857 6,957 6,858 6,953
</TABLE>
Certain statements in this news release consist of
forward-looking statements that involve risks and uncertainties,
including, but not limited to, the Company's substantial leverage and
its effects on the Company's ability to obtain additional capital as
needed, the Company's ability to integrate its operations and
successfully implement new management information systems, the
Company's success in addressing and remediating Year 2000-related
issues, the Company's ability to profitably operate its new
manufacturing facilities, customer demand for manufactured housing and
recreational vehicles, the effect of economic conditions, the impact of
raw materials prices, the Company's ability to maintain profitability
in the event of the loss of a significant customer and other risks
detailed from time to time in the reports filed by the Company with the
Securities and Exchange Commission, including the Company's annual
report on Form 10-K.
CONTACT: Kevco Inc., Fort Worth
Mike Kubic, 817/332-2758
In addition, on July 27, 1999, Frederick B. Hegi, Jr. and James A.
Johnson were elected to the Board of Directors to fill the vacancies left by the
Board resignations on such date of Richard S. Tucker and Gregory G. Kimmel.
<PAGE> 5
ITEM 7. EXHIBITS
Exhibit Nos.
2.1 Securities Purchase Agreement dated as of July 14, 1999 between Wingate
and the Company (1)(2)
3.1 First Amendment to Bylaws of Kevco, Inc. (3)
10.1 Tranche A Senior Subordinated Exchangeable Note, dated July 26, 1999
(3)
10.2 Tranche B senior Subordinated Exchangeable Note, dated July 26, 1999
(3)
10.3 Warrant, dated July 26, 1999, to purchase 675,000 shares of Nonvoting
Common Stock (3)
10.4 Warrant, dated July 26, 1999, to purchase 772,727 shares of Nonvoting
Common Stock (3)
10.5 Warrant, dated July 26, 1999, to purchase 295,455 shares of Nonvoting
Common Stock (3)
10.6 Consulting Agreement, dated July 26, 1999, between Kevco, Inc., a Texas
corporation and Mr. Gerald E. Kimmel (3)
10.7 Financial Advisory Agreement, dated July 26, 1999, among Kevco, Inc., a
Texas corporation and Wingate Management Limited, L.L.C., a Delaware
limited liability company (3)
10.8 Monitoring and Oversight Agreement, dated July 26, 1999, among Kevco,
Inc., a Texas corporation and Wingate Management Limited, L.L.C., a
Delaware limited liability company (3)
- ------------------
(1) Previously filed as an exhibit to the Company's current report on form
8-K, dated July 14, 1999, and incorporated herein be reference.
(2) Schedules and similar attachments are omitted, but descriptions of such
omitted schedules or attachments are contained in such document. The
Company hereby undertakes to provide copies of such omitted schedules
or attachments to the staff of the Securities and Exchange Commission
upon request.
(3) Filed herewith.
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Kevco, Inc.
Date: August 5, 1999 By: /s/ MIKE KUBIC
---------------------------------
Mike Kubic,
Vice President of Finance
<PAGE> 7
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ -----------
<S> <C>
2.1 Securities Purchase Agreement dated as of July 14, 1999 between Wingate and the
Company (1)(2)
3.1 First Amendment to Bylaws of Kevco, Inc. (3)
10.1 Tranche A Senior Subordinated Exchangeable Note, dated July 26, 1999 (3)
10.2 Tranche B Senior Subordinated Exchangeable Note, dated July 26, 1999 (3)
10.3 Warrant, dated July 26, 1999, to purchase 675,000 shares of Nonvoting Common Stock
(3)
10.4 Warrant, dated July 26, 1999, to purchase 772,727 shares of Nonvoting Common Stock
(3)
10.5 Warrant, dated July 26, 1999, to purchase 295,455 shares of Nonvoting Common Stock
(3)
10.6 Consulting Agreement, dated July 26, 1999, between Kevco, Inc., a Texas
corporation and Mr. Gerald E. Kimmel (3)
10.7 Financial Advisory Agreement, dated July 26, 1999, among Kevco, Inc., a Texas
corporation and Wingate Management Limited, L.L.C., a Delaware limited liability
company (3)
10.8 Monitoring and Oversight Agreement, dated July 26, 1999, among Kevco, Inc., a
Texas corporation and Wingate Management Limited, L.L.C., a Delaware limited
liability company (3)
</TABLE>
- ------------------
(1) Previously filed as an exhibit to the Company's current report on form
8-K, dated July 14, 1999, and incorporated herein be reference.
(2) Schedules and similar attachments are omitted, but descriptions of such
omitted schedules or attachments are contained in such document. The
Company hereby undertakes to provide copies of such omitted schedules
or attachments to the staff of the Securities and Exchange Commission
upon request.
(3) Filed herewith.
<PAGE> 1
EXHIBIT 3.1
FIRST AMENDMENT TO BYLAWS OF KEVCO, INC.
ADOPTED JULY 26, 1999
I, Richard Tucker, the duly elected and acting secretary of
Kevco, Inc. (the "Corporation") do hereby certify that the following amendments
to the Bylaws of the Corporation were duly and validly approved and adopted
pursuant to Bylaw 8.07 of the Corporation's Bylaws by resolution of the
Corporation's board of directors at a meeting duly called and held, such
amendment to be effective as of the ___ day of July, 1999.
/s/ RICHARD TUCKER
-----------------------------------
Name: Richard Tucker
------------------------------
Title: Secretary:
-----------------------------
The Bylaws of the Corporation, are hereby amended as follows:
1. Bylaw 3.02(a) is hereby amended by deleting Bylaw 3.02(a) in its
entirety and replacing in lieu thereof the following:
"(a) REGULAR DIRECTORS. Except as otherwise provided by the
Articles of Incorporation, including, without limitation, by the terms
of the provisions of the Corporation's Tranche A and Tranche B Senior
Subordinated Exchangeable Notes (the "Notes") and Series A and Series
B 10 3/8% Convertible Pay-in-Kind Preferred Stock (as it may be
subsequently authorized in Amended and Restated Articles of
Incorporation, the "Preferred Stock"), the number of directors shall
not be less than two (2) or more than nine (9) and shall be fixed from
time to time by the board of directors. Except as otherwise provided
by the Preferred Stock, or Bylaws 3.02(c), 3.03, and 3.05, such
directors shall be elected at the annual meeting of shareholders. Each
director shall hold office until his successor is elected and
qualified, or, if earlier, until his death, resignation, or removal
from office. None of the directors need be a stockholder of the
corporation or a resident of the State of Texas."
2. Bylaw 3.02(b) is hereby amended by deleting Bylaw 3.02(b) in its
entirety and replacing in lieu thereof the following:
"(b) CLASSIFICATION OF DIRECTORS. Subject to the last
sentence of this Bylaw 3.02(b), the board of directors shall be
classified in respect of the time for which they shall severally hold
office by dividing the board into three (3) classes, each class to be
as nearly equal in number as possible. Each director of the
corporation shall hold office until his successor is duly elected and
qualified, or if earlier, until his death, resignation, or removal
from office. Subject to the last sentence of this Bylaw 3.02(b), the
term of office of directors of the first class shall expire at the
first annual meeting of shareholders after their election, the term of
office of the second class of directors shall expire at the second
annual meeting of shareholders after their election, and the term of
office of the third
<PAGE> 2
class of directors shall expire at the third annual meeting of
shareholders after their election. At each annual meeting of
shareholders after such classification, the number of directors equal
to the number of the class whose term expires at the time of such
meeting shall be elected to hold office until the third succeeding
annual meeting so that the term of office of one class of directors
shall expire each year. Notwithstanding any other provision of these
Bylaws to the contrary, any director or directors permitted to be
elected pursuant to the Notes and the Preferred Stock shall not be
classified and any directors so elected shall hold office for the term
provided for by Preferred Stock."
3. Bylaw 3.02(c) is hereby amended by deleting Bylaw 3.02(c) in its
entirety and replacing in lieu thereof the following:
"(b) ELECTION. At each election for directors, every
shareholder entitled to vote at such election shall have the right to
vote the number of shares owned by such shareholder for as many
persons as there are directors to be elected and for whose election he
has a right to vote. At each annual meeting of shareholders, the
holders of shares entitled to vote in the election of directors shall
elect directors to hold office until the next succeeding annual
meeting, except in the case of the classification of directors and
except as may otherwise be provided by the Notes and the Preferred
Stock."
4. Bylaw 3.03 is hereby amended by deleting Bylaw 3.03 in its entirety
and replacing in lieu thereof the following:
"CHANGE IN NUMBER. The number of directors may be increased
or decreased by resolution of the board of directors from time to
time, but no decrease shall have the effect of shortening the term of
any incumbent director. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election at an
annual meeting of shareholders or at a special meeting of shareholders
called for that purpose or may be filled by the board of directors for
a term of office continuing only until the next election of one or
more directors by the shareholders; provided, however, that the board
of directors may not fill more than two such directorships during the
period between any two successive annual meetings of shareholders. Any
director(s) elected in accordance with the terms of the Notes and the
Preferred Stock shall be excluded for the purpose of determining the
maximum number of directors under Bylaw 3.02(a)."
2
<PAGE> 3
5. Bylaw 3.04 is hereby amended by deleting Bylaw 3.04 in its entirety
and replacing in lieu thereof the following:
"REMOVAL. Except as otherwise provided by the Notes and the
Preferred Stock, any director or the entire board of directors may be
removed, for or without cause, at any meeting of shareholders called
expressly for that purpose by the affirmative vote of at least a
majority in number of the shares then entitled to vote at the election
of directors."
6. Bylaw 3.05 is hereby amended by deleting Bylaw 3.05 in its entirety
and replacing in lieu thereof the following:
"VACANCIES. Except as otherwise provided in the Notes and the
Preferred Stock, any vacancy occurring in the board of directors after
the issuance of shares (by death, resignation, or removal) may be
filled by an affirmative vote of a majority of the remaining directors
though less than a quorum of the board of directors. A director
elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office."
7. The first sentence of Bylaw 3.06 is hereby amended by deleting the
first sentence of Bylaw 3.06 in its entirety and replacing in lieu thereof the
following:
"Other than in respect of the initial directors and directors
elected pursuant to the Notes and the Preferred Stock, only persons
who are nominated in accordance with the procedure set forth in these
Bylaws shall be eligible for election as, and to serve as, directors."
8. The penultimate sentence of the first paragraph of Bylaw 3.06 is
hereby amended by deleting such sentence in its entirety and replacing in lieu
thereof the following:
"Other than directors chosen pursuant to the provisions of
Bylaw 3.05, and directors otherwise chosen in accordance with the
terms of the Notes and the Preferred Stock, no person shall be
eligible to serve as a director of the corporation unless nominated in
accordance with the procedures set forth in this Bylaw 3.06."
9. Bylaw 8.07 is hereby amended by deleting Bylaw 8.07 in its entirety
and replacing in lieu thereof the following:
"AMENDMENT OF BYLAWS. Except as otherwise provided in the
Notes and the Preferred Stock, these Bylaws may be altered, amended,
or repealed or new bylaws adopted at any meeting of the board of
directors at which a quorum is present by the affirmative vote of a
majority of the directors present at such meeting, provided notice of
the proposed alteration, amendment, or repeal is contained in the
notice of such meeting; provided, that for so long as the Notes and
the Preferred Stock or any portion thereof is outstanding, no such
amendment shall materially and adversely affect the rights of holders
of the Notes and the Preferred Stock."
3
<PAGE> 1
EXHIBIT 10.1
THIS TRANCHE A SENIOR SUBORDINATED EXCHANGEABLE NOTE AND THE SECURITIES
REPRESENTED HEREBY HAVE BEEN PURCHASED PURSUANT TO A SECURITIES PURCHASE
AGREEMENT DATED AS OF JULY 14, 1999, BETWEEN THE COMPANY AND WINGATE PARTNERS
II, L.P. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES
AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS TRANCHE A SENIOR
SUBORDINATED EXCHANGEABLE NOTE. THIS TRANCHE A SENIOR SUBORDINATED EXCHANGEABLE
NOTE WAS ISSUED ON THE DATE HEREOF WITH ORIGINAL ISSUE DISCOUNT. THE ISSUE PRICE
OF THIS NOTE IS $17,000,000. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ATTRIBUTABLE
TO THIS NOTE IS $21,597,473. THE ISSUE DATE OF THIS NOTE IS JULY 26, 1999. THE
YIELD TO MATURITY OF THIS NOTE IS 12.388622692%.
TRANCHE A SENIOR SUBORDINATED EXCHANGEABLE NOTE
$17,000,000.00 July 26, 1999
FOR VALUE RECEIVED, Kevco, Inc., a Texas corporation, hereby promises
to pay to the order of The Kevco Partners Investment Trust, the principal sum of
SEVENTEEN MILLION AND NO/100 DOLLARS ($17,000,000.00), together with interest,
as hereinafter described.
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions.
"10 3/8% Senior Subordinated Notes" means the Company's 10 3/8% Senior
Subordinated Notes due December 1, 2007.
"Acceleration Notice" has the meaning specified in Section 5.2.
"Acquired Indebtedness" means, in respect of the Company 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 Company 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 Company or any of its Subsidiaries and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by the Company or
any of its Subsidiaries.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause
<PAGE> 2
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement, or otherwise; provided, however,
that Beneficial Ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Aggregate Common Stock" means the Voting Common Stock and the
Nonvoting Common Stock.
"Amendment" has the meaning specified in the Purchase Agreement.
"Applicable Law" means the applicable laws of the State of Texas or
applicable laws of the United States, whichever laws allow the greater rate of
interest, as such laws now exist or may be changed or amended or come into
effect in the future.
"Asset Sale" means (a) 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 Company 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
Company and its Subsidiaries taken as a whole will be governed by the provisions
of Section 4.1 and/or the provisions of Section 4.8 and not by the provisions of
Section 4.2 and (b) the issuance or disposition by the Company or any of its
Subsidiaries of Equity Interests of the Company's Subsidiaries. Notwithstanding
the foregoing, none of the following will be deemed an Asset Sale: (i) a
disposition of assets by the Company to a Subsidiary of the Company or by a
Subsidiary of the Company to the Company or to another Subsidiary of the
Company; (ii) an issuance of Equity Interests by a Subsidiary of the Company to
the Company or to another Subsidiary of the Company; (iii) a Restricted Payment
that is permitted by Section 4.3; (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
Section 4.5.
"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.
"Bankruptcy Law" means Title II, U.S. Code or any similar federal or
state law for the relief of debtors.
2
<PAGE> 3
"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 Issue Date), 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.
"Benefitted Party" has the meaning specified in Section 7.1(a).
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company 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.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday, and
Friday which is not a day on which banking institutions in Fort Worth, Texas are
authorized or obligated by law or executive order to close.
"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.
"Change of Control" means the occurrence or existence of any of the
following events or circumstances after the Issue Date: (i) a "person" or
"group" (within the meaning of
3
<PAGE> 4
Sections 13(d) and 14(d)(2) of the Exchange Act) (other than any person or group
comprised solely of any or all of 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 Company 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
Company 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 the
Company's 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 held by the
remaining shareholders; provided, however, that a Change of Control may occur
notwithstanding the fact that (i) holders of Voting Common Stock may elect more
than one form of consideration in such transaction or (ii) such holders may
receive cash in lieu of the purchase of fractional shares.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means Kevco, Inc., a Texas corporation, and any successor
thereto permitted pursuant to Section 4.8.
"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
(a) 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
(b) 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, (i)
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, (ii) transactions giving
rise to the need to calculate the
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Consolidated Coverage Ratio shall be assumed to have occurred on the first day
of the Reference Period, (iii) 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 (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 (iv) 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 Company'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 Company, for any period,
the Consolidated Net Income of the Company 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 Company,
and (iii) Consolidated Fixed Charges, less the amount of all cash payments made
by the Company 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 Company for any
period, the sum of (i) the consolidated interest expense of the Company 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
Company or one or more of its Subsidiaries or secured by a Lien on assets of the
Company 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 Company 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 Company and its Subsidiaries or preferred stock of the
Company's Subsidiaries, to the extent such Disqualified Stock or preferred stock
is owned by Persons other than the Company 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 Company, expressed as a decimal.
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"Consolidated Net Income" means, in respect of the Company for any
period, the aggregate of the Net Income of the Company and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net 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 Company or any of its Subsidiaries as to which Consolidated
Net Income is being calculated, (ii) the Net Income of any Subsidiary of the
Company 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 Company 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.
"Convertible Preferred Stock" means collectively the Series A Voting
Preferred Stock and the Series B Nonvoting Preferred Stock.
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debt Incurrence Ratio" has the meaning specified in Section 4.4(a).
"Default" means any event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Indebtedness" means any Indebtedness outstanding
under the Senior Credit Facility.
"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.
"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).
"Event of Default" has the meaning specified in Section 5.1.
"Excess Proceeds" has the meaning specified in Section 4.2(b).
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<PAGE> 7
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Price" has the meaning specified in Section 6.1(a).
"Existing Indebtedness" means the 10 3/8% Senior Subordinated Notes and
all other Indebtedness of the Company and its Subsidiaries in existence on the
Issue Date, including the Tranche B 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; 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 Person in whose name a Note is registered.
"HSR Act" has the meaning specified in Section 3.2(e).
"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
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<PAGE> 8
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.
"Incurrence Date" has the meaning specified in Section 4.4(a).
"Indebtedness" means, in respect of any Person, (a) any liability of
such Person, whether or not contingent (i) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance, or
note purchase facility; (ii) evidenced by a bond, note, debenture, or similar
instrument (including a purchase money obligation); (iii) for the payment of
money relating to a Capitalized Lease Obligation; (iv) for or pursuant to
Disqualified Stock; (v) 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 Company, any of its Subsidiaries); (vi)
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 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 (vii) under or in respect of
Hedging Obligations; (b) any liability of others described in the preceding
clause (a) 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 (c) any
amendment, supplement, modification, deferral, renewal, extension, or refunding
of any liability of the types referred to in clauses (a) and (b) 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 between the
Company, the Subsidiary Guarantors, and the United States Trust Company of New
York, as amended or supplemented from time to time.
"Independent Director" means any director of the Company 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 Investor" means any "Purchasers" under the Purchase Agreement,
including any such Purchasers acquiring rights by way of assignment pursuant to
Section 13.8 thereof.
"Interest Payment Date" has the meaning specified in Section 2.1.
"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
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<PAGE> 9
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 July 26, 1999, the date on which the Notes were
originally issued.
"Junior Securities" means, in respect of the Company or any of its
Subsidiaries, securities (including Capital Stock but excluding Disqualified
Stock) issued by the Company or any of its Subsidiaries to a Holder on account
of the Notes that (a) has an Average Life and maturity or mandatory redemption
obligation, if any, longer than, or occurring after the final maturity date of,
all Designated Senior Indebtedness of the Company, (b) by their terms or by law
are subordinated to Designated Senior Indebtedness of the Company outstanding on
the date of issuance of such Junior Securities at least to the same extent as
the Notes and (c) are not secured by any assets or property of the Company or
any of its Subsidiaries. As used herein, "Designated Senior Indebtedness" of the
Company outstanding on the date of issuance of such Junior Securities" shall
include securities issued in connection with a reorganization pursuant to the
Bankruptcy Law of any jurisdiction to Persons which held "Designated Senior
Indebtedness" in such reorganization proceeding.
"Kimmel Designees" means Jerry E. Kimmel, if he is a director of the
Company, and any other director of the Company 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).
"Mandatory Redemption Obligation" has the meaning specified in Section
4.1(b).
"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.
"Maturity Date" means the maturity of this Note, which is the date that
is seven (7) calendar years after the date hereof, as the same may be hereafter
accelerated pursuant to the provisions of this Note.
"Maximum Lawful Rate" means the maximum rate of interest permitted
under Applicable Law.
"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
9
<PAGE> 10
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 Company 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 Company 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 Company 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 Company 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.
"Nonvoting Common Stock" means the newly created class of nonvoting
common stock, par value $0.01 per share, to be created by the Amendment.
"Note or Notes" means this Tranche A Senior Subordinated Exchangeable
Note, including any Note issued upon transfer, assignment, or subdivision
thereof.
"Notice of Adjustment" has the meaning specified in Section 6.3(h).
"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 Company, 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 Company.
"Officer's Certificate" means a certificate signed on behalf of the
Company 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 Company.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Holders.
"Payment Blockage Notice" has the meaning specified in Section 8.2(a).
"Payment Blockage Period" has the meaning specified in Section 8.2(a).
"Payment Default" has the meaning specified in Section 5.1(f).
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"Permitted Indebtedness" has the meaning specified in Section 4.4(b).
"Permitted Investments" means (i) any Investment in the Company or in a
Subsidiary of the Company; (ii) any Investment in Cash Equivalents; (iii) any
Investment by the Company 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 Company 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 Company or a Subsidiary of the
Company; (iv) Investments the payment for which consists exclusively of Equity
Interests (excluding Disqualified Stock) of the Company; (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 Company and/or its Subsidiaries; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company 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
Company or any of its Subsidiaries; (iv) Liens securing any Acquired
Indebtedness and which exist at the time of acquisition thereof by the Company
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 this Note; (vi) Liens arising by
reason of (1) any judgment, decree, or order of any court not constituting an
Event of Default; (2) 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; (3) security for payment
of workers' compensation or other insurance; (4) 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; (5) 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 Company or
any of its Subsidiaries or the value of such property for the purpose of such
business; (6) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds; (7) 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 Company or any of its Subsidiaries;
or (8) 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 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
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defeasing Indebtedness of the Company and its Subsidiaries so long as such
deposit of funds and such decreasing or defeasing of Indebtedness are permitted
under Section 4.3; 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
Company 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) if the Old Indebtedness is subordinated
in right of payment to the Notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the Notes on terms at least as favorable to
the Holders as those contained in the documentation governing the Old
Indebtedness; (iv) such Permitted Refinancing Indebtedness is on terms that are
no more restrictive, as a whole, than those governing such Old Indebtedness; and
(v) such Permitted Refinancing Indebtedness is Incurred only by the Company or
any of its Subsidiaries that is the obligor on the Old Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Plans" means any plan existing on the Issue Date or adopted by the
Company after the Issue Date 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 Company or any
of its Subsidiaries, any Indebtedness of the Company 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.
"Purchase Rights" has the meaning specified in Section 6.3(e)(ii).
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"Redemption Notice" has the meaning specified in Section 3.2(b).
"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 this Note.
"Related Business" means the business conducted by the Company 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.
"Restricted Payments" has the meaning specified in Section 4.3(a).
"Senior Credit Facility" means the Credit Agreement dated December 1,
1997, among the Company, the guarantors named therein, and NationsBank of Texas,
N.A., as agent and lender, and the other lenders party thereto, as amended to
the date hereof.
"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 this Note, 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, 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 this Note, (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 10 3/8% Senior
Subordinated Notes or any refinancings thereof. "Senior Indebtedness" when used
in respect of a Subsidiary Guarantor, shall have a meaning substantially
identical to that applied to the Indebtedness of the Person or its Subsidiaries.
"Series A Voting Preferred Stock" means the Company's "Series A 10 3/8%
Convertible Pay-in-Kind Voting Preferred Stock" to be established under the
terms of the Amendment.
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"Series B Nonvoting Preferred Stock" means the Company's "Series B 10
3/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" to be established under
the terms of the Amendment.
"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 Company (or of
its Subsidiaries) that is subordinated in right of payment to the Notes (or a
Subsidiary Guarantee, as appropriate).
"subparagraph (d) adjustment" has the meaning specified in Section
6.3(e)(i).
"Subsidiary" means, in respect of 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 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 Company.
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under this Note by any Person.
"Subsidiary Guarantors" means Kevco Management, Inc., Kevco Holding,
Inc., Kevco GP, Inc., DCM Delaware, Inc., Kevco Components, Inc., Kevco
Distribution, L.P., and Kevco Manufacturing, L.P. in each case until such time,
if any, as such Subsidiary is released from its Subsidiary Guarantee as
permitted by this Note.
"TBCA" means the Texas Business Corporation Act, as the same may be
amended from time to time.
"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.
"Tranche B Notes" means the Company's $6,500,000 principal amount
Tranche B Senior Subordinated Exchangeable Notes issued on the Issue Date.
"Transaction" has the meaning specified in Section 6.3(g).
"Voting Common Stock" means the voting common stock, par value $0.01
per share, of the Company.
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"Voting Rights Triggering Event" has the meaning specified in Section
6.4(b)(i).
"Warrants" means the following: (i) the warrant issued by the Company
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 Company 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 Company 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 2
PAYMENTS
Section 2.1 Interest Payments. The Company shall pay interest on this
Note quarterly on the last day of each June, September, December, and March
(each an, "Interest Payment Date"), commencing with September 30, 1999. Interest
will accrue on the unpaid principal balance hereof outstanding (and on any
accrued but unpaid interest as provided for below) at the lesser of (i) the
Maximum Lawful Rate or (ii) a rate per annum equal to eleven and one-half
percent (11.5%); provided, however, that on any Interest Payment Date such
interest may, in the sole discretion of the Company as determined by the Special
Committee, in lieu of the payment in whole of such interest in cash, be accrued
(in which case, interest shall also be payable on any accrued interest until
paid); provided, however, that if the Company elects to accrue interest pursuant
to the provisions of this Section 2.1, (i) the Company shall give Holders
written notice thereof at least one (1) Business Day prior to the applicable
Interest Payment Date, and (ii) the Holders shall have the right to elect to
have all accrued interest paid in shares of Series B Nonvoting Preferred Stock
with an aggregate liquidation preference equal to the amount of interest accrued
and unpaid through the applicable Interest Payment Date. The Holders shall make
such election by the delivery of written notice thereof to the Company within
ten (10) days after the applicable Interest Payment Date. Notwithstanding the
foregoing, at any time when an Event of Default has occurred and is continuing,
from such date until the date such Event of Default no longer exists, interest
shall accrue at the lesser of (i) the Maximum Lawful Rate or (ii) a rate per
annum equal to twelve and one-half percent (12.5%).
Section 2.2 Principal Payments. All principal and accrued but unpaid
interest shall be due and payable, in full, in cash, on the Maturity Date,
pursuant to Section 3.1 or 4.1.
Section 2.3 Computations. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
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Section 2.4 Prepayments. Except as provided for in Section 4.1, the
Notes may not be redeemed in whole or in part prior to the third anniversary of
the Issue Date.
Section 2.5 Certain Determinations. Notwithstanding any other provision
of this Note, all determinations with respect to interest and principal payments
on, and redemption of, the Notes requiring action by the Board of Directors
shall be taken by the Special Committee.
ARTICLE 3
REDEMPTION
Section 3.1 Optional Redemption. The Notes shall be subject to
redemption at any time after the third anniversary of the Issue Date at the
option of the Company as determined by the Special Committee, in whole or in
part, at a redemption price in cash equal to 100% of the principal amount of the
Notes together with accrued and unpaid interest thereon to the applicable
redemption date.
Section 3.2 Procedures for Redemption.
(a) In the event that fewer than all the outstanding Notes are
to be redeemed pursuant to Section 3.1, the amount of Notes to be redeemed shall
be determined by the Board of Directors following the recommendation of the
Special Committee and the Notes so redeemed shall be selected pro rata according
to the principal amount of Notes held by each Holder.
(b) In the event the Company shall redeem Notes pursuant to
this Article 3, notice of such redemption ("Redemption Notice") shall be given
by overnight courier not less than 10 Business Days nor more than 40 Business
Days prior to the redemption date, to each Holder of record of the Notes to be
redeemed at such Holder's address as the same appears on the Note register of
the Company; 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 Notes to be redeemed except as to the Holder to whom
the Company 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 principal amount of Notes to be redeemed and, if
less than all the principal amount of Notes held by such Holder are to be
redeemed, the principal amount of Notes to be redeemed from such Holder; (iii)
customary provisions regarding the surrender of Notes; (iv) the redemption price
and the estimated amount of accrued but unpaid interest on the Notes to the date
of redemption; (v) the place or places where Notes are to be surrendered for
redemption; and (vi) that interest on the Notes to be redeemed will cease to
accrue on such redemption date.
(c) In the case of a redemption pursuant to this Article 3,
and if the Redemption Notice has been properly provided in accordance with this
Article 3, from and after the redemption date (unless the Company shall default
in payment in cash of the redemption price for the Notes called for redemption),
interest on such Notes called for redemption shall cease to accrue, and all
rights of the Holders thereof as Note Holders of the Company (except the right
to receive the redemption price from the Company) shall cease. Upon surrender of
the Notes in accordance with the Redemption Notice, any Notes so redeemed shall
be redeemed in cash by the Company at the redemption price specified herein and
in the Redemption Notice.
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(d) Any such offer under this Article 3 shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes pursuant to this
Article 3. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Note relating to an offer under
this Article 3, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under such
provisions of this Note by virtue thereof.
(e) Notwithstanding any other provision of this Note to the
contrary, in the event the Company delivers a Redemption Notice under this
Article 3 and the Holder timely elects to exchange the Notes prior to the stated
redemption date pursuant to Sections 6.1 and 6.2, then, for purposes of a
redemption under this Article 3, the "redemption date" shall mean the latter of
(i) the redemption date set forth in the Redemption Notice and (ii) the date
upon which any applicable waiting period under the Hart-Scott-Rodino 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.
ARTICLE 4
COVENANTS
Section 4.1 Offer to Repurchase Upon Change of Control.
(a) In the event of a Change of Control, the Company shall, to
the extent it shall have funds legally available for such payment, offer to
redeem for cash all of the Notes then outstanding, and shall redeem the Notes of
any Holder of such Notes that shall consent to such redemption, upon a date no
later than 30 Business Days following the Change in Control, at a redemption
price equal to 100% of the principal amount of the Notes, in cash, plus (without
duplication) accrued and unpaid interest thereon to the date fixed for
redemption.
(b) If the Company is unable or shall fail to discharge its
obligation to redeem all outstanding Notes pursuant to this Section 4.1 (a
"Mandatory Redemption Obligation"), such Mandatory Redemption Obligation shall
be discharged as soon as the Company is able to discharge such Mandatory
Redemption Obligation.
(c) In the case of a redemption pursuant to this Section 4.1,
notice of such redemption shall be given by overnight courier not more than ten
Business Days following the occurrence of the Change of Control and not less
than 20 Business Days prior to the redemption date, to each Holder of record of
the Notes to be redeemed at such Holder's address as the same appears on the
Note register of the Company; 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 Notes to be redeemed, except as to the
Holder to whom the Company 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 and the estimated amount of accrued but unpaid interest to the
redemption date; (iv) customary provisions regarding the surrender of Notes; (v)
that such Holder may elect to cause the Company to redeem all or any of the
Notes held by such Holder; (vi) the place or places where Notes are to be
surrendered for redemption; and (vii) that interest on the Notes the Holder
elects to cause the Company to redeem will cease to accrue on such redemption
date.
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(d) Upon receipt of such redemption notice, Holders of Notes
shall, within 10 Business Days after receipt thereof, return such redemption
notice to the Company indicating the aggregate principal amount of Notes such
Holder shall elect to cause the Company to redeem, if any.
(e) In the case of a redemption pursuant to this Section 4.1,
and if notice thereof has been properly provided in accordance with this Section
4.1, from and after the redemption date (unless the Company shall default in
payment in cash of the redemption price for the Notes called for redemption),
interest on such Notes as the Holder elects to cause the Company to redeem shall
cease to accrue, and all rights of the electing Holders thereof as Note Holders
of the Company (except the right to receive the redemption price from the
Company) shall cease. Upon surrender of the Notes in accordance with such
redemption notice, any Notes so redeemed shall be redeemed in cash by the
Company at the redemption price specified herein and in such redemption notice.
(f) Notwithstanding anything in this Section 4.1 to the
contrary, prior to the commencement of an offer under Section 4.1, but in any
event within 30 days following any Change of Control, the Company shall (i)
repay in full and terminate all commitments under Indebtedness under the Senior
Credit Facility and all other Senior Indebtedness the terms of which require
repayment upon a Change of Control or (ii) obtain the requisite consents under
the Senior Credit Facility and all such other Senior Indebtedness to permit the
repurchase of the Notes as provided herein.
(g) Any such offer under this Section 4.1 shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes pursuant to this
Section 4.1. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Note relating to a Change of
Control, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under such
provisions of this Note by virtue thereof.
(h) Notwithstanding any other provision of this Note to the
contrary, in the event the Company delivers a redemption notice under this
Section 4.1 and the Holder timely elects to exchange the Notes prior to the
stated redemption date pursuant to Sections 6.1 and 6.2, then, for purposes of a
redemption under this Section 4.1, the "redemption date" shall mean the latter
of (i) the date 30 Business Days after a Change of Control and (ii) 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.
Section 4.2 Limitation on Sale of Assets and Subsidiary Stock.
(a) The Company will not, and will not permit any of its
Subsidiaries to, engage in an Asset Sale, unless (i) the Company 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 the Board of Directors
and set forth in a Board 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 Company 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
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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. For purposes of this covenant (and not for purposes of any
other provision of this Note), the term "cash" shall be deemed to
include (A) any notes or other obligations received by the Company or
such Subsidiary as consideration as part of such Asset Sale that are
immediately converted by the Company or such Subsidiary into actual
cash or Cash Equivalents (to the extent of the actual cash or Cash
Equivalents so received), and (B) any liabilities of the Company or
such Subsidiary (as shown on the most recent balance sheet of the
Company or such Subsidiary) that are payable in cash and that (1) 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 Company and all of its Subsidiaries are released from
all liability for such assumed liability, (2) are not by their terms
subordinated in right of payment to the Notes, (3) are not owed to the
Company or any Subsidiary of the Company, and (4) constitute short-term
liabilities (as determined in accordance with GAAP).
(b) Within 360 days after the receipt of any Net Proceeds from
an Asset Sale, the Company may apply, directly or indirectly, such Net
Proceeds (i) to repay permanently Senior Indebtedness of the Company 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 Company may make an offer to
all holders of 10 3/8% Senior Subordinated Notes to the extent required
by Section 4.08(b) of the Indenture. Pending the final application of
any such Net Proceeds, the Company 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 Note. If the aggregate principal amount of the
10 3/8% Senior Subordinated 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.
(c) The Company will not, and will not permit any of its
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of
any Capital Stock of any of its Subsidiaries to any Person (other than
the Company or another Subsidiary of the Company), unless (i) such
transfer, conveyance, sale, lease or other disposition is of all of the
Capital Stock of such Subsidiary owned by the Company and its
Subsidiaries or is otherwise permitted under Section 4.7 and (ii) such
transaction is conducted in accordance with Sections 4.2(a) and (b).
Section 4.3 Limitation on Restricted Payments.
(a) The Company 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
Company'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
Company or (B) paid or payable to the Company or any Subsidiary of the
Company; (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any direct or indirect parent of
the Company or
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other Affiliate of the Company or any Subsidiary of the Company (other
than any such Equity Interests owned by the Company or any Subsidiary
of the Company or upon redemption of the Series A Voting Preferred
Stock or the Series B Nonvoting Preferred Stock in accordance with the
terms of the Amendment); (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
Default or Event of Default 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, or (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 Company has
purchased all Notes properly tendered pursuant to Section 4.1 resulting
from such Change of Control); 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 Default or Event of Default shall have
occurred and be continuing or would occur as a consequence
thereof;
(ii) the Company 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 Section 4.4(a);
and
(iii) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments declared or
made by the Company and its Subsidiaries after the Issue Date
shall not exceed, at the date of determination, the sum of (1)
50% of aggregate Consolidated Net Income of the Company from
the beginning of the first fiscal quarter commencing after the
Issue Date to the end of the Company'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 (2) 100% of the aggregate net cash
proceeds received by the Company from the issue or sale after
the Issue Date of Equity Interests of the Company or of
Disqualified Stock or debt securities of the Company 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 Company and other than
Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (3) the aggregate net cash
proceeds received by the Company as capital contributions to
the Company (other than from a Subsidiary of the Company)
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:
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(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 Note;
(ii) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company
(other than Disqualified Stock) in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to
a Subsidiary of the Company) of other Equity Interests of the
Company (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 Section 4.3(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 Company) of Equity
Interests of the Company (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 payment,
purchase, redemption, defeasance or other acquisition or
retirement shall be excluded from clause (iii) of Section
4.3(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 Default or Event of Default is
continuing, the repurchase of Equity Interests of the Company
from former employees of the Company 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 Company) of Equity Interests of the
Company (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 Default or Event of Default is
continuing, any Restricted Investment which, together with all
other Restricted Investments outstanding made pursuant to this
clause (vi) does not exceed $5,000,000.
Except to the extent specifically noted above, Restricted
Payments made pursuant to this Section 4.3(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
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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 Company 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 Company shall deliver to the Holders
an Officers' Certificate stating that such Restricted Payments were
permitted and setting forth the basis upon which the calculations
required by this Section 4.3 were computed, which calculations may be
based upon the Company's latest available financial
statements.
Section 4.4 Limitation on Incurrence of Indebtedness.
(a) The Company 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 Company 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 Default or
Event of Default 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 Company for
the Reference Period immediately preceding the Incurrence Date, after
giving effect on a pro forma basis to such Incurrence of 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 Company 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;
(iii) intercompany Indebtedness between or among
the Company and any of its Subsidiaries; provided that (A) if
the Company is an obligor on such Indebtedness, such
Indebtedness is expressly subordinate to the payment in full
of all Obligations with respect to the Notes and (B) any
subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than the Company or a Subsidiary of the Company, or any sale
or other transfer of any such Indebtedness to a Person that is
not either the Company or a Subsidiary of the Company, shall
be deemed to constitute a new Incurrence of such Indebtedness
by the Company 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 this Note, (B) Indebtedness
referred to in Section 4.4(b)(i) or (b)(ii), or (C) Existing
Indebtedness, other than Existing
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Indebtedness, if any, related to the Indebtedness refinanced
by the Senior Credit Facility;
(v) Indebtedness of a Subsidiary of the Company
constituting a Guarantee of Indebtedness of the Company or a
Subsidiary thereof which Indebtedness was Incurred pursuant to
this Section 4.4(b) or the Debt Incurrence Ratio test set
forth in Section 4.4(a);
(vi) the Incurrence by the Company 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 this Note 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 Company and its
Subsidiaries from time to time outstanding in an aggregate
principal amount not to exceed $20,000,000.
(c) Indebtedness of any Person which is outstanding at the
time such Person becomes a Subsidiary of the Company or is merged with
or into or consolidated with the Company or a Subsidiary of the Company
shall be deemed to have been Incurred at the time such Person becomes
such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary thereof, as applicable.
Section 4.5 Limitation on Liens. The Company 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 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, unless (i) in the case
of Liens securing Subordinated Indebtedness, the Notes are secured by a valid,
perfected Lien on such assets, property or proceeds that is senior in priority
to such Liens, (ii) in the case of Liens securing obligations subordinate to a
Subsidiary Guarantee, such Subsidiary Guarantee is secured by a valid, perfected
Lien on such assets, property or proceeds that is senior in priority to such
Liens, and (iii) in all other cases, the Notes (and, if such Lien secures
obligations of a Subsidiary of the Company, a Subsidiary Guarantee of such
Subsidiary) are equally and ratably secured.
Section 4.6 Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. The Company 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 (i) (a) pay dividends or make any other
distributions to the Company 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 (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries, (iii) transfer any of its properties to the Company or any of its
Subsidiaries, (iv) grant any Liens in favor of the Holders of the Notes or (v)
guarantee the Notes or any renewals or refinancings thereof, except for such
encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness, (B) the Senior Credit Facility, (C) applicable law, (D) any
instrument governing Indebtedness or Capital Stock of a Person acquired
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by the Company 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 this Note to be
Incurred, (E) 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, (F) 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 Company, provided such restrictions apply solely
to the Equity Interests or assets being sold, (G) restrictions imposed by
Permitted Liens on the transfer of the assets that are subject to such Liens,
(H) Permitted Refinancing Indebtedness Incurred to refinance Existing
Indebtedness or Indebtedness of the type described in clause (D) 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, and (I)
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.
Section 4.7 Limitation on Issuance, Sale and Ownership of Capital Stock
of Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, (i) sell, assign, transfer, convey or otherwise dispose of, any
Equity Interests of any Subsidiary of the Company, other than to the Company or
another Subsidiary of the Company, (ii) permit any Subsidiary of the Company to
issue any Equity Interests (including, without limitation, pursuant to any
merger, consolidation, recapitalization or similar transaction) other than to
the Company or another Subsidiary of the Company or (iii) permit any Person
other than the Company or its Subsidiaries to own any Equity Interests of any
Subsidiary of the Company, except that (A) the Company or its Subsidiaries may
consummate a sale to a Person of all of the Equity Interests of a Subsidiary of
the Company, if such sale is made by the Company or another Subsidiary of the
Company subject to, and in compliance with, Section 4.2, and (B) the Company may
issue and permit the subsequent ownership by directors of, directors' qualifying
shares.
Section 4.8 Limitation on Mergers, Consolidations, or Sale of Assets.
The Company will not merge or consolidate (whether or not the Company 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: (i) the Company is the surviving
corporation or the Person formed by or surviving any such merger or
consolidation (if other than the Company) 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; (ii) the Person formed by or surviving any
such merger or consolidation (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance, or other disposition shall
have been made assumes all the obligations of the Company under the Notes and
pursuant to an assumption agreement reasonably satisfactory to the Holders;
(iii) immediately before or immediately after giving effect to such transactions
no Default or Event of Default shall have occurred and be continuing or would
result therefrom; and (iv) except in the case of a merger of the Company with or
into a Subsidiary of the Company, the Company, 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
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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 Section 4.4(a).
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1 Events of Default. Each of the following constitutes an
"Event of Default":
(a) default for 30 days in the payment when due of interest on
the Notes (whether or not prohibited by Article 8), provided that the accrual of
interest as permitted by Section 2.1 shall not be deemed to be a default;
(b) default in payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by Article 8);
(c) failure by the Company to comply in all material respects
with any of the provisions of Section 4.1;
(d) failure by the Company for 30 days after written notice,
stating in reasonable detail the non-compliance, to the Company by Holders of at
least 25% in principal amount of the then outstanding Notes to the Company to
comply with any other covenant or agreement (except as provided in clauses (a),
(b), and (c) above) in the Notes;
(e) except as permitted by this Note, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Subsidiary Guarantor,
or any Person acting on behalf of any Subsidiary Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee;
(f) default under any mortgage, indenture, or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Subsidiaries (or the payment of which
is Guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Issue Date, which
default (i) is caused by a failure to pay principal when due at final stated
maturity (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default which has not
been cured or the maturity of which has been so accelerated, aggregates
$10,000,000 or more;
(g) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $10,000,000, which judgments are not
paid, discharged, or stayed for a period of 60 days and are not covered by
insurance;
(h) the Company or any of its Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law (i) commences a voluntary case, (ii)
consents to the entry of an order for relief against it in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property, (iv) makes a general assignment for the
benefit of its creditors, or (v) generally is unable to pay its debts as the
same become due; or
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(i) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (i) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (ii) appoints a Custodian of the
Company or any of its Subsidiaries or for all or substantially all of their
respective properties, or (iii) orders the liquidation of the Company or any of
its Subsidiaries, and the order or decree remains unstayed and in effect for 60
days.
To the extent that the last day of the period referred to in
Section 5.1(a) or 5.1(d) is not a Business Day, then the first Business Day
following such day shall be deemed to be the last day of the period referred to
in such clauses. Any "day" will be deemed to end as of 11:59 p.m., Fort Worth,
Texas time.
Section 5.2 Acceleration.
(a) Notwithstanding any other provision of this Note to the
contrary, if any Event of Default occurs and is continuing (other than an Event
of Default specified in Section 5.1(b), 5.1(h), or 5.1(i)) prior to the
redemption, repurchase, or other repayment in full of the 10 3/8% Senior
Subordinated Notes, then the Holders shall not and shall not be entitled to
declare any outstanding Notes due and payable (as a result of such Event of
Default) prior to the delivery of an Acceleration Notice (as defined in the
Indenture) pursuant to Section 6.02 of the Indenture.
(b) If any Event of Default occurs and/or is continuing (other
than an Event of Default specified in Section 5.1(b), 5.1(h), or 5.1(i)) after
the redemption, repurchase, or other repayment of 10 3/8% Senior Subordinated
Notes or the delivery of an Acceleration Notice (as defined in the Indenture)
pursuant to Section 6.02 of the Indenture, or an Event of Default specified in
Section 5.1(b) occurs and is continuing at any time, then (i) if the Initial
Investors or their Affiliates Beneficially Own more than 50% of the aggregate
principal amount of the Notes then outstanding the Holders may, by notice in
writing to the Company, declare all outstanding Notes to be due and payable and
(ii) if the Initial Investors or their Affiliates Beneficially Own 50% or less
of the aggregate principal amount of the Notes then outstanding, then Holders of
at least 33 1/3% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company may declare all outstanding Notes to be due and
payable (in each case, an "Acceleration Notice"), and the same (x) if there are
no amounts outstanding under the Senior Credit Facility, shall become
immediately due and payable; or (y) if there are any amounts outstanding under
the Senior Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration under the Senior Credit Facility or five
Business Days after receipt by the Company and the representatives of the
holders of the Indebtedness under the Senior Credit Facility of such
Acceleration Notice, but only if such Event of Default is then continuing.
(c) Notwithstanding the foregoing, in the case of an Event of
Default specified in Section 5.1(h) or 5.1(i), all outstanding Notes will be
immediately due and payable without declaration or other action or notice on the
part of the Holders of Notes.
(d) In the event of a declaration of acceleration of the Notes
because an Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in Section 5.1(f), the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
such Indebtedness described in Section 5.1(f) have rescinded the declaration of
acceleration in respect of such Indebtedness within thirty (30) days of the date
of
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such declaration and the Holders received written notice of such rescission and
if (a) the annulment of the acceleration of the Notes would not conflict with
any judgment or decree of a court of competent jurisdiction, and (b) all
existing Events of Default, except nonpayment of principal or interest that
became due solely because of the acceleration of the Notes, have been cured or
waived.
Section 5.3 Other Remedies. Subject to Section 5.2, if an Event of
Default occurs and is continuing, the Holders may pursue any available remedy by
proceeding at law or in equity to collect the payment of principal, premium, if
any, or interest on the Notes or to enforce the performance of any provision of
the Notes or the Subsidiary Guarantees.
Section 5.4 Waiver of Past Defaults. Subject to Section 5.2, Holders of
a majority in aggregate principal amount of the then outstanding Notes by notice
to the Company may, on behalf of the Holders of all of the Notes, waive any
acceleration of the Notes or any existing Default or Event of Default, except a
continuing Default or Event of Default in the payment of the principal of,
premium, if any, or interest, on the Notes which may only be waived with the
consent of each Holder of Notes affected.
Section 5.5 Control by Majority. The Holders of a majority in aggregate
principal amount of the then outstanding Notes may direct the time, method, and
place of conducting any proceeding for any remedy available to the Holders.
ARTICLE 6
EXCHANGE; VOTING RIGHTS
Section 6.1 Exchange.
(a) The Notes shall be exchangeable 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 either (i) shares of fully paid,
non-assessable Series A Voting Preferred Stock, (ii) shares of fully paid and
non-assessable Voting Common Stock, or (iii) any combination thereof; provided,
however, that any portion of the Notes then subject to an offer to redeem under
Article 3 shall not be exchangeable into Series A Voting Preferred Stock. On any
such exchange, Holders of Notes shall receive, as the case may be, (x) one (1)
share of Series A Voting Preferred Stock for each $5.50 of outstanding principal
and accrued but unpaid interest of Notes exchanged to the date of such exchange
(subject to adjustment as provided in Section 6.3) or (y) one (1) share of
Voting Common Stock for each $5.50 of principal and accrued but unpaid interest
of Notes exchanged to the date of such exchange (subject to adjustment as
provided in Section 6.3) (such price, with respect to the issuance of Series A
Voting Preferred Stock or Voting Common Stock, as the case may be, the "Exchange
Price").
(b) The Notes shall be exchangeable 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 Tranche B Notes. On any such exchange, Holders
of Notes shall receive $1.00 of principal amount of Tranche B Note for each
$1.00 of outstanding principal and accrued but unpaid interest of Notes
exchanged to the date of such exchange.
Section 6.2 Exchange Procedures.
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(a) The Company will not issue any fractional shares of Series
A Voting Preferred Stock or Voting Common Stock upon an exchange pursuant to
this Article 6, but the Holder shall be entitled to be paid an amount in cash
equal to the Market Price of any fractional shares of Voting Common Stock
otherwise issuable upon exchange (assuming for the purposes of calculating
payments in respect of fractional shares of Series A Voting Preferred Stock that
any exchange of Notes resulting in the issuance of fractional shares of Series A
Voting Preferred Stock were exchanged for Voting Common Stock).
(b) At the time of an exchange pursuant to this Article 6, the
Holder of Notes shall deliver to the office of the Company, Notes to be
exchanged and written notice to the Company stating that such Holder elects to
exchange such Notes and stating the name and addresses in which each certificate
for shares of Series A Voting Preferred Stock, Voting Common Stock, or Tranche B
Notes, as the case may be, issued upon such exchange is to be issued; provided,
however, that if the Holder has received an offer to redeem under Article 3,
such Holder must notify the Company within 10 Business Days after its receipt of
the Redemption Notice in order for such Holder to exchange all or any portion of
the Notes prior to the redemption date. Exchange shall be deemed to have been
effected on the latter of (i) the close of business on the date when such
delivery is made to the Company of Notes to be exchanged, and the Holder of
Notes subject to such exchange shall be deemed to be the Holder of record of the
number of shares of Series A Voting Preferred Stock, Voting Common Stock, or
Tranche B Notes, as the case may be, issuable upon such exchange at such time,
and (ii) 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.
Section 6.3 Antidilution Provisions. The Exchange Price from time to
time in effect and the number of shares of Series A Voting Preferred Stock and
Voting Common Stock issuable upon exchange of Notes shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.3.
(a) Common Stock Splits. Upon any subdivision by the Company
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 Company 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 Series A Voting Preferred Stock and Voting Common Stock
issuable upon the exchange of Notes shall be increased in proportion to such
increase in the number of outstanding shares of Aggregate Common Stock and the
Exchange Price shall be correspondingly decreased. Upon any pro rata reduction
by the Company on or after the Issue Date of its outstanding shares of Aggregate
Common Stock as a whole or upon any issuance by the Company 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
Series A Voting Preferred Stock and Voting Common Stock issuable upon the
exchange of Notes shall be decreased in proportion to such reduction in the
number of outstanding shares of Aggregate Common Stock and the Exchange Price
shall be correspondingly increased.
(b) Common Stock Dividends. Upon any declaration and payment
by the Company on or after the Issue Date of a dividend upon Aggregate Common
Stock payable in
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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 Series A Voting Preferred Stock and Voting Common Stock issuable upon
the exchange of Notes shall be increased in proportion to the increase in the
number of outstanding shares of Aggregate Common Stock through such stock
dividend and the Exchange Price shall be correspondingly decreased.
(c) Other Issues. Upon any issuance by the Company 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
subparagraphs (a) and (b) of this Section 6.3) for a consideration lower than
the Market Price per share of stock in effect immediately prior to such
issuance, the Exchange 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 Voting
Common Stock in effect immediately prior to the issue 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 Company in connection with the issuance of such additional
Aggregate Common Stock, and G equals the Exchange Price which would have been in
effect immediately prior to such issuance had all previous adjustments (if any)
under this subparagraph (c) been made pursuant to the foregoing formula. Upon
any such reduction in the Exchange Price, the number of shares of Series A
Voting Preferred Stock and Voting Common Stock issuable upon the exchange of
Notes shall be correspondingly increased. The provisions of this subparagraph
(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
Exchange Price was fully and properly adjusted pursuant to the immediately
following subparagraph (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 Company 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 Exchange Price shall be reduced
(and the number of shares of Series A Voting Preferred Stock and Voting Common
Stock issuable upon the exchange of Notes shall be appropriately increased) by
making computations in accordance with subparagraph (c) of this Section 6.3;
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
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<PAGE> 30
purchase price per share of Aggregate Common Stock provided for in such option,
warrant, or right, plus the consideration, if any, received by the Company 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
Company for such securities (before deducting underwriting discounts,
commissions, and other expenses) plus the minimum consideration (other than such
securities) to be received by the Company 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 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 Exchange Price (and the number of shares of
Series A Voting Preferred Stock and Voting Common Stock issuable upon the
exchange of Notes) in effect at the time of such event shall be readjusted to
the Exchange Price (and the number of shares of Series A Voting Preferred Stock
and Voting Common Stock issuable upon the exchange of Notes) 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 Exchange Price (and
the number of shares of Series A Voting Preferred Stock and Voting Common Stock
issuable upon the exchange of Notes) 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 Exchange Price (and the number of shares of Series A Voting
Preferred Stock and Voting Common Stock issuable upon the exchange of Notes)
then in effect shall be readjusted to the Exchange Price (and the number of
shares of Series A Voting Preferred Stock and Voting Common Stock issuable upon
the exchange of Notes) 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 subparagraph (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
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adjust any shares of Series A Voting Preferred Stock and Voting Common Stock
theretofore received by the Holder upon exchange of Notes.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Issue Date
the Company 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 subparagraph (e)(ii) are applicable, the
Company shall pay to the Holder of Notes, 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 exchanged such Notes for Voting Common Stock on the record date fixed
in connection with such dividend or distribution, and the Company 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 Company. Notwithstanding the foregoing, the rights of the Holder hereof
under this subparagraph (e)(i) upon the Company'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 subparagraph (e) called a "subparagraph (d) adjustment") because of
such dividend or distribution called for under subparagraph (d) of this Section
6.3, and upon exercise hereof, such holder must elect either such subparagraph
(d) adjustment or the rights and benefits provided for in this subparagraph
(e)(i). For the purposes of determining the Exchange Price from time to time in
effect and the number of shares from time to time subject hereto prior to the
exchange of Notes, 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 subparagraph (e)(i) made at the time of exercise hereof the
Exchange Price then in effect (and the number of outstanding shares of Series A
Voting Preferred Stock and Voting Common Stock purchasable upon such exchange)
shall be redetermined to equal the amounts which would have been in effect had
such subparagraph (d) adjustments never been made. Notwithstanding the
provisions of this subparagraph (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 Company 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 issuable upon exchange of Notes for Voting
Common Stock immediately prior to the time or times at which the Company
granted, issued, or sold such Purchase Rights.
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(f) Additional Adjustments.
(i) If at any time or from time to time
conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Section 6.3, and which might
materially and adversely affect the exercise rights of the Holders of Notes,
upon the request of a majority in interest of the Holders the Company shall
appoint a firm of independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company), which
shall give their opinion upon the adjustment, if any, of the number of shares
issuable upon the exchange of Notes, on a basis consistent with the standards
established in the other provisions of this Section 6.3 and assuming all other
adjustments required pursuant to this Section 6.3 have been made, necessary in
order to preserve without diminution the rights of the Holders of Notes. 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, the Tranche B Notes, and the Convertible Preferred Stock 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 Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Voting Common
Stock shall be entitled to receive stock, securities, or assets (including cash)
of the Company or another Person with respect to or in exchange for Voting
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
exchange hereof at any time after the consummation of such Transaction, shall be
entitled to receive, and such Notes shall thereafter represent the right to
receive, in lieu of Voting Common Stock issuable upon exchange hereof 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 exchanged such Notes
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 Section 6.3). The Company shall not effect any
Transaction unless prior to the consummation thereof each Person (other than the
Company) which may be required to deliver any securities or other property upon
the exchange of the Notes as provided herein shall assume, by written instrument
delivered to each registered Holder of the Notes in form and substance
reasonably satisfactory to the Holders of at least a majority of the aggregate
principal amount of the Notes then outstanding, the obligation to continue to
honor the Notes 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 Notes 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 Exchange Price and upon each change in
the number of shares of Series A Voting Preferred Stock and Voting Common Stock
issuable upon the exchange of
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Notes, and in the event of any change in the rights of the Holder of Notes by
reason of other events herein set forth, the Company shall as soon as
practicable give written notice ("Notice of Adjustment") to the registered
Holder(s) of Notes: (i) describing the event; (ii) stating the adjusted Exchange
Price, the number of shares of Series A Voting Preferred Stock and Voting Common
Stock issuable based upon the difference between the Exchange Price before and
after such adjustment; and (iii) stating how such adjustment of Exchange Price
or number of shares of Series A Voting Preferred Stock and Voting Common Stock
was calculated and the facts on which the calculation is based.
(i) Accountant's Opinion. Upon each adjustment of the Exchange
Price and upon each change in the number of shares of Series A Voting Preferred
Stock and Voting Common Stock issuable upon the exchange of Notes, and in the
event of any change in the rights of the Holder of Notes by reason of other
events herein set forth, then and in each such case, upon the reasonable written
request of the Holders of at least 50% of the aggregate principal amount of the
Notes then outstanding given to the Company within thirty (30) days after the
Company has given the Notice of Adjustment, the Company will promptly obtain an
opinion of independent certified public accountants selected by the Company and
reasonably satisfactory to such Holder(s), stating the adjusted Exchange Price
and the new number of shares of Series A Voting Preferred Stock and Voting
Common Stock 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 Company will
promptly mail a copy of such accountant's opinion to each registered Holder of
Notes. The costs of the accountant's opinion shall be borne (i) by the Company,
if the accountant's opinion reflects any change to the adjusted Exchange Price
or the number of shares of Series A Voting Preferred Stock and Voting Common
Stock 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 Exchange Price or
the number of shares of Series A Voting Preferred Stock and Voting Common Stock
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 Company 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 $.01. The Company shall not be
required to give any Notice of Adjustment of the Exchange Price in accordance
with subparagraph (h) above if the amount of such adjustment shall be less than
$.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 $.01 per share; provided, however, that notice of each such
adjustment of the Exchange 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 subparagraph (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 Company or any of its Subsidiaries, but the disposition
of any such shares to a third party shall be considered an issue or sale of
Aggregate Common Stock for the purposes of this Section 6.3.
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(l) Adjustment Exceptions. Anything in this Section 6.3 to the
contrary notwithstanding, no adjustment of the Exchange Price or the number of
shares of Series A Voting Preferred Stock and Voting Common Stock issuable upon
the exchange of Notes shall be made upon (i) the issuance of any shares of
Aggregate Common Stock upon the exercise of any of the Warrants, the exchange of
any Convertible Preferred Stock, the exchange of any Tranche B Notes, 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 of shares of Aggregate
Common Stock or rights to acquire such shares in connection with any redemption
pursuant to Article 3.
Section 6.4 Voting Rights.
(a) The Holders of Notes, except as set forth in this Section
6.4, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the shareholders of the Company.
(b) (i) If at any time when the Initial Investors and their
Affiliates Beneficially Own at least 50% of the principal amount of the
outstanding Notes (x) the Company fails to exchange all of the then outstanding
Notes under the provisions of Section 6.1 (after notice has been given), (y) the
Company fails to purchase Notes pursuant to Section 4.1, or (z) an Event of
Default has occurred and is continuing (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 a majority
in principal amount of the Notes to appoint two directors of the Board of
Directors. Holders of a majority of the outstanding principal amount of the
Notes shall during the period set forth in Section 6.4(b)(ii) have the exclusive
right to appoint 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.
(ii) The right of Holders of Notes to elect
members of the Board of Directors as set forth in Section 6.4(b)(i) 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 in principal amount of outstanding Notes at which time (I) the special
right of Holders of Notes so to vote for the election of directors and (II) the
term of office of the additional directors elected by Holders of Notes shall
terminate. At any time after voting power to elect directors shall have become
vested and be continuing in Holders of Notes pursuant to Section 6.4(b)(i), or
if vacancies shall exist in the offices of directors elected by Holders of
Notes, a proper officer of the Company may, and upon the written request of the
Holders of record of at least twenty-five percent (25%) of the principal amount
of Notes then outstanding addressed to the secretary of the Company shall, call
a special meeting of the Holders of Notes 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 Company within twenty (20) days after personal
service of said written request upon the secretary of the Company or within
twenty (20) days after mailing the same within the United States by certified
mail, addressed to the secretary of the Company at its principal executive
offices, then (x) the Holders of record of at least twenty-five percent (25%) of
the principal amount of Notes then outstanding may designate in writing one of
their number to call such meeting at the expense of the Company, and such
meeting may be called by the Person so designated upon the notice required for
the annual meetings of shareholders of the Company and shall be held at the
place
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designated in such notice, or (y) the Holders of record of at least a majority
in principal amount of outstanding Notes 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.
(iii) At the meeting held for the purpose of
electing directors at which the Holders of Notes 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 principal amount of Notes shall be required
to constitute a quorum of such Notes.
(iv) Notwithstanding the foregoing, in the event
Holders of Notes shall have the concurrent right to elect members of the Board
of Directors under this Section 6.4 and under Section 6.4 of the Tranche B
Notes, the number of directors provided for in this Section 6.4 shall be reduced
to one during, but only during, any period such concurrent right exists and,
upon termination of any such right under the Tranche B Notes, such number shall
be returned to two directors. The right of Holders of Notes to elect directors
pursuant to this Section 6.4 shall be in addition to, and not in substitution
for or diminution of, the rights of Wingate and its assigns or Affiliates to
appoint members of the Board of Directors under the terms of the Purchase
Agreement.
ARTICLE 7
SUBSIDIARY GUARANTEES
Section 7.1 Subsidiary Guarantees.
(a) Subject to the provisions of this Article 7 each
Subsidiary Guarantor, jointly and severally, hereby irrevocably unconditionally
guarantees to each Holder of a Note that: (i) the principal of, premium, if any,
and interest on the Notes shall be duly and punctually paid in full when due,
whether at stated maturity, by acceleration, call for redemption, upon a Change
of Control, or otherwise, and interest on overdue principal, premium, if any,
interest on any interest (to the extent permitted by law), if any, on the Notes
and all other obligations of the Company to Holders of Notes will be promptly
paid in full or performed, all in accordance with the terms hereof and thereof,
(ii) in case of any extension of time of payment or renewal of any Notes or any
of such other obligations, the same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration, call for redemption, upon a Change of Control,
or otherwise, and (iii) the prompt payment of any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Holder of Notes in
successfully enforcing any rights under the Notes. Failing payment when due of
any amount so guaranteed or failing performance of any other obligation of the
Company to the Holders of Notes, for whatever reason, each Subsidiary Guarantor
shall be jointly and severally obligated to pay, or to perform or to cause the
performance of, the same immediately. An Event of Default under the Notes shall
constitute an event of default under the Subsidiary Guarantees, and shall
entitle the Holders of Notes to accelerate the obligations of each Subsidiary
Guarantor hereunder in the same manner and to the same extent as the obligations
of the Company. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity, or
enforceability of the Notes, the absence of any action to enforce the same, any
waiver or consent by any Holder of Notes with respect to any thereof, the entry
of any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise
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constitute a legal or equitable discharge or defense of a Subsidiary Guarantor.
Each Subsidiary Guarantor hereby waives and relinquishes: (A) any right to
require the Holders of Notes or the Company (each, a "Benefitted Party") to
proceed against the Company, the Subsidiary Guarantors, or any other Person or
to proceed against or exhaust any security held by a Benefitted Party at any
time or to pursue any other remedy in any secured party's power before
proceeding against the Subsidiary Guarantor; (B) any defense that may arise by
reason of the incapacity, lack of authority, death, or disability of any other
Person or Persons or the failure of a Benefitted Party to file or enforce a
claim against the estate (in administration, bankruptcy, or any other
proceeding) of any other Person or Persons; (C) demand, protest, and notice of
any kind (except as expressly required by this Note), including but not limited
to notice of the existence, creation, or incurring of any new or additional
Indebtedness or obligation or of any action or non-action on the part of the
Subsidiary Guarantors, the Company, any Benefitted Party, any creditor of the
Subsidiary Guarantors, the Company or on the part of any other Person whomsoever
in connection with any obligations the performance of which are hereby
guaranteed; (D) any defense based upon an election of remedies by a Benefitted
Party, including but not limited to an election to proceed against the
Subsidiary Guarantors for reimbursement; (E) any defense based upon any statute
or rule of law which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that of the
principal; (F) any defense arising because of a Benefitted Party's election, in
any proceeding instituted under the Bankruptcy Law, of the application of
Section 1111(b)(2) of the Bankruptcy Code; and (G) any defense based on any
borrowing or grant of a security interest under Section 364 of the Bankruptcy
Code. The Subsidiary Guarantors hereby covenant that the Subsidiary Guarantors
shall not be discharged except by payment in full of all principal, premium, if
any, and interest on the Notes and all other costs provided for under this Note.
(b) If any Holder of Notes is required by any court or
otherwise to return to either the Company or the Subsidiary Guarantors, or any
trustee or similar official acting in relation to either the Company or the
Subsidiary Guarantors, any amount paid by the Company or the Subsidiary
Guarantors to such Holder of Notes, the Subsidiary Guarantors, to the extent
theretofore discharged, shall be reinstated in full force and effect.
(c) Each of the Subsidiary Guarantors agrees that it shall not
be entitled to any right of subrogation in relation to the Holders of Notes in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Subsidiary Guarantor agrees that, as between
it, on the one hand, and the Holders of Notes, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 5 for the purposes hereof, notwithstanding any stay, injunction, or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article 5, such obligations (whether or not due and payable)
shall forthwith become due and payable by such Subsidiary Guarantor for the
purpose of its Subsidiary Guarantee.
Section 7.2 Releases Following Sale of Assets and Restricted Subsidiary
Stock. In the event of a sale, assignment, transfer, lease, conveyance, or other
disposition of all of the Equity Interests in, or all or substantially all of
the assets of, a Subsidiary Guarantor to any Person that is not the Company or
any of its Subsidiaries, whether by way of merger, consolidation, or otherwise,
if (i) the Net Proceeds of such sale or other disposition are applied in
accordance with the provisions of Section 4.07 of the Indenture, (ii) no Default
or Event of Default exists or would exist under this Note after giving effect to
such transaction, (iii) all obligations of such
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Subsidiary Guarantor under any other Indebtedness of the Company or any of its
Subsidiaries shall have been terminated (including, without limitation, all
Guarantees of any such Indebtedness), (iv) all Liens on assets of such
Subsidiary that secure any other Indebtedness of the Company or any of its
Subsidiaries shall have been terminated, and (v) all obligations of the Company
and its Subsidiaries under other Indebtedness of such Subsidiary Guarantor shall
have been terminated (including, without limitation, all Guarantees of such
Indebtedness), then (A) in the case of such a sale or other disposition, whether
by way of merger, consolidation, or otherwise, of all of the Equity Interests in
such former Subsidiary Guarantor, such former Subsidiary Guarantor will be
released and relieved of any obligations under its Subsidiary Guarantee, or (B)
in the case of a sale or other disposition of all or substantially all of the
assets of such Subsidiary Guarantor, the Person acquiring such assets will not
be required to assume the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee.
Section 7.3 Limitation of Subsidiary Guarantor's Liability. Each
Subsidiary Guarantor, and by its acceptance hereof each Holder of Notes, hereby
confirms that it is the intention of all such parties that the guarantee by such
Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any
similar federal or state law. To effectuate the foregoing intention, the Holders
of Notes and each Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under this Article 7 shall be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
this Article 7, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee of such Subsidiary Guarantor not constituting a fraudulent
transfer or conveyance.
Section 7.4 Application of Certain Terms and Provisions to the
Subsidiary Guarantors.
(a) For purposes of any provision of this Note which provides
for the delivery by any Subsidiary Guarantor of an Officer's Certificate and/or
an Opinion of Counsel, the definitions of such terms shall apply to such
Subsidiary Guarantor as if references therein to the Company were references to
such Subsidiary Guarantor.
(b) Any request, direction, order, or demand which by any
provision of this Note is to be made by any Subsidiary Guarantor, shall be
sufficient if evidenced as described in Section 9.1 as if references therein to
the Company were references to such Subsidiary Guarantor.
(c) Any notice or demand which by any provision of this Note
is required or permitted to be given or served by the Holders of Notes to or on
any Subsidiary Guarantor may be given or served as described in Section 9.1 as
if references therein to the Company were references to such Subsidiary
Guarantor.
Section 7.5 Release of Subsidiary Guarantees. Upon the sale or
disposition of a Subsidiary Guarantor (or substantially all of its assets)
pursuant to and in compliance with the terms of this Note and the Indenture,
such Subsidiary Guarantor will be released from and relieved of its obligations
under its Subsidiary Guarantee. Such release shall be conditional upon the
delivery to the Holders of an Officers' Certificate and an Opinion of Counsel,
each
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stating that such release of the Subsidiary Guarantee complies with the
provisions of this Note and the Indenture and that all conditions precedent to
such release of the Subsidiary Guarantee have been complied with.
Section 7.6 Subordination of Subsidiary Guarantees. The obligations of
each Subsidiary Guarantor under its Subsidiary Guarantee pursuant to this
Article 7 is subordinated in right of payment to the prior payment in full in
cash or Cash Equivalents of all Senior Indebtedness of the Subsidiary Guarantor
on the same basis as the Notes are subordinated to Senior Indebtedness of the
Company. For the purposes of the foregoing sentence, the Holders of Notes shall
have the right to receive and/or retain payments by any of the Subsidiary
Guarantors only at such times as they may receive and/or retain payments in
respect of the Notes pursuant to this Note, including Article 7. In the event
that the Holders receive any Subsidiary Guarantor payment at a time when such
payment is prohibited by the foregoing sentence, such Subsidiary Guarantor
payment shall be paid over and delivered to the holders of the Senior
Indebtedness of the Subsidiary Guarantor remaining unpaid, to the extent
necessary to pay in full in cash or Cash Equivalents all such Senior
Indebtedness of the Subsidiary Guarantor. Each Holder of a Note by its
acceptance thereof agrees to and shall be bound by the provisions of this
Section 7.6.
ARTICLE 8
SUBORDINATION
Section 8.1 Notes Subordinated to Senior Indebtedness. The Company
covenants and agrees, and each Holder of Notes by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article 8, and each Person holding any Note, whether upon
original issue or upon transfer, assignment, or exchange thereof, accepts and
agrees that all payments of the principal of and premium, if any, and interest
on the Notes will, to the extent and in the manner set forth in this Article 8,
be subordinated in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Indebtedness, whether outstanding on the date of the
Note or thereafter incurred.
Section 8.2 No Payment on Notes in Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the
Company of principal of, premium, if any, and interest on the Notes, whether
pursuant to the terms of the Notes, upon acceleration, pursuant to a Change of
Control or otherwise, shall be made to the Holders of Notes (except that Holders
of Notes may receive payments made in Junior Securities) if (i) a default in the
payment of the principal of or premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Holders
receive a written notice (with a copy to the Company) of such other default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Indebtedness. Payments on the Notes may and shall be resumed (A) in the
case of a payment default, upon the date on which such default is cured or
waived and (B) in case of a nonpayment default, on the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received by the Holders (such
period being referred to herein as the "Payment Blockage Period"), unless
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the maturity of any Designated Senior Indebtedness has been accelerated (and
written notice of such acceleration has been received by the Holders).
(b) Notwithstanding anything herein or in the Notes to the
contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Payment Blockage Period is in effect and (z) not more than one Payment
Blockage Period may be commenced with respect to the Notes during any period of
360 consecutive days. No new Payment Blockage Period may be commenced unless and
until all scheduled payments of principal, premium, if any, and interest on the
Notes that have come due have been paid in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Holders shall be, or be made, the basis for a subsequent Payment Blockage
Notice (it being understood that any subsequent action, or any breach of any
covenant for a period commencing after the date of receipt by the Holders of
such Payment Blockage Notice, that, in either case, would give rise to such a
default pursuant to any provisions under which a default previously existed or
was continuing shall constitute a new default for this purpose).
(c) In the event that, notwithstanding the foregoing, any
payment shall be received any Holder of Notes when such payment is prohibited by
Section 8.2(a), such payment shall be held for the benefit of, and shall be paid
over or delivered to, the holders of Designated Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Designated Senior Indebtedness may have been
issued, as their respective interests may appear, but only to the extent that,
upon notice from the Holders to the holders of Designated Senior Indebtedness
that such prohibited payment has been made, the holders of the Designated Senior
Indebtedness (or their representative or representatives or a trustee) notify
the Holders in writing of the amounts then due and owing on the Designated
Senior Indebtedness, if any, and only the amounts specified in such notice to
the Holders shall be paid to the holders of Designated Senior Indebtedness.
Section 8.3 Payment Over of Proceeds Upon Dissolution, Etc.
(a) Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership, or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash or Cash Equivalents of all
obligations due in respect of such Senior Indebtedness (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, and until all obligations with respect to
Senior Indebtedness are paid in full in cash or Cash Equivalents, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Indebtedness (except that Holders of Notes may receive
Junior Securities).
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash,
property, or securities, shall be received by any Holder of Notes at a time when
such payment or distribution is prohibited by Section 8.3(a) and before
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all obligations in respect of Senior Indebtedness are paid in full in cash or
Cash Equivalents, or payment provided for, such payment or distribution shall be
received and held for the benefit of, and shall be paid over or delivered to,
the holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
respective representatives, or to the trustee or trustees or agent or agents
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full in cash or Cash Equivalents after giving
effect to any prior or concurrent payment, distribution, or provision therefor
to or for the holders of such Senior Indebtedness.
(c) The consolidation of the Company with, or the merger of
the Company with or into, another corporation or the liquidation or dissolution
of the Company following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another Person upon the terms and
conditions provided in Article 5 of the Indenture shall not be deemed a
dissolution, winding-up, liquidation, or reorganization for the purposes of this
Section 8.3 if such other Person shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article 5 of the
Indenture.
Section 8.4 Subrogation.
(a) Upon the payment in full in cash or Cash Equivalents of
all Senior Indebtedness, or provision for payment, the Holders of the Notes
shall be subrogated to the rights of the holders of Senior Indebtedness and pari
passu with the other unsecured Indebtedness of the Company to receive payments
or distributions of cash, property or securities of the Company made on such
Senior Indebtedness until the principal of, premium, if any, and interest on the
Notes shall be paid in full in cash; and, for the purposes of such subrogation,
no payments or distributions to the holders of the Senior Indebtedness of any
cash, property or securities to which the Holders of Notes would be entitled
except for the provisions of this Article 8, and no payment over pursuant to the
provisions of this Article 8 to the holders of Senior Indebtedness by Holders of
Notes as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of Notes, be deemed to be a payment by the Company
to or on account of the Senior Indebtedness. It is understood that the
provisions of this Article 8 are and are intended solely for the purpose of
defining the relative rights of the Holders of Notes, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders of
Notes would otherwise have been entitled but for the provisions of this Article
8 shall have been applied, pursuant to the provisions of this Article 8, to the
payment of all amounts payable under Senior Indebtedness, then and in such case,
the Holders of Notes shall be entitled to receive from the holders of such
Senior Indebtedness any payments or distributions received by such holders of
Senior Indebtedness in excess of the amount required to make payment in full, or
provision for payment, of such Senior Indebtedness.
Section 8.5 Obligations of Company Unconditional.
(a) Nothing contained in this Article 8 or elsewhere in the
Notes is intended to or shall impair, as between the Company and the Holders of
Notes, the obligation of the
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Company, which is absolute and unconditional, to pay to the Holders of Notes the
principal of, premium, if any, and interest on the Notes as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders of Notes and creditors of the
Company other than the holders of the Senior Indebtedness, nor shall anything
herein or therein prevent the Holder of any Note from exercising all remedies
otherwise permitted by applicable law upon default under this Note, subject to
the rights, if any, under this Article 8 of the holders of the Senior
Indebtedness in respect of cash, property, or securities of the Company received
upon the exercise of any such remedy.
(b) Without limiting the generality of the foregoing, nothing
contained in this Article 8 shall restrict the right of the Holders of Notes to
take any action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Article 5 or to pursue any rights or remedies hereunder;
provided, however, that all Senior Indebtedness then due and payable shall first
be paid in full before the Holders of Notes are entitled to receive any direct
or indirect payment from the Company of principal of, premium, if any, and
interest on the Notes.
Section 8.6 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets or securities referred to in
this Article 8, the Holders of Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation, or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent, or other person making such payment or distribution, delivered
to the Holders of Notes for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 8.
Section 8.7 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Note, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article 8 are intended to be
for the benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
Section 8.8 This Article Not to Prevent Event of Default. The failure
to make a payment on account of principal of, premium, if any, and interest on
the Notes by reason of any provision of this Article 8 shall not be construed as
preventing the occurrence of an Event of Default specified in Section 5.1(a) or
5.1(b).
Section 8.9 No Waiver of Subordination Provisions. Without in any way
limiting the generality of Section 8.7, the holders of Senior Indebtedness may,
at any time and from time to time, without the consent of or notice to the
Holders of Notes, without incurring responsibility to the Holders of Notes and
without impairing or releasing the subordination provided in this Article 8 or
the obligations hereunder of the Holders of Notes to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place,
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is
41
<PAGE> 42
outstanding or secured; (b) sell, exchange, release, or otherwise deal with any
property pledged, mortgaged, or otherwise securing Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against the
Company and any other Person.
Section 8.10 Acceleration of Notes. If payment of the Notes is
accelerated because of an Event of Default, the Company shall promptly notify
holders of the Senior Indebtedness of the acceleration.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices. Any notice or communication by the Company or any
Subsidiary Guarantor shall be considered duly given if in writing and delivered
in person or mailed by first-class mail, telecopier, or overnight air courier
guaranteeing next day delivery, to the address set forth below:
If to the Company or a Subsidiary Guarantor:
Kevco, Inc
1300 South University Drive
Suite 200
Fort Worth, Texas 76107
Attention: Chief Executive Officer
Telecopier No.: (817) 332-2765
with a copy of any notice given to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75201-3797
Attention: Byron F. Egan
Telecopier No.: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopier No.: (212) 225-3999
All notices and communications (other than those sent to
Holders of Notes) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. Any notice or communication to a Holder
of Notes shall be mailed by first-class mail to its address shown on the Note
register kept by the Company. If a notice or communication is mailed in the
manner provided above within the time prescribed, it is duly given, whether or
not the addressee receives it.
42
<PAGE> 43
Section 9.2 Legal Holidays. If a payment date is not a Business Day at
a place of payment, payment may be made at that place on the next succeeding
Business Day, and no interest shall accrue on such payment for the intervening
period.
Section 9.3 Savings Clause. Notwithstanding any other provision of this
Note to the contrary, in no event shall any Holder have the right to receive, or
to elect to receive, Series A Voting Preferred Stock or Voting Common Stock, as
the case may be, if, as a result thereof, a "change of control" would have been
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 Series B Nonvoting Preferred Stock (with respect to Series A Voting
Preferred Stock) or Nonvoting Common Stock (with respect to Voting Common
Stock), as the case may be.
Section 9.4 No Consent Payments. No Holder shall be paid or entitled to
receive any consideration or fee for or as an inducement to any consent, waiver,
or amendment of any provision of this Note.
Section 9.5 No Recourse Against Others. No director, officer, employee,
incorporator, or shareholder of the Company or any Guarantor Subsidiary, as
such, shall have any liability for any obligations of the Company or any
Guarantor Subsidiary under the Notes, or any Subsidiary Guarantee or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes and Subsidiary Guarantees.
Section 9.6 Governing Law. The internal law of the State of Texas shall
govern and be used to construe the Notes and the Subsidiary Guarantees (without
regard to conflicts of law provisions). Each party hereto irrevocably submits
itself to the non-exclusive jurisdiction of the state and federal courts of
Texas for purposes of this Note and agrees and consents that service of process
may be made upon it in any legal proceeding relating to this Note by any means
allowed under federal or Texas law. The parties hereto hereby waive and agree
not to assert, by way of motion, as a defense, or otherwise, that any such
proceeding is brought in an inconvenient forum or that the venue thereof is
improper.
Section 9.7 Successors. This Note shall inure to the benefit of and be
binding upon the parties hereto and each of their respective successors and
assigns, except that the Company may not assign this Note or its obligations
hereunder. Without limiting the generality of the foregoing, this Note shall
inure to the benefit of all Holders of Notes from time to time. Nothing
expressed or mentioned in this Note is intended or shall be construed to give
any Person, other than the parties hereto, their respective successors and
assigns, and the Holders of Notes, any legal or equitable right, remedy, or
claim under or in respect of this Note or any provision herein contained.
Section 9.8 Severability. In case any provision in this Note or the
Subsidiary Guarantees shall be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and in order to manifest the intent of the
parties, effect shall be given to such invalid, illegal, or unenforceable
provision to the maximum extent possible.
43
<PAGE> 44
Section 9.9 Headings. The headings of the Articles and Sections of this
Note have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
or provisions hereof. Unless the context otherwise requires, all references to
Articles and Sections contained herein are references to Articles and Sections
of this Note.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 45
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Note as of the Issue Date.
THE COMPANY:
KEVCO, INC.
By: /s/ JERRY E. KIMMEL
--------------------------------------
Name: Jerry E. Kimmel
Title: Chairman, CEO and President
SUBSIDIARY GUARANTORS:
KEVCO MANAGEMENT, INC.
By: /s/ JERRY E. KIMMEL
--------------------------------------
Name: Jerry E. Kimmel
------------------------------------
Title: President
-----------------------------------
KEVCO HOLDING, INC.
By: /s/ JERRY E. KIMMEL
--------------------------------------
Name: Jerry E. Kimmel
------------------------------------
Title: President
-----------------------------------
KEVCO GP, INC.
By: /s/ JERRY E. KIMMEL
--------------------------------------
Name: Jerry E. Kimmel
------------------------------------
Title: President
-----------------------------------
DCM DELAWARE, INC.
By: /s/ JERRY E. KIMMEL
--------------------------------------
Name: Jerry E. Kimmel
------------------------------------
Title: President
-----------------------------------
45
<PAGE> 46
KEVCO COMPONENTS, INC.
By: /s/ JERRY E. KIMMEL
--------------------------------------
Name: Jerry E. Kimmel
------------------------------------
Title: President
-----------------------------------
KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
--------------------------------
Name: Jerry E. Kimmel
------------------------------
Title: President
-----------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
------------------------------
Title: President
-----------------------------
46
<PAGE> 1
EXHIBIT 10.2
THIS TRANCHE B SENIOR SUBORDINATED EXCHANGEABLE NOTE AND HE SECURITIES
REPRESENTED HEREBY HAVE BEEN PURCHASED PURSUANT TO A SECURITIES PURCHASE
AGREEMENT DATED AS OF JULY 14, 1999, BETWEEN THE COMPANY AND WINGATE PARTNERS
II, L.P. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES
AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS TRANCHE B SENIOR
SUBORDINATED EXCHANGEABLE NOTE. THIS TRANCHE B SENIOR SUBORDINATED EXCHANGEABLE
NOTE WAS ISSUED ON THE DATE HEREOF WITH ORIGINAL ISSUE DISCOUNT. THE ISSUE PRICE
OF THIS NOTE IS $6,500,000. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ATTRIBUTABLE
TO THIS NOTE IS $8,257,858(1). THE ISSUE DATE OF THIS NOTE IS JULY 26, 1999.
THE YIELD TO MATURITY OF THIS NOTE IS 12.388622692%.
TRANCHE B SENIOR SUBORDINATED EXCHANGEABLE NOTE
$6,500,000.00 July 26, 1999
FOR VALUE RECEIVED, Kevco, Inc., a Texas corporation, hereby promises
to pay to the order of The Kevco Partners Investment Trust, the principal
sum of SIX MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($6,500,000.00),
together with interest, as hereinafter described.
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions.
"10 3/8% Senior Subordinated Notes" means the Company's 10 3/8% Senior
Subordinated Notes due December 1, 2007.
"Acceleration Notice" has the meaning specified in Section 5.2.
"Acquired Indebtedness" means, in respect of the Company 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 Company 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 Company or any of its Subsidiaries and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by the Company or
any of its Subsidiaries.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause
<PAGE> 2
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement, or otherwise; provided, however,
that Beneficial Ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Aggregate Common Stock" means the Voting Common Stock and the
Nonvoting Common Stock.
"Amendment" has the meaning specified in the Purchase Agreement.
"Applicable Law" means the applicable laws of the State of Texas or
applicable laws of the United States, whichever laws allow the greater rate of
interest, as such laws now exist or may be changed or amended or come into
effect in the future.
"Asset Sale" means (a) 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 Company 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
Company and its Subsidiaries taken as a whole will be governed by the provisions
of Section 4.1 and/or the provisions of Section 4.8 and not by the provisions of
Section 4.2 and (b) the issuance or disposition by the Company or any of its
Subsidiaries of Equity Interests of the Company's Subsidiaries. Notwithstanding
the foregoing, none of the following will be deemed an Asset Sale: (i) a
disposition of assets by the Company to a Subsidiary of the Company or by a
Subsidiary of the Company to the Company or to another Subsidiary of the
Company; (ii) an issuance of Equity Interests by a Subsidiary of the Company to
the Company or to another Subsidiary of the Company; (iii) a Restricted Payment
that is permitted by Section 4.3; (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
Section 4.5.
"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.
"Bankruptcy Law" means Title II, U.S. Code or any similar federal or
state law for the relief of debtors.
2
<PAGE> 3
"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 Issue Date), 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.
"Benefitted Party" has the meaning specified in Section 7.1(a).
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company 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.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday, and
Friday which is not a day on which banking institutions in Fort Worth, Texas are
authorized or obligated by law or executive order to close.
"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.
"Change of Control" means the occurrence or existence of any of the
following events or circumstances after the Issue Date: (i) a "person" or
"group" (within the meaning of
3
<PAGE> 4
Sections 13(d) and 14(d)(2) of the Exchange Act) (other than any person or group
comprised solely of any or all of 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 Company 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
Company 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 the
Company's 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 held by the
remaining shareholders; provided, however, that a Change of Control may occur
notwithstanding the fact that (i) holders of Voting Common Stock may elect more
than one form of consideration in such transaction or (ii) such holders may
receive cash in lieu of the purchase of fractional shares.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means Kevco, Inc., a Texas corporation, and any successor
thereto permitted pursuant to Section 4.8.
"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
(a) 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
(b) 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, (i)
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, (ii) transactions giving
rise to the need to calculate the
4
<PAGE> 5
Consolidated Coverage Ratio shall be assumed to have occurred on the first day
of the Reference Period, (iii) 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 (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 (iv) 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 Company'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 Company, for any period,
the Consolidated Net Income of the Company 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 Company,
and (iii) Consolidated Fixed Charges, less the amount of all cash payments made
by the Company 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 Company for any
period, the sum of (i) the consolidated interest expense of the Company 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
Company or one or more of its Subsidiaries or secured by a Lien on assets of the
Company 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 Company 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 Company and its Subsidiaries or preferred stock of the
Company's Subsidiaries, to the extent such Disqualified Stock or preferred stock
is owned by Persons other than the Company 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 Company, expressed as a decimal.
5
<PAGE> 6
"Consolidated Net Income" means, in respect of the Company for any
period, the aggregate of the Net Income of the Company and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net 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 Company or any of its Subsidiaries as to which Consolidated
Net Income is being calculated, (ii) the Net Income of any Subsidiary of the
Company 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 Company 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.
"Convertible Preferred Stock" means collectively the Series A Voting
Preferred Stock and the Series B Nonvoting Preferred Stock.
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debt Incurrence Ratio" has the meaning specified in Section 4.4(a).
"Default" means any event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Indebtedness" means any Indebtedness outstanding
under the Senior Credit Facility.
"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.
"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).
"Event of Default" has the meaning specified in Section 5.1.
"Excess Proceeds" has the meaning specified in Section 4.2(b).
6
<PAGE> 7
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Price" has the meaning specified in Section 6.1(a).
"Existing Indebtedness" means the 10 3/8% Senior Subordinated Notes and
all other Indebtedness of the Company and its Subsidiaries in existence on the
Issue Date, including the Tranche A 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; 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 Person in whose name a Note is registered.
"HSR Act" has the meaning specified in Section 3.2(e).
"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
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<PAGE> 8
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.
"Incurrence Date" has the meaning specified in Section 4.4(a).
"Indebtedness" means, in respect of any Person, (a) any liability of
such Person, whether or not contingent (i) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance, or
note purchase facility; (ii) evidenced by a bond, note, debenture, or similar
instrument (including a purchase money obligation); (iii) for the payment of
money relating to a Capitalized Lease Obligation; (iv) for or pursuant to
Disqualified Stock; (v) 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 Company, any of its Subsidiaries); (vi)
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 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 (vii) under or in respect of
Hedging Obligations; (b) any liability of others described in the preceding
clause (a) 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 (c) any
amendment, supplement, modification, deferral, renewal, extension, or refunding
of any liability of the types referred to in clauses (a) and (b) 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 between the
Company, the Subsidiary Guarantors, and the United States Trust Company of New
York, as amended or supplemented from time to time.
"Independent Director" means any director of the Company 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 Investor" means any "Purchasers" under the Purchase Agreement,
including any such Purchasers acquiring rights by way of assignment pursuant to
Section 13.8 thereof.
"Interest Payment Date" has the meaning specified in Section 2.1.
"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
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<PAGE> 9
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 July 26, 1999, the date on which the Notes were
originally issued.
"Junior Securities" means, in respect of the Company or any of its
Subsidiaries, securities (including Capital Stock but excluding Disqualified
Stock) issued by the Company or any of its Subsidiaries to a Holder on account
of the Notes that (a) has an Average Life and maturity or mandatory redemption
obligation, if any, longer than, or occurring after the final maturity date of,
all Designated Senior Indebtedness of the Company, (b) by their terms or by law
are subordinated to Designated Senior Indebtedness of the Company outstanding on
the date of issuance of such Junior Securities at least to the same extent as
the Notes and (c) are not secured by any assets or property of the Company or
any of its Subsidiaries. As used herein, "Designated Senior Indebtedness" of the
Company outstanding on the date of issuance of such Junior Securities" shall
include securities issued in connection with a reorganization pursuant to the
Bankruptcy Law of any jurisdiction to Persons which held "Designated Senior
Indebtedness" in such reorganization proceeding.
"Kimmel Designees" means Jerry E. Kimmel, if he is a director of the
Company, and any other director of the Company 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).
"Mandatory Redemption Obligation" has the meaning specified in Section
4.1(b).
"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.
"Maturity Date" means the maturity of this Note, which is the date that
is seven (7) calendar years after the date hereof, as the same may be hereafter
accelerated pursuant to the provisions of this Note.
"Maximum Lawful Rate" means the maximum rate of interest permitted
under Applicable Law.
"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
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<PAGE> 10
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 Company 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 Company 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 Company 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 Company 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.
"Nonvoting Common Stock" means the newly created class of nonvoting
common stock, par value $0.01 per share, to be created by the Amendment.
"Note or Notes" means this Tranche B Senior Subordinated Exchangeable
Note, including any Note issued upon transfer, assignment, or subdivision
thereof.
"Notice of Adjustment" has the meaning specified in Section 6.3(h).
"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 Company, 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 Company.
"Officer's Certificate" means a certificate signed on behalf of the
Company 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 Company.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Holders.
"Payment Blockage Notice" has the meaning specified in Section 8.2(a).
"Payment Blockage Period" has the meaning specified in Section 8.2(a).
"Payment Default" has the meaning specified in Section 5.1(f).
"Permitted Indebtedness" has the meaning specified in Section 4.4(b).
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"Permitted Investments" means (i) any Investment in the Company or in a
Subsidiary of the Company; (ii) any Investment in Cash Equivalents; (iii) any
Investment by the Company 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 Company 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 Company or a Subsidiary of the
Company; (iv) Investments the payment for which consists exclusively of Equity
Interests (excluding Disqualified Stock) of the Company; (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 Company and/or its Subsidiaries; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company 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
Company or any of its Subsidiaries; (iv) Liens securing any Acquired
Indebtedness and which exist at the time of acquisition thereof by the Company
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 this Note; (vi) Liens arising by
reason of (1) any judgment, decree, or order of any court not constituting an
Event of Default; (2) 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; (3) security for payment
of workers' compensation or other insurance; (4) 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; (5) 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 Company or
any of its Subsidiaries or the value of such property for the purpose of such
business; (6) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds; (7) 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 Company or any of its Subsidiaries;
or (8) 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 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 Company and its Subsidiaries so long as such deposit of
funds and such decreasing or defeasing of Indebtedness are permitted under
Section 4.3; and (viii)
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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
Company 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) if the Old Indebtedness is subordinated
in right of payment to the Notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the Notes on terms at least as favorable to
the Holders as those contained in the documentation governing the Old
Indebtedness; (iv) such Permitted Refinancing Indebtedness is on terms that are
no more restrictive, as a whole, than those governing such Old Indebtedness; and
(v) such Permitted Refinancing Indebtedness is Incurred only by the Company or
any of its Subsidiaries that is the obligor on the Old Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Plans" means any plan existing on the Issue Date or adopted by the
Company after the Issue Date 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 Company or any
of its Subsidiaries, any Indebtedness of the Company 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.
"Purchase Rights" has the meaning specified in Section 6.3(e)(ii).
"Redemption Notice" has the meaning specified in Section 3.2(b).
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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 this Note.
"Related Business" means the business conducted by the Company 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.
"Restricted Payments" has the meaning specified in Section 4.3(a).
"Senior Credit Facility" means the Credit Agreement dated December 1,
1997, among the Company, the guarantors named therein, and NationsBank of Texas,
N.A., as agent and lender, and the other lenders party thereto, as amended to
the date hereof.
"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 this Note, 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, 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 this Note, (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 10 3/8% Senior
Subordinated Notes or any refinancings thereof. "Senior Indebtedness" when used
in respect of a Subsidiary Guarantor, shall have a meaning substantially
identical to that applied to the Indebtedness of the Person or its Subsidiaries.
"Series A Voting Preferred Stock" means the Company's "Series A 10 3/8%
Convertible Pay-in-Kind Voting Preferred Stock" to be established under the
terms of the Amendment.
"Series B Nonvoting Preferred Stock" means the Company's "Series B 10
3/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" to be established under
the terms of the Amendment.
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"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 Company (or of
its Subsidiaries) that is subordinated in right of payment to the Notes (or a
Subsidiary Guarantee, as appropriate).
"subparagraph (d) adjustment" has the meaning specified in Section
6.3(e)(i).
"Subsidiary" means, in respect of 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 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 Company.
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under this Note by any Person.
"Subsidiary Guarantors" means Kevco Management, Inc., Kevco Holding,
Inc., Kevco GP, Inc., DCM Delaware, Inc., Kevco Components, Inc., Kevco
Distribution, L.P., and Kevco Manufacturing, L.P. in each case until such time,
if any, as such Subsidiary is released from its Subsidiary Guarantee as
permitted by this Note.
"TBCA" means the Texas Business Corporation Act, as the same may be
amended from time to time.
"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.
"Tranche A Notes" means the Company's $17,000,000 principal amount
Tranche A Senior Subordinated Exchangeable Notes issued on the Issue Date.
"Transaction" has the meaning specified in Section 6.3(g).
"Voting Common Stock" means the voting common stock, par value $0.01
per share, of the Company.
"Voting Rights Triggering Event" has the meaning specified in Section
6.4(b)(i).
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"Warrants" means the following: (i) the warrant issued by the Company
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 Company 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 Company 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 2
PAYMENTS
Section 2.1 Interest Payments. The Company shall pay interest on this
Note quarterly on the last day of each June, September, December, and March
(each an, "Interest Payment Date"), commencing with September 30, 1999. Interest
will accrue on the unpaid principal balance hereof outstanding (and on any
accrued but unpaid interest as provided for below) at the lesser of (i) the
Maximum Lawful Rate or (ii) a rate per annum equal to eleven and one-half
percent (11.5%); provided, however, that on any Interest Payment Date such
interest may, in the sole discretion of the Company as determined by the Special
Committee, in lieu of the payment in whole of such interest in cash, be accrued
(in which case, interest shall also be payable on any accrued interest until
paid); provided, however, that if the Company elects to accrue interest pursuant
to the provisions of this Section 2.1, (i) the Company shall give Holders
written notice thereof at least one (1) Business Day prior to the applicable
Interest Payment Date, and (ii) the Holders shall have the right to elect to
have all accrued interest paid in shares of Series B Nonvoting Preferred Stock
with an aggregate liquidation preference equal to the amount of interest accrued
and unpaid through the applicable Interest Payment Date. The Holders shall make
such election by the delivery of written notice thereof to the Company within
ten (10) days after the applicable Interest Payment Date. Notwithstanding the
foregoing, at any time when an Event of Default has occurred and is continuing,
from such date until the date such Event of Default no longer exists, interest
shall accrue at the lesser of (i) the Maximum Lawful Rate or (ii) a rate per
annum equal to twelve and one-half percent (12.5%).
Section 2.2 Principal Payments. All principal and accrued but unpaid
interest shall be due and payable, in full, in cash, on the Maturity Date,
pursuant to Section 3.1 or 4.1.
Section 2.3 Computations. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
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Section 2.4 Prepayments. Except as provided for in Section 4.1, the
Notes may not be redeemed in whole or in part prior to the third anniversary of
the Issue Date.
Section 2.5 Certain Determinations. Notwithstanding any other provision
of this Note, all determinations with respect to interest and principal payments
on, and redemption of, the Notes requiring action by the Board of Directors
shall be taken by the Special Committee.
ARTICLE 3
REDEMPTION
Section 3.1 Optional Redemption. The Notes shall be subject to
redemption at any time after the third anniversary of the Issue Date at the
option of the Company as determined by the Special Committee, in whole or in
part, at a redemption price in cash equal to 100% of the principal amount of the
Notes together with accrued and unpaid interest thereon to the applicable
redemption date.
Section 3.2 Procedures for Redemption.
(a) In the event that fewer than all the outstanding Notes are to
be redeemed pursuant to Section 3.1, the amount of Notes to be redeemed shall be
determined by the Board of Directors following the recommendation of the Special
Committee and the Notes so redeemed shall be selected pro rata according to the
principal amount of Notes held by each Holder.
(b) In the event the Company shall redeem Notes pursuant to this
Article 3, notice of such redemption ("Redemption Notice") shall be given by
overnight courier not less than 10 Business Days nor more than 40 Business Days
prior to the redemption date, to each Holder of record of the Notes to be
redeemed at such Holder's address as the same appears on the Note register of
the Company; 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 Notes to be redeemed except as to the Holder to whom
the Company 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 principal amount of Notes to be redeemed and, if
less than all the principal amount of Notes held by such Holder are to be
redeemed, the principal amount of Notes to be redeemed from such Holder; (iii)
customary provisions regarding the surrender of Notes; (iv) the redemption price
and the estimated amount of accrued but unpaid interest on the Notes to the date
of redemption; (v) the place or places where Notes are to be surrendered for
redemption; and (vi) that interest on the Notes to be redeemed will cease to
accrue on such redemption date.
(c) In the case of a redemption pursuant to this Article 3, and
if the Redemption Notice has been properly provided in accordance with this
Article 3, from and after the redemption date (unless the Company shall default
in payment in cash of the redemption price for the Notes called for redemption),
interest on such Notes called for redemption shall cease to accrue, and all
rights of the Holders thereof as Note Holders of the Company (except the right
to receive the redemption price from the Company) shall cease. Upon surrender of
the Notes in accordance with the Redemption Notice, any Notes so redeemed shall
be redeemed in cash by the Company at the redemption price specified herein and
in the Redemption Notice.
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(d) Any such offer under this Article 3 shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes pursuant to this
Article 3. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Note relating to an offer under
this Article 3, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under such
provisions of this Note by virtue thereof.
(e) Notwithstanding any other provision of this Note to the
contrary, in the event the Company delivers a Redemption Notice under this
Article 3 and the Holder timely elects to exchange the Notes prior to the stated
redemption date pursuant to Sections 6.1 and 6.2, then, for purposes of a
redemption under this Article 3, the "redemption date" shall mean the latter of
(i) the redemption date set forth in the Redemption Notice and (ii) the date
upon which any applicable waiting period under the Hart-Scott-Rodino 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.
ARTICLE 4
COVENANTS
Section 4.1 Offer to Repurchase Upon Change of Control.
(a) In the event of a Change of Control, the Company shall, to
the extent it shall have funds legally available for such payment, offer to
redeem for cash all of the Notes then outstanding, and shall redeem the Notes of
any Holder of such Notes that shall consent to such redemption, upon a date no
later than 30 Business Days following the Change in Control, at a redemption
price equal to 100% of the principal amount of the Notes, in cash, plus (without
duplication) accrued and unpaid interest thereon to the date fixed for
redemption.
(b) If the Company is unable or shall fail to discharge its
obligation to redeem all outstanding Notes pursuant to this Section 4.1 (a
"Mandatory Redemption Obligation"), such Mandatory Redemption Obligation shall
be discharged as soon as the Company is able to discharge such Mandatory
Redemption Obligation.
(c) In the case of a redemption pursuant to this Section 4.1,
notice of such redemption shall be given by overnight courier not more than ten
Business Days following the occurrence of the Change of Control and not less
than 20 Business Days prior to the redemption date, to each Holder of record of
the Notes to be redeemed at such Holder's address as the same appears on the
Note register of the Company; 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 Notes to be redeemed, except as to the
Holder to whom the Company 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 and the estimated amount of accrued but unpaid interest to the
redemption date; (iv) customary provisions regarding the surrender of Notes; (v)
that such Holder may elect to cause the Company to redeem all or any of the
Notes held by such Holder; (vi) the place or places where Notes are to be
surrendered for redemption; and (vii) that interest on the Notes the Holder
elects to cause the Company to redeem will cease to accrue on such redemption
date.
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(d) Upon receipt of such redemption notice, Holders of Notes
shall, within 10 Business Days after receipt thereof, return such redemption
notice to the Company indicating the aggregate principal amount of Notes such
Holder shall elect to cause the Company to redeem, if any.
(e) In the case of a redemption pursuant to this Section 4.1, and
if notice thereof has been properly provided in accordance with this Section
4.1, from and after the redemption date (unless the Company shall default in
payment in cash of the redemption price for the Notes called for redemption),
interest on such Notes as the Holder elects to cause the Company to redeem shall
cease to accrue, and all rights of the electing Holders thereof as Note Holders
of the Company (except the right to receive the redemption price from the
Company) shall cease. Upon surrender of the Notes in accordance with such
redemption notice, any Notes so redeemed shall be redeemed in cash by the
Company at the redemption price specified herein and in such redemption notice.
(f) Notwithstanding anything in this Section 4.1 to the contrary,
prior to the commencement of an offer under Section 4.1, but in any event within
30 days following any Change of Control, the Company shall (i) repay in full and
terminate all commitments under Indebtedness under the Senior Credit Facility
and all other Senior Indebtedness the terms of which require repayment upon a
Change of Control or (ii) obtain the requisite consents under the Senior Credit
Facility and all such other Senior Indebtedness to permit the repurchase of the
Notes as provided herein.
(g) Any such offer under this Section 4.1 shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes pursuant to this
Section 4.1. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Note relating to a Change of
Control, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under such
provisions of this Note by virtue thereof.
(h) Notwithstanding any other provision of this Note to the
contrary, in the event the Company delivers a redemption notice under this
Section 4.1 and the Holder timely elects to exchange the Notes prior to the
stated redemption date pursuant to Sections 6.1 and 6.2, then, for purposes of a
redemption under this Section 4.1, the "redemption date" shall mean the latter
of (i) the date 30 Business Days after a Change of Control and (ii) 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.
Section 4.2 Limitation on Sale of Assets and Subsidiary Stock.
(a) The Company will not, and will not permit any of its
Subsidiaries to, engage in an Asset Sale, unless (i) the Company 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 the Board of Directors and set forth in a Board
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 Company 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
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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. For purposes of this covenant
(and not for purposes of any other provision of this Note), the term "cash"
shall be deemed to include (A) any notes or other obligations received by the
Company or such Subsidiary as consideration as part of such Asset Sale that are
immediately converted by the Company or such Subsidiary into actual cash or Cash
Equivalents (to the extent of the actual cash or Cash Equivalents so received),
and (B) any liabilities of the Company or such Subsidiary (as shown on the most
recent balance sheet of the Company or such Subsidiary) that are payable in cash
and that (1) 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 Company and all of its Subsidiaries are released from all
liability for such assumed liability, (2) are not by their terms subordinated in
right of payment to the Notes, (3) are not owed to the Company or any Subsidiary
of the Company, and (4) constitute short-term liabilities (as determined in
accordance with GAAP).
(b) Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Company may apply, directly or indirectly, such Net Proceeds (i)
to repay permanently Senior Indebtedness of the Company 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 Company may make an
offer to all holders of 10 3/8% Senior Subordinated Notes to the extent required
by Section 4.08(b) of the Indenture. Pending the final application of any such
Net Proceeds, the Company 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 Note. If
the aggregate principal amount of the 10 3/8% Senior Subordinated 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.
(c) The Company will not, and will not permit any of its
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of any of its Subsidiaries to any Person (other than the Company
or another Subsidiary of the Company), unless (i) such transfer, conveyance,
sale, lease or other disposition is of all of the Capital Stock of such
Subsidiary owned by the Company and its Subsidiaries or is otherwise permitted
under Section 4.7 and (ii) such transaction is conducted in accordance with
Sections 4.2(a) and (b).
Section 4.3 Limitation on Restricted Payments.
(a) The Company 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 Company'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 Company or (B) paid or payable to the Company or any Subsidiary of
the Company; (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the Company
or other Affiliate of the Company or
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any Subsidiary of the Company (other than any such Equity Interests owned by the
Company or any Subsidiary of the Company or upon redemption of the Series A
Voting Preferred Stock or the Series B Nonvoting Preferred Stock in accordance
with the terms of the Amendment); (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 Default or Event of Default 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, or (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 Company has purchased all Notes properly
tendered pursuant to Section 4.1 resulting from such Change of Control); 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 Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof;
(ii) the Company 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 Section 4.4(a); and
(iii) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments declared or made by the
Company and its Subsidiaries after the Issue Date shall not
exceed, at the date of determination, the sum of (1) 50% of
aggregate Consolidated Net Income of the Company from the
beginning of the first fiscal quarter commencing after the Issue
Date to the end of the Company'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 (2) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale after the Issue
Date of Equity Interests of the Company or of Disqualified Stock
or debt securities of the Company 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 Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified
Stock), plus (3) the aggregate net cash proceeds received by the
Company as capital contributions to the Company (other than from
a Subsidiary of the Company) 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:
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(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 Note;
(ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company (other than
Disqualified Stock) in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of
the Company) of other Equity Interests of the Company (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 Section 4.3(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 Company) of Equity Interests of the Company
(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 payment, purchase,
redemption, defeasance or other acquisition or retirement shall
be excluded from clause (iii) of Section 4.3(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 Default or Event of Default is
continuing, the repurchase of Equity Interests of the Company
from former employees of the Company 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 Company) of Equity Interests of the Company
(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 Default or Event of Default is
continuing, any Restricted Investment which, together with all
other Restricted Investments outstanding made pursuant to this
clause (vi) does not exceed $5,000,000.
Except to the extent specifically noted above, Restricted
Payments made pursuant to this Section 4.3(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
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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 Company 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 Company shall deliver to the Holders an Officers' Certificate stating that
such Restricted Payments were permitted and setting forth the basis upon which
the calculations required by this Section 4.3 were computed, which calculations
may be based upon the Company's latest available financial statements.
Section 4.4 Limitation on Incurrence of Indebtedness.
(a) The Company 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 Company 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 Default or Event of
Default 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 Company for the Reference Period immediately preceding the
Incurrence Date, after giving effect on a pro forma basis to such Incurrence of
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 Company 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;
(iii) intercompany Indebtedness between or among the Company
and any of its Subsidiaries; provided that (A) if the Company is
an obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with
respect to the Notes and (B) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Subsidiary of the
Company, or any sale or other transfer of any such Indebtedness
to a Person that is not either the Company or a Subsidiary of the
Company, shall be deemed to constitute a new Incurrence of such
Indebtedness by the Company 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 this
Note, (B) Indebtedness referred to in Section 4.4(b)(i) or
(b)(ii), or (C) Existing Indebtedness, other than Existing
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Indebtedness, if any, related to the Indebtedness refinanced by
the Senior Credit Facility;
(v) Indebtedness of a Subsidiary of the Company constituting
a Guarantee of Indebtedness of the Company or a Subsidiary
thereof which Indebtedness was Incurred pursuant to this Section
4.4(b) or the Debt Incurrence Ratio test set forth in Section
4.4(a);
(vi) the Incurrence by the Company 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 this Note 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 Company and its Subsidiaries
from time to time outstanding in an aggregate principal amount
not to exceed $20,000,000.
(c) Indebtedness of any Person which is outstanding at the time
such Person becomes a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company shall be deemed to
have been Incurred at the time such Person becomes such a Subsidiary of the
Company or is merged with or into or consolidated with the Company or a
Subsidiary thereof, as applicable.
Section 4.5 Limitation on Liens. The Company 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 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, unless (i) in the case
of Liens securing Subordinated Indebtedness, the Notes are secured by a valid,
perfected Lien on such assets, property or proceeds that is senior in priority
to such Liens, (ii) in the case of Liens securing obligations subordinate to a
Subsidiary Guarantee, such Subsidiary Guarantee is secured by a valid, perfected
Lien on such assets, property or proceeds that is senior in priority to such
Liens, and (iii) in all other cases, the Notes (and, if such Lien secures
obligations of a Subsidiary of the Company, a Subsidiary Guarantee of such
Subsidiary) are equally and ratably secured.
Section 4.6 Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. The Company 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 (i) (a) pay dividends or make any other
distributions to the Company 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 (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries, (iii) transfer any of its properties to the Company or any of its
Subsidiaries, (iv) grant any Liens in favor of the Holders of the Notes or (v)
guarantee the Notes or any renewals or refinancings thereof, except for such
encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness, (B) the Senior Credit Facility, (C) applicable law, (D) any
instrument governing Indebtedness or Capital Stock of a Person acquired
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by the Company 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 this Note to be
Incurred, (E) 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, (F) 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 Company, provided such restrictions apply solely
to the Equity Interests or assets being sold, (G) restrictions imposed by
Permitted Liens on the transfer of the assets that are subject to such Liens,
(H) Permitted Refinancing Indebtedness Incurred to refinance Existing
Indebtedness or Indebtedness of the type described in clause (D) 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, and (I)
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.
Section 4.7 Limitation on Issuance, Sale and Ownership of Capital Stock
of Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, (i) sell, assign, transfer, convey or otherwise dispose of, any
Equity Interests of any Subsidiary of the Company, other than to the Company or
another Subsidiary of the Company, (ii) permit any Subsidiary of the Company to
issue any Equity Interests (including, without limitation, pursuant to any
merger, consolidation, recapitalization or similar transaction) other than to
the Company or another Subsidiary of the Company or (iii) permit any Person
other than the Company or its Subsidiaries to own any Equity Interests of any
Subsidiary of the Company, except that (A) the Company or its Subsidiaries may
consummate a sale to a Person of all of the Equity Interests of a Subsidiary of
the Company, if such sale is made by the Company or another Subsidiary of the
Company subject to, and in compliance with, Section 4.2, and (B) the Company may
issue and permit the subsequent ownership by directors of, directors' qualifying
shares.
Section 4.8 Limitation on Mergers, Consolidations, or Sale of Assets.
The Company will not merge or consolidate (whether or not the Company 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: (i) the Company is the surviving
corporation or the Person formed by or surviving any such merger or
consolidation (if other than the Company) 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; (ii) the Person formed by or surviving any
such merger or consolidation (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance, or other disposition shall
have been made assumes all the obligations of the Company under the Notes and
pursuant to an assumption agreement reasonably satisfactory to the Holders;
(iii) immediately before or immediately after giving effect to such transactions
no Default or Event of Default shall have occurred and be continuing or would
result therefrom; and (iv) except in case of a merger of the Company with or
into a Subsidiary of the Company, the Company, 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
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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 Section 4.4(a).
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1 Events of Default. Each of the following constitutes an
"Event of Default":
(a) default for 30 days in the payment when due of interest on
the Notes (whether or not prohibited by Article 8), provided that the accrual of
interest as permitted by Section 2.1 shall not be deemed to be a default;
(b) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by Article 8);
(c) failure by the Company to comply in all material respects
with any of the provisions of Section 4.1;
(d) failure by the Company for 30 days after written notice,
stating in reasonable detail the non-compliance, to the Company by Holders of at
least 25% in principal amount of the then outstanding Notes to the Company to
comply with any other covenant or agreement (except as provided in clauses (a),
(b), and (c) above) in the Notes;
(e) except as permitted by this Note, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Subsidiary Guarantor,
or any Person acting on behalf of any Subsidiary Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee;
(f) default under any mortgage, indenture, or instrument under
which there maybe issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Subsidiaries (or the payment of which
is Guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Issue Date, which
default (i) is caused by a failure to pay principal when due at final stated
maturity (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default which has not
been cured or the maturity of which has been so accelerated, aggregates
$10,000,000 or more;
(g) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $10,000,000, which judgments are not
paid, discharged, or stayed for a period of 60 days and are not covered by
insurance;
(h) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law (i) commences a voluntary case, (ii) consents
to the entry of an order for relief against it in an involuntary case, (iii)
consents to the appointment of a Custodian of it or for all or substantially all
of its property, (iv) makes a general assignment for the benefit of its
creditors, or (v) generally is unable to pay its debts as the same become due;
or
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(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (i) is for relief against the Company or any of
its Subsidiaries in an involuntary case, (ii) appoints a Custodian of the
Company or any of its Subsidiaries or for all or substantially all of their
respective properties, or (iii) orders the liquidation of the Company or any of
its Subsidiaries, and the order or decree remains unstayed and in effect for 60
days.
To the extent that the last day of the period referred to in Section
5.1(a) or 5.1(d) is not a Business Day, then the first Business Day following
such day shall be deemed to be the last day of the period referred to in such
clauses. Any "day" will be deemed to end as of 11:59 p.m., Fort Worth, Texas
time.
Section 5.2 Acceleration.
(a) Notwithstanding any other provision of this Note to the
contrary, if any Event of Default occurs and is continuing (other than an Event
of Default specified in Section 5.1(b), 5.1(h), or 5.1(i)) prior to the
redemption, repurchase, or other repayment in full of the 10 3/8% Senior
Subordinated Notes, then the Holders shall not and shall not be entitled to
declare any outstanding Notes due and payable (as a result of such Event of
Default) prior to the delivery of an Acceleration Notice (as defined in the
Indenture) pursuant to Section 6.02 of the Indenture.
(b) If any Event of Default occurs and/or is continuing (other
than an Event of Default specified in Section 5.1(b), 5.1(h), or 5.1(i)) after
the redemption, repurchase, or other repayment of 10 3/8% Senior Subordinated
Notes or the delivery of an Acceleration Notice (as defined in the Indenture)
pursuant to Section 6.02 of the Indenture, or an Event of Default specified in
Section 5.1(b) occurs and is continuing at any time, then (i) if the Initial
Investors or their Affiliates Beneficially Own more than 50% of the aggregate
principal amount of the Notes then outstanding the Holders may, by notice in
writing to the Company, declare all outstanding Notes to be due and payable and
(ii) if the Initial Investors or their Affiliates Beneficially Own 50% or less
of the aggregate principal amount of the Notes then outstanding, then Holders of
at least 33 1/3% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company may declare all outstanding Notes to be due and
payable (in each case, an "Acceleration Notice"), and the same (x) if there are
no amounts outstanding under the Senior Credit Facility, shall become
immediately due and payable; or (y) if there are any amounts outstanding under
the Senior Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration under the Senior Credit Facility or five
Business Days after receipt by the Company and the representatives of the
holders of the Indebtedness under the Senior Credit Facility of such
Acceleration Notice, but only if such Event of Default is then continuing.
(c) Notwithstanding the foregoing, in the case of an Event of
Default specified in Section 5.1(h) or 5.1(i), all outstanding Notes will be
immediately due and payable without declaration or other action or notice on the
part of the Holders of Notes.
(d) In the event of a declaration of acceleration of the Notes
because an Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in Section 5.1(f), the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
such Indebtedness described in Section 5.1(f) have rescinded the declaration of
acceleration in respect of such Indebtedness within thirty (30) days of the date
of
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such declaration and the Holders received written notice of such rescission and
if (a) the annulment of the acceleration of the Notes would not conflict with
any judgment or decree of a court of competent jurisdiction, and (b) all
existing Events of Default, except nonpayment of principal or interest that
became due solely because of the acceleration of the Notes, have been cured or
waived.
Section 5.3 Other Remedies. Subject to Section 5.2, if an Event of
Default occurs and is continuing, the Holders may pursue any available remedy by
proceeding at law or in equity to collect the payment of principal, premium, if
any, or interest on the Notes or to enforce the performance of any provision of
the Notes or the Subsidiary Guarantees.
Section 5.4 Waiver of Past Defaults. Subject to Section 5.2, Holders of
a majority in aggregate principal amount of the then outstanding Notes by notice
to the Company may, on behalf of the Holders of all of the Notes, waive any
acceleration of the Notes or any existing Default or Event of Default, except a
continuing Default or Event of Default in the payment of the principal of,
premium, if any, or interest, on the Notes which may only be waived with the
consent of each Holder of Notes affected.
Section 5.5 Control by Majority. The Holders of a majority in aggregate
principal amount of the then outstanding Notes may direct the time, method, and
place of conducting any proceeding for any remedy available to the Holders.
ARTICLE 6
EXCHANGE; VOTING RIGHTS
Section 6.1 Exchange. The Notes shall be exchangeable 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 either (i) shares of fully
paid, non-assessable Series B Nonvoting Preferred Stock, (ii) shares of fully
paid and non-assessable Nonvoting Common Stock, or (iii) any combination
thereof; provided, however, that any portion of the Notes then subject to an
offer to redeem under Article 3 shall not be exchangeable into Series B
Nonvoting Preferred Stock. On any such exchange, Holders of Notes shall receive,
as the case may be, (x) one (1) share of Series B Nonvoting Preferred Stock for
each $5.50 of outstanding principal and accrued but unpaid interest of Notes
exchanged to the date of such exchange (subject to adjustment as provided in
Section 6.3) or (y) one (1) share of Nonvoting Common Stock for each $5.50 of
principal and accrued but unpaid interest of Notes exchanged to the date of such
exchange (subject to adjustment as provided in Section 6.3) (such price, with
respect to the issuance of Series B Nonvoting Preferred Stock or Nonvoting
Common Stock, as the case may be, the "Exchange Price").
Section 6.2 Exchange Procedures.
(a) The Company will not issue any fractional shares of Series B
Nonvoting Preferred Stock or Nonvoting Common Stock upon an exchange pursuant to
this Article 6, but the Holder shall be entitled to be paid an amount in cash
equal to the Market Price of any fractional shares of Nonvoting Common Stock
otherwise issuable upon exchange (assuming for the purposes of calculating
payments in respect of fractional shares of Series B Nonvoting Preferred Stock
that any exchange of Notes resulting in the issuance of fractional shares of
Series B Nonvoting Preferred Stock were exchanged for Nonvoting Common Stock).
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(b) At the time of an exchange pursuant to this Article 6, the
Holder of Notes shall deliver to the office of the Company, Notes to be
exchanged and written notice to the Company stating that such Holder elects to
exchange such Notes and stating the name and addresses in which each certificate
for shares of Series B Nonvoting Preferred Stock or Nonvoting Common Stock, as
the case may be, issued upon such exchange is to be issued; provided, however,
that if the Holder has received an offer to redeem under Article 3, such Holder
must notify the Company within 10 Business Days after its receipt of the
Redemption Notice in order for such Holder to exchange all or any portion of the
Notes prior to the redemption date. Exchange shall be deemed to have been
effected on the latter of (i) the close of business on the date when such
delivery is made to the Company of Notes to be exchanged, and the Holder of
Notes subject to such exchange shall be deemed to be the Holder of record of the
number of shares of Series B Nonvoting Preferred Stock or Nonvoting Common
Stock, as the case may be, issuable upon such exchange at such time, and (ii)
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.
Section 6.3 Antidilution Provisions. The Exchange Price from time to
time in effect and the number of shares of Series B Nonvoting Preferred Stock
and Nonvoting Common Stock issuable upon exchange of Notes shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.3.
(a) Common Stock Splits. Upon any subdivision by the Company 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 Company 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 Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes shall be increased in proportion to
such increase in the number of outstanding shares of Aggregate Common Stock and
the Exchange Price shall be correspondingly decreased. Upon any pro rata
reduction by the Company on or after the Issue Date of its outstanding shares of
Aggregate Common Stock as a whole or upon any issuance by the Company 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 Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes shall be decreased in proportion to
such reduction in the number of outstanding shares of Aggregate Common Stock and
the Exchange Price shall be correspondingly increased.
(b) Common Stock Dividends. Upon any declaration and payment by
the Company 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 Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes shall be increased in proportion to
the increase in the number of outstanding shares of Aggregate Common Stock
through such stock dividend and the Exchange Price shall be correspondingly
decreased.
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(c) Other Issues. Upon any issuance by the Company 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
subparagraphs (a) and (b) of this Section 6.3) for a consideration lower than
the Market Price per share of stock in effect immediately prior to such
issuance, the Exchange 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 Voting
Common Stock in effect immediately prior to the issue 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 Company in connection with the issuance of such additional
Aggregate Common Stock, and G equals the Exchange Price which would have been in
effect immediately prior to such issuance had all previous adjustments (if any)
under this subparagraph (c) been made pursuant to the foregoing formula. Upon
any such reduction in the Exchange Price, the number of shares of Series B
Nonvoting Preferred Stock and Nonvoting Common Stock issuable upon the exchange
of Notes shall be correspondingly increased. The provisions of this subparagraph
(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
Exchange Price was fully and properly adjusted pursuant to the immediately
following subparagraph (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 Company 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 Exchange Price shall be reduced
(and the number of shares of Series B Nonvoting Preferred Stock and Nonvoting
Common Stock issuable upon the exchange of Notes shall be appropriately
increased) by making computations in accordance with subparagraph (c) of this
Section 6.3; 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 Company 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
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<PAGE> 30
equal to the consideration received by the Company for such securities (before
deducting underwriting discounts, commissions, and other expenses) plus the
minimum consideration (other than such securities) to be received by the Company
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 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 Exchange Price (and the number of shares of
Series B Nonvoting Preferred Stock and Nonvoting Common Stock issuable upon the
exchange of Notes) in effect at the time of such event shall be readjusted to
the Exchange Price (and the number of shares of Series B Nonvoting Preferred
Stock and Nonvoting Common Stock issuable upon the exchange of Notes) 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 Exchange Price (and
the number of shares of Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes) 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
Exchange Price (and the number of shares of Series B Nonvoting Preferred Stock
and Nonvoting Common Stock issuable upon the exchange of Notes) then in effect
shall be readjusted to the Exchange Price (and the number of shares of Series B
Nonvoting Preferred Stock and Nonvoting Common Stock issuable upon the exchange
of Notes) 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 subparagraph (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 Series B Nonvoting Preferred Stock and
Nonvoting Common Stock theretofore received by the Holder upon exchange of
Notes.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Issue Date the Company
shall distribute to all holders of shares of Aggregate Common Stock of any class
evidences of its
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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 subparagraph (e)(ii) are applicable, the Company shall pay
to the Holder of Notes, 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 exchanged
such Notes for Nonvoting Common Stock on the record date fixed in connection
with such dividend or distribution, and the Company 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 Company.
Notwithstanding the foregoing, the rights of the Holder hereof under this
subparagraph (e)(i) upon the Company'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
subparagraph (e) called a "subparagraph (d) adjustment") because of such
dividend or distribution called for under subparagraph (d) of this Section 6.3,
and upon exercise hereof, such holder must elect either such subparagraph (d)
adjustment or the rights and benefits provided for in this subparagraph (e)(i).
For the purposes of determining the Exchange Price from time to time in effect
and the number of shares from time to time subject hereto prior to the exchange
of Notes, 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 subparagraph (e)(i) made at the time of exercise hereof the Exchange
Price then in effect (and the number of outstanding shares of Series B Nonvoting
Preferred Stock and Nonvoting Common Stock purchasable upon such exchange) shall
be redetermined to equal the amounts which would have been in effect had such
subparagraph (d) adjustments never been made. Notwithstanding the provisions of
this subparagraph (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 Company
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 Nonvoting
Common Stock issuable upon exchange of Notes for Nonvoting Common Stock
immediately prior to the time or times at which the Company 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 Company which are not adequately covered by the
provisions of this Section 6.3, and which might materially and adversely affect
the exercise rights of the Holders of Notes, upon the request of a majority in
interest of the Holders the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, of the number of shares issuable upon the exchange of Notes,
on a basis consistent with
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the standards established in the other provisions of this Section 6.3 and
assuming all other adjustments required pursuant to this Section 6.3 have been
made, necessary in order to preserve without diminution the rights of the
Holders of Notes. 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,
the Tranche A Notes, and the Convertible Preferred Stock 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 Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Nonvoting Common
Stock shall be entitled to receive stock, securities, or assets (including cash)
of the Company or another Person with respect to or in exchange for Nonvoting
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
exchange hereof at any time after the consummation of such Transaction, shall be
entitled to receive, and such Notes shall thereafter represent the right to
receive, in lieu of the Nonvoting Common Stock issuable upon exchange hereof 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 exchanged such Notes
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 Section 6.3). The Company shall not effect any
Transaction unless prior to the consummation thereof each Person (other than the
Company) which may be required to deliver any securities or other property upon
the exchange of the Notes as provided herein shall assume, by written instrument
delivered to each registered Holder of the Notes in form and substance
reasonably satisfactory to the Holders of at least a majority of the aggregate
principal amount of the Notes then outstanding, the obligation to continue to
honor the Notes 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 Notes 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 Exchange Price and upon each change in the
number of shares of Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes, and in the event of any change in the
rights of the Holder of Notes by reason of other events herein set forth, the
Company shall as soon as practicable give written notice ("Notice of
Adjustment") to the registered Holder(s) of Notes: (i) describing the event;
(ii) stating the adjusted Exchange Price, the number of shares of Series B
Nonvoting Preferred Stock and Nonvoting Common Stock issuable based upon the
difference between the Exchange Price before and after such adjustment; and
(iii) stating how such adjustment of Exchange Price or number of shares of
Series B Nonvoting Preferred Stock and Nonvoting Common Stock was calculated and
the facts on which the calculation is based.
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(i) Accountant's Opinion. Upon each adjustment of the Exchange
Price and upon each change in the number of shares of Series B Nonvoting
Preferred Stock and Nonvoting Common Stock issuable upon the exchange of Notes,
and in the event of any change in the rights of the Holder of Notes by reason of
other events herein set forth, then and in each such case, upon the reasonable
written request of the Holders of at least 50% of the aggregate principal amount
of the Notes then outstanding given to the Company within thirty (30) days after
the Company has given the Notice of Adjustment, the Company will promptly obtain
an opinion of independent certified public accountants selected by the Company
and reasonably satisfactory to such Holder(s), stating the adjusted Exchange
Price and the new number of shares of Series B Nonvoting Preferred Stock and
Nonvoting Common Stock 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
Company will promptly mail a copy of such accountant's opinion to each
registered Holder of Notes. The costs of the accountant's opinion shall be borne
(i) by the Company, if the accountant's opinion reflects any change to the
adjusted Exchange Price or the number of shares of Series B Nonvoting Preferred
Stock and Nonvoting Common Stock 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 Exchange Price or the number of shares of Series B
Nonvoting Preferred Stock and Nonvoting Common Stock 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 Company 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 $.01. The Company shall not be
required to give any Notice of Adjustment of the Exchange Price in accordance
with subparagraph (h) above if the amount of such adjustment shall be less than
$.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 $.01 per share; provided, however, that notice of each such
adjustment of the Exchange 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 subparagraph (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 Company or any of its Subsidiaries, but the disposition
of any such shares to a third party shall be considered an issue or sale of
Aggregate Common Stock for the purposes of this Section 6.3.
(l) Adjustment Exceptions. Anything in this Section 6.3 to the
contrary notwithstanding, no adjustment of the Exchange Price or the number of
shares of Series B Nonvoting Preferred Stock and Nonvoting Common Stock issuable
upon the exchange of Notes shall be made upon (i) the issuance of any shares of
Aggregate Common Stock upon the exercise of any of the Warrants, the exchange of
any Convertible Preferred Stock, the exchange of any Tranche A Notes, 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
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or other securities pursuant to any Plans, or (iii) the issuance of shares of
Aggregate Common Stock or rights to acquire such shares in connection with any
redemption pursuant to Article 3.
Section 6.4 Voting Rights.
(a) The Holders of Notes, except as set forth in this Section
6.4, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the shareholders of the Company.
(b) (i) If at any time when the Initial Investors and their
Affiliates Beneficially Own at least 50% of the principal amount of the
outstanding Notes (x) the Company fails to exchange all of the then outstanding
Notes under the provisions of Section 6.1 (after notice has been given), (y) the
Company fails to purchase Notes pursuant to Section 4.1, or (z) an Event of
Default has occurred and is continuing (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 a majority
in principal amount of the Notes to appoint two directors of the Board of
Directors. Holders of a majority of the outstanding principal amount of the
Notes shall during the period set forth in Section 6.4(b)(ii) have the exclusive
right to appoint 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.
(ii) The right of Holders of Notes to elect members of the
Board of Directors as set forth in Section 6.4(b)(i) 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 in
principal amount of outstanding Notes at which time (I) the special right of
Holders of Notes so to vote for the election of directors and (II) the term of
office of the additional directors elected by Holders of Notes shall terminate.
At any time after voting power to elect directors shall have become vested and
be continuing in Holders of Notes pursuant to Section 6.4(b)(i), or if vacancies
shall exist in the offices of directors elected by Holders of Notes, a proper
officer of the Company may, and upon the written request of the Holders of
record of at least twenty-five percent (25%) of the principal amount of Notes
then outstanding addressed to the secretary of the Company shall, call a special
meeting of the Holders of Notes 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 Company within twenty (20) days after personal service of
said written request upon the secretary of the Company or within twenty (20)
days after mailing the same within the United States by certified mail,
addressed to the secretary of the Company at its principal executive offices,
then (x) the Holders of record of at least twenty-five percent (25%) of the
principal amount of Notes then outstanding may designate in writing one of their
number to call such meeting at the expense of the Company, and such meeting may
be called by the Person so designated upon the notice required for the annual
meetings of shareholders of the Company and shall be held at the place
designated in such notice, or (y) the Holders of record of at least a majority
in principal amount of outstanding Notes 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.
(iii) At the meeting held for the purpose of electing
directors at which the Holders of Notes shall have the right to elect directors
as aforesaid, the presence in
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person or by proxy of the Holders of at least a majority of the outstanding
principal amount of Notes shall be required to constitute a quorum of such
Notes.
(iv) Notwithstanding the foregoing, in the event Holders of
Notes shall have the concurrent right to elect members of the Board of Directors
under this Section 6.4 and under Section 6.4 of the Tranche A Notes, the number
of directors provided for in this Section 6.4 shall be reduced to one during,
but only during, any period such concurrent right exists and, upon termination
of any such right under the Tranche A Notes, such number shall be returned to
two directors. The right of Holders of Notes to elect directors pursuant to this
Section 6.4 shall be in addition to, and not in substitution for or diminution
of, the rights of Wingate and its assigns or Affiliates to appoint members of
the Board of Directors under the terms of the Purchase Agreement.
ARTICLE 7
SUBSIDIARY GUARANTEES
Section 7.1 Subsidiary Guarantees.
(a) Subject to the provisions of this Article 7, each Subsidiary
Guarantor, jointly and severally, hereby irrevocably unconditionally guarantees
to each Holder of a Note that: (i) the principal of, premium, if any, and
interest on the Notes shall be duly and punctually paid in full when due,
whether at stated maturity, by acceleration, call for redemption, upon a Change
of Control, or otherwise, and interest on overdue principal, premium, if any,
interest on any interest (to the extent permitted by law), if any, on the Notes
and all other obligations of the Company to Holders of Notes will be promptly
paid in full or performed, all in accordance with the terms hereof and thereof,
(ii) in case of any extension of time of payment or renewal of any Notes or any
of such other obligations, the same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration, call for redemption, upon a Change of Control,
or otherwise, and (iii) the prompt payment of any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Holder of Notes in
successfully enforcing any rights under the Notes. Failing payment when due of
any amount so guaranteed or failing performance of any other obligation of the
Company to the Holders of Notes, for whatever reason, each Subsidiary Guarantor
shall be jointly and severally obligated to pay, or to perform or to cause the
performance of, the same immediately. An Event of Default under the Notes shall
constitute an event of default under the Subsidiary Guarantees, and shall
entitle the Holders of Notes to accelerate the obligations of each Subsidiary
Guarantor hereunder in the same manner and to the same extent as the obligations
of the Company. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity, or
enforceability of the Notes, the absence of any action to enforce the same, any
waiver or consent by any Holder of Notes with respect to any thereof, the entry
of any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Subsidiary Guarantor. Each Subsidiary Guarantor hereby waives and
relinquishes: (A) any right to require the Holders of Notes or the Company
(each, a "Benefitted Party") to proceed against the Company, the Subsidiary
Guarantors, or any other Person or to proceed against or exhaust any security
held by a Benefitted Party at any time or to pursue any other remedy in any
secured party's power before proceeding against the Subsidiary Guarantor; (B)
any defense that may arise by reason of the incapacity, lack of authority,
death, or disability of any other Person or
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Persons or the failure of a Benefitted Party to file or enforce a claim against
the estate (in administration, bankruptcy, or any other proceeding) of any other
Person or Persons; (C) demand, protest, and notice of any kind (except as
expressly required by this Note), including but not limited to notice of the
existence, creation, or incurring of any new or additional Indebtedness or
obligation or of any action or non-action on the part of the Subsidiary
Guarantors, the Company, any Benefitted Party, any creditor of the Subsidiary
Guarantors, the Company or on the part of any other Person whomsoever in
connection with any obligations the performance of which are hereby guaranteed;
(D) any defense based upon an election of remedies by a Benefitted Party,
including but not limited to an election to proceed against the Subsidiary
Guarantors for reimbursement; (E) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal; (F) any
defense arising because of a Benefitted Party's election, in any proceeding
instituted under the Bankruptcy Law, of the application of Section 1111(b)(2) of
the Bankruptcy Code; and (G) any defense based on any borrowing or grant of a
security interest under Section 364 of the Bankruptcy Code. The Subsidiary
Guarantors hereby covenant that the Subsidiary Guarantors shall not be
discharged except by payment in full of all principal, premium, if any, and
interest on the Notes and all other costs provided for under this Note.
(b) If any Holder of Notes is required by any court or otherwise
to return to either the Company or the Subsidiary Guarantors, or any trustee or
similar official acting in relation to either the Company or the Subsidiary
Guarantors, any amount paid by the Company or the Subsidiary Guarantors to such
Holder of Notes, the Subsidiary Guarantors, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(c) Each of the Subsidiary Guarantors agrees that it shall not be
entitled to any right of subrogation in relation to the Holders of Notes in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Subsidiary Guarantor agrees that, as between
it, on the one hand, and the Holders of Notes, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 5 for the purposes hereof, notwithstanding any stay, injunction, or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article 5, such obligations (whether or not due and payable)
shall forthwith become due and payable by such Subsidiary Guarantor for the
purpose of its Subsidiary Guarantee.
Section 7.2 Releases Following Sale of Assets and Restricted Subsidiary
Stock. In the event of a sale, assignment, transfer, lease, conveyance, or other
disposition of all of the Equity Interests in, or all or substantially all of
the assets of, a Subsidiary Guarantor to any Person that is not the Company or
any of its Subsidiaries, whether by way of merger, consolidation, or otherwise,
if (i) the Net Proceeds of such sale or other disposition are applied in
accordance with the provisions of Section 4.07 of the Indenture, (ii) no Default
or Event of Default exists or would exist under this Note after giving effect to
such transaction, (iii) all obligations of such Subsidiary Guarantor under any
other Indebtedness of the Company or any of its Subsidiaries shall have been
terminated (including, without limitation, all Guarantees of any such
Indebtedness), (iv) all Liens on assets of such Subsidiary that secure any other
Indebtedness of the Company or any of its Subsidiaries shall have been
terminated, and (v) all obligations of the Company and its Subsidiaries under
other Indebtedness of such Subsidiary Guarantor shall have been terminated
(including, without limitation, all Guarantees of such Indebtedness), then (A)
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in the case of such a sale or other disposition, whether by way of merger,
consolidation, or otherwise, of all of the Equity Interests in such former
Subsidiary Guarantor, such former Subsidiary Guarantor will be released and
relieved of any obligations under its Subsidiary Guarantee, or (B) in the case
of a sale or other disposition of all or substantially all of the assets of such
Subsidiary Guarantor, the Person acquiring such assets will not be required to
assume the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee.
Section 7.3 Limitation of Subsidiary Guarantor's Liability. Each
Subsidiary Guarantor, and by its acceptance hereof each Holder of Notes, hereby
confirms that it is the intention of all such parties that the guarantee by such
Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any
similar federal or state law. To effectuate the foregoing intention, the Holders
of Notes and each Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under this Article 7 shall be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
this Article 7, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee of such Subsidiary Guarantor not constituting a fraudulent
transfer or conveyance.
Section 7.4 Application of Certain Terms and Provisions to the
Subsidiary Guarantors.
(a) For purposes of any provision of this Note which provides for
the delivery by any Subsidiary Guarantor of an Officer's Certificate and/or an
Opinion of Counsel, the definitions of such terms shall apply to such Subsidiary
Guarantor as if references therein to the Company were references to such
Subsidiary Guarantor.
(b) Any request, direction, order, or demand which by any
provision of this Note is to be made by any Subsidiary Guarantor, shall be
sufficient if evidenced as described in Section 9.1 as if references therein to
the Company were references to such Subsidiary Guarantor.
(c) Any notice or demand which by any provision of this Note is
required or permitted to be given or served by the Holders of Notes to or on any
Subsidiary Guarantor may be given or served as described in Section 9.1 as if
references therein to the Company were references to such Subsidiary Guarantor.
Section 7.5 Release of Subsidiary Guarantees. Upon the sale or
disposition of a Subsidiary Guarantor (or substantially all of its assets)
pursuant to and in compliance with the terms of this Note and the Indenture,
such Subsidiary Guarantor will be released from and relieved of its obligations
under its Subsidiary Guarantee. Such release shall be conditional upon the
delivery to the Holders of an Officers' Certificate and an Opinion of Counsel,
each stating that such release of the Subsidiary Guarantee complies with the
provisions of this Note and the Indenture and that all conditions precedent to
such release of the Subsidiary Guarantee have been complied with.
Section 7.6 Subordination of Subsidiary Guarantees. The obligations of
each Subsidiary Guarantor under its Subsidiary Guarantee pursuant to this
Article 7 is subordinated
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in right of payment to the prior payment in full in cash or Cash Equivalents of
all Senior Indebtedness of the Subsidiary Guarantor on the same basis as the
Notes are subordinated to Senior Indebtedness of the Company. For the purposes
of the foregoing sentence, the Holders of Notes shall have the right to receive
and/or retain payments by any of the Subsidiary Guarantors only at such times as
they may receive and/or retain payments in respect of the Notes pursuant to this
Note, including Article 7. In the event that the Holders receive any Subsidiary
Guarantor payment at a time when such payment is prohibited by the foregoing
sentence, such Subsidiary Guarantor payment shall be paid over and delivered to
the holders of the Senior Indebtedness of the Subsidiary Guarantor remaining
unpaid, to the extent necessary to pay in full in cash or Cash Equivalents all
such Senior Indebtedness of the Subsidiary Guarantor. Each Holder of a Note by
its acceptance thereof agrees to and shall be bound by the provisions of this
Section 7.6.
ARTICLE 8
SUBORDINATION
Section 8.1 Notes Subordinated to Senior Indebtedness. The Company
covenants and agrees, and each Holder of Notes by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article 8, and each Person holding any Note, whether upon
original issue or upon transfer, assignment, or exchange thereof, accepts and
agrees that all payments of the principal of and premium, if any, and interest
on the Notes will, to the extent and in the manner set forth in this Article 8,
be subordinated in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Indebtedness, whether outstanding on the date of the
Note or thereafter incurred.
Section 8.2 No Payment on Notes in Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the Company
of principal of, premium, if any, and interest on the Notes, whether pursuant to
the terms of the Notes, upon acceleration, pursuant to a Change of Control or
otherwise, shall be made to the Holders of Notes (except that Holders of Notes
may receive payments made in Junior Securities) if (i) a default in the payment
of the principal of or premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Holders
receive a written notice (with a copy to the Company) of such other default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Indebtedness. Payments on the Notes may and shall be resumed (A) in the
case of a payment default, upon the date on which such default is cured or
waived and (B) in case of a nonpayment default, on the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received by the Holders (such
period being referred to herein as the "Payment Blockage Period"), unless the
maturity of any Designated Senior Indebtedness has been accelerated (and written
notice of such acceleration has been received by the Holders).
(b) Notwithstanding anything herein or in the Notes to the
contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Payment Blockage Period is in effect and
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(z) not more than one Payment Blockage Period may be commenced with respect to
the Notes during any period of 360 consecutive days. No new Payment Blockage
Period may be commenced unless and until all scheduled payments of principal,
premium, if any, and interest on the Notes that have come due have been paid in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Holders shall be, or be made, the
basis for a subsequent Payment Blockage Notice (it being understood that any
subsequent action, or any breach of any covenant for a period commencing after
the date of receipt by the Holders of such Payment Blockage Notice, that, in
either case, would give rise to such a default pursuant to any provisions under
which a default previously existed or was continuing shall constitute a new
default for this purpose).
(c) In the event that, notwithstanding the foregoing, any payment
shall be received any Holder of Notes when such payment is prohibited by Section
8.2(a), such payment shall be held for the benefit of, and shall be paid over or
delivered to, the holders of Designated Senior Indebtedness or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Designated Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that, upon notice from
the Holders to the holders of Designated Senior Indebtedness that such
prohibited payment has been made, the holders of the Designated Senior
Indebtedness (or their representative or representatives or a trustee) notify
the Holders in writing of the amounts then due and owing on the Designated
Senior Indebtedness, if any, and only the amounts specified in such notice to
the Holders shall be paid to the holders of Designated Senior Indebtedness.
Section 8.3 Payment Over of Proceeds Upon Dissolution, Etc.
(a) Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership, or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash or Cash Equivalents of all
obligations due in respect of such Senior Indebtedness (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, and until all obligations with respect to
Senior Indebtedness are paid in full in cash or Cash Equivalents, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Indebtedness (except that Holders of Notes may receive
Junior Securities).
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash,
property, or securities, shall be received by any Holder of Notes at a time when
such payment or distribution is prohibited by Section 8.3(a) and before all
obligations in respect of Senior Indebtedness are paid in full in cash or Cash
Equivalents, or payment provided for, such payment or distribution shall be
received and held for the benefit of, and shall be paid over or delivered to,
the holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
respective representatives, or to the trustee or trustees or agent or agents
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of Senior Indebtedness
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remaining unpaid until all such Senior Indebtedness has been paid in full in
cash or Cash Equivalents after giving effect to any prior or concurrent payment,
distribution, or provision therefor to or for the holders of such Senior
Indebtedness.
(c) The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another Person upon the terms and conditions
provided in Article 5 of the Indenture shall not be deemed a dissolution,
winding-up, liquidation, or reorganization for the purposes of this Section 8.3
if such other Person shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions stated in Article 5 of the Indenture.
Section 8.4 Subrogation.
(a) Upon the payment in full in cash or Cash Equivalents of all
Senior Indebtedness, or provision for payment, the Holders of the Notes shall be
subrogated to the rights of the holders of Senior Indebtedness and pari passu
with the other unsecured Indebtedness of the Company to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of, premium, if any, and interest on the Notes
shall be paid in full in cash; and, for the purposes of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders of Notes would be entitled except
for the provisions of this Article 8, and no payment over pursuant to the
provisions of this Article 8 to the holders of Senior Indebtedness by Holders of
Notes as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of Notes, be deemed to be a payment by the Company
to or on account of the Senior Indebtedness. It is understood that the
provisions of this Article 8 are and are intended solely for the purpose of
defining the relative rights of the Holders of Notes, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders of Notes
would otherwise have been entitled but for the provisions of this Article 8
shall have been applied, pursuant to the provisions of this Article 8, to the
payment of all amounts payable under Senior Indebtedness, then and in such case,
the Holders of Notes shall be entitled to receive from the holders of such
Senior Indebtedness any payments or distributions received by such holders of
Senior Indebtedness in excess of the amount required to make payment in full, or
provision for payment, of such Senior Indebtedness.
Section 8.5 Obligations of Company Unconditional.
(a) Nothing contained in this Article 8 or elsewhere in the Notes
is intended to or shall impair, as between the Company and the Holders of Notes,
the obligation of the Company, which is absolute and unconditional, to pay to
the Holders of Notes the principal of, premium, if any, and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders of
Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Holder of any
Note from exercising all remedies otherwise permitted by applicable law upon
default under this Note, subject to the rights, if
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any, under this Article 8 of the holders of the Senior Indebtedness in respect
of cash, property, or securities of the Company received upon the exercise of
any such remedy.
(b) Without limiting the generality of the foregoing, nothing
contained in this Article 8 shall restrict the right of the Holders of Notes to
take any action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Article 5 or to pursue any rights or remedies hereunder;
provided, however, that all Senior Indebtedness then due and payable shall first
be paid in full before the Holders of Notes are entitled to receive any direct
or indirect payment from the Company of principal of, premium, if any, and
interest on the Notes.
Section 8.6 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets or securities referred to in
this Article 8, the Holders of Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation, or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent, or other person making such payment or distribution, delivered
to the Holders of Notes for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 8.
Section 8.7 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Note, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article 8 are intended to be
for the benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
Section 8.8 This Article Not to Prevent Event of Default. The failure to
make a payment on account of principal of, premium, if any, and interest on the
Notes by reason of any provision of this Article 8 shall not be construed as
preventing the occurrence of an Event of Default specified in Section 5.1(a) or
5.1(b).
Section 8.9 No Waiver of Subordination Provisions. Without in any way
limiting the generality of Section 8.7, the holders of Senior Indebtedness may,
at any time and from time to time, without the consent of or notice to the
Holders of Notes, without incurring responsibility to the Holders of Notes and
without impairing or releasing the subordination provided in this Article 8 or
the obligations hereunder of the Holders of Notes to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place,
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release, or
otherwise deal with any property pledged, mortgaged, or otherwise securing
Senior Indebtedness; (c) release any Person liable in any manner for the
collection of Senior Indebtedness; and (d) exercise or refrain from exercising
any rights against the Company and any other Person.
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Section 8.10 Acceleration of Notes. If payment of the Notes is
accelerated because of an Event of Default, the Company shall promptly notify
holders of the Senior Indebtedness of the acceleration.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices. Any notice or communication by the Company or any
Subsidiary Guarantor shall be considered duly given if in writing and delivered
in person or mailed by first-class mail, telecopier, or overnight air courier
guaranteeing next day delivery, to the address set forth below:
If to the Company or a Subsidiary Guarantor:
Kevco, Inc.
1300 South University Drive
Suite 200
Fort Worth, Texas 76107
Attention: Chief Executive Officer
Telecopier No.: (817) 332-2765
with a copy of any notice given to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75201-3797
Attention: Byron F. Egan
Telecopier No.: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopier No.: (212) 225-3999
All notices and communications (other than those sent to Holders of
Notes) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. Any notice or communication to a Holder
of Notes shall be mailed by first-class mail to its address shown on the Note
register kept by the Company. If a notice or communication is mailed in the
manner provided above within the time prescribed, it is duly given, whether or
not the addressee receives it.
Section 9.2 Legal Holidays. If a payment date is not a Business Day at a
place of payment, payment may be made at that place on the next succeeding
Business Day, and no interest shall accrue on such payment for the intervening
period.
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Section 9.3 No Consent Payments. No Holder shall be paid or entitled to
receive any consideration or fee for or as an inducement to any consent, waiver,
or amendment of any provision of this Note.
Section 9.4 No Recourse Against Others. No director, officer, employee,
incorporator, or shareholder of the Company or any Guarantor Subsidiary, as
such, shall have any liability for any obligations of the Company or any
Guarantor Subsidiary under the Notes, or any Subsidiary Guarantee or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes and Subsidiary Guarantees.
Section 9.5 Governing Law. The internal law of the State of Texas shall
govern and be used to construe the Notes and the Subsidiary Guarantees (without
regard to conflicts of law provisions). Each party hereto irrevocably submits
itself to the non-exclusive jurisdiction of the state and federal courts of
Texas for purposes of this Note and agrees and consents that service of process
may be made upon it in any legal proceeding relating to this Note by any means
allowed under federal or Texas law. The parties hereto hereby waive and agree
not to assert, by way of motion, as a defense, or otherwise, that any such
proceeding is brought in an inconvenient forum or that the venue thereof is
improper.
Section 9.6 Successors. This Note shall inure to the benefit of and be
binding upon the parties hereto and each of their respective successors and
assigns, except that the Company may not assign this Note or its obligations
hereunder. Without limiting the generality of the foregoing, this Note shall
inure to the benefit of all Holders of Notes from time to time. Nothing
expressed or mentioned in this Note is intended or shall be construed to give
any Person, other than the parties hereto, their respective successors and
assigns, and the Holders of Notes, any legal or equitable right, remedy, or
claim under or in respect of this Note or any provision herein contained.
Section 9.7 Severability. In case any provision in this Note or the
Subsidiary Guarantees shall be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and in order to manifest the intent of the
parties, effect shall be given to such invalid, illegal, or unenforceable
provision to the maximum extent possible.
Section 9.8 Headings. The headings of the Articles and Sections of this
Note have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
or provisions hereof. Unless the context otherwise requires, all references to
Articles and Sections contained herein are references to Articles and Sections
of this Note.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Note as of the Issue Date.
THE COMPANY:
KEVCO, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
Title: Chairman, CEO and President
SUBSIDIARY GUARANTORS:
KEVCO MANAGEMENT, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO HOLDING, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO GP, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
DCM DELAWARE, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO COMPONENTS, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
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KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
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EXHIBIT 10.3
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
WERE PURCHASED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT DATED AS
OF JULY 14, 1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P.
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND SECTION 3 OF
THIS WARRANT.
No. of Nonvoting Shares: 675,000 Shares Warrant No. 25
WARRANT
To purchase Nonvoting Common Stock of
KEVCO, INC.
July 26, 1999
THIS WARRANT CERTIFIES THAT, for value received, the
registered holder hereof, The Kevco Partners Investment Trust, a Delaware
business trust, or its registered assigns, is entitled to purchase from Kevco,
Inc., a Texas corporation (the "Company"), at any time and from time to time
after the date hereof (the "Initial Issue Date") and on or before 5:00 p.m.
Central Time, on the Expiration Date (as hereinafter defined) 675,000 shares of
the Nonvoting Common Stock (as hereinafter defined) at the Basic Purchase Price
(as hereinafter defined), subject to the terms, conditions, and adjustments as
hereinafter provided in Section 6.
Section 1. Definitions and References. Unless otherwise specified,
references herein to sections, subsections, and similar subdivisions refer to
the sections, subsections, and subdivisions of this Warrant. For all purposes
of this Warrant, the following terms shall have the meanings hereinafter
indicated:
"Affiliate" with respect to a party to this Agreement shall
mean any Person that directly or indirectly (through one or more intermediaries
or otherwise) controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used in respect of any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement, or otherwise.
"Amendment" shall mean the Amendment to the Company's
Articles of Incorporation required by the Purchase Agreement to create the
Nonvoting Common Stock, a
<PAGE> 2
class of preferred stock designated "Series A 103/8% Convertible Pay-in-Kind
Voting Preferred Stock" and a class of preferred stock designated "Series B
103/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" (collectively, the
"Convertible Preferred Stock").
"Basic Purchase Price" shall mean the price of $5.50 per
share of the Nonvoting Common Stock.
"Board of Directors" shall mean the board of directors of the
Company.
"Business Day" shall mean a day on which commercial banks are
open for business with the public in New York, New York.
"Commission" shall mean the Securities and Exchange
Commission and any other similar or successor agency of the federal government
then administering the Securities Act or the Exchange Act.
"Common Stock" shall mean the voting common stock, par value
$.01 per share, of the Company ("Voting Common Stock"), and, after the adoption
of the Amendment the nonvoting common stock, par value $.01 per share, of the
Company ("Nonvoting Common Stock") and any capital stock into which such Common
Stock thereafter may be changed or converted.
"Common Stock Equivalents" shall mean (without duplication
with any other Common Stock or Common Stock Equivalents) rights, warrants,
options, convertible securities or convertible indebtedness, exchangeable
securities or exchangeable indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock, and any
stock appreciation rights or similar rights to payment based upon the value of
the Company's common equity, whether at the time or upon the occurrence of some
future event including all shares of Common Stock issuable in respect of this
Warrant and in respect of the Purchase Agreement and the documents and
instruments executed in connection with the Purchase Agreement and the
transactions contemplated thereby to the extent not issued and outstanding.
"Composite Tape" shall mean, with respect to any security,
the reporting by the National Association of Securities Dealers (or any
successor reporting mechanism) of all trades of such security occurring on all
exchanges on which such security is traded.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any similar or successor federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in
effect at the time in question.
"Expiration Date" shall mean the fifth anniversary of the
Initial Issue Date.
"Fully-Diluted Common Stock" shall mean, at any time, the
then outstanding shares of Common Stock of the Company plus (without
duplication) all shares of Common Stock issuable, whether at such time or upon
passage of time or the occurrence of future events, upon the exercise,
conversion, or exchange of all then-outstanding Common Stock Equivalents
(including, for purposes of such calculation, "phantom" shares of equivalent
value to any stock appreciation or equivalent equity-based payment right).
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<PAGE> 3
"Holder" shall mean the initial holder of this Warrant, and
any Person to whom this Warrant, or any portion thereof, is subsequently
transferred of record, together with the registered holder(s) of any Warrant
Shares into which this Warrant (or any subsequent Warrant) is subsequently
converted.
"Independent Directors" shall mean any director of the
Company 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.
"Kimmel Designees" shall mean Jerry E. Kimmel, if he is a
director of the Company, and any other director of the Company elected or
appointed at the designation of Jerry E. Kimmel.
"Market Price" shall mean, with respect to any 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.
"NASDAQ" shall mean the NASDAQ Stock Market.
"Notes" shall mean collectively the $17.0 million and $6.5
million principal amount Series A and Series B Senior Subordinated Convertible
Exchangeable Notes issued by the Company pursuant to the Purchase Agreement.
"Other Warrants" shall mean collectively the warrant to
acquire 772,727 shares of Nonvoting Common Stock and the warrant to acquire
295,455 shares of Nonvoting Common Stock.
"Person" shall mean any individual, partnership, limited
liability company, joint venture, corporation, trust, unincorporated
organization, or other entity.
"Plans" shall mean any plan existing on the date hereof or
adopted by the Company after the date hereof providing for the issuance of
Common Stock or other options or rights to purchase stock, warrants or other
securities.
"Preferred Stock" shall mean collectively the Company's (i)
Series A 10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par value
$0.01 per share, and (ii) Series B 10 3/8% Convertible Pay-in-Kind Nonvoting
Preferred Stock, par value $0.01 per share.
"Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of July 14, 1999, by and between the Company and
Wingate.
"Purchase Price" shall mean, as of any date, the Basic
Purchase Price as adjusted pursuant to Section 6.
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<PAGE> 4
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time in question.
"Special Committee" shall mean 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.
"Subsidiary" shall mean, with respect to any Person, any
other Person at least a majority of whose outstanding shares of capital stock
or other equity interests (having ordinary voting power for the election of
directors or comparable managers of such other Person) are owned, directly or
indirectly, by that Person.
"Trading Day" shall mean any day on which NADSAQ is open for
trading, or if the shares of Voting Common Stock are not quoted on NASDAQ, 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.
"transfer", as used in Section 3, shall mean any disposition
of this Warrant, any Warrant Shares, or of any interest therein, which would
constitute a sale of or an offer to sell such Warrant or Warrant Shares within
the meaning of the Securities Act.
"Warrant" or "Warrants" shall mean this Warrant and any
Warrant or Warrants issued upon transfer hereof, including all amendments to
any such Warrants and together with all Warrants issued in exchange, transfer
or replacement of any thereof.
"Warrant Shares" shall mean all shares of Common Stock
purchased or purchasable by the registered Holders of the Warrants upon the
exercise thereof, provided that such shares of Common Stock shall be deemed to
include all other shares of Common Stock issued or issuable in connection
therewith, whether as a result of stock dividends, exchanges, stock splits,
reverse stock splits, recapitalizations, mergers, consolidations, or otherwise.
"Wingate" shall mean Wingate Partners II, L.P., a Delaware
limited partnership.
Section 2. Ownership of this Warrant.
(a) Ownership. The Company may deem and treat the Person in whose name
this Warrant is registered as the Holder and owner hereof for all purposes,
notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company, and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in Section 3. The Company shall maintain, at its office or agency in
Fort Worth, Texas (or at such other office or agency of the Company as the
Company shall designate from time to time by notice to the registered holder of
this Warrant), a register for the Warrants, in which the Company shall record
the name and address of the Person in whose name each Warrant has been issued,
as well as the name and address of each transferee and each prior owner of such
Warrant. Within five (5) Business Days after any Holder shall by notice request
the same, the Company will deliver to such Holder a certificate, signed by one
of its authorized officers, listing the name and address of every other Holder
of Warrants of this series, as such information appears in such register and in
the stock transfer books of the Company at the close of business on the day
before such certificate is signed.
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<PAGE> 5
(b) Term. This Warrant shall be void after 5:00 p.m. Central Time on
the Expiration Date.
Section 3. Exchange, Transfer and Replacement.
(a) Exchange. This Warrant is exchangeable, upon the surrender hereof
by the registered Holder to the Company at its office or agency provided for in
Section 2, for new Warrants of like tenor, representing in the aggregate the
right to purchase the number of shares of the Nonvoting Common Stock
purchasable hereunder or in the aggregate with any other Warrants tendered
herewith, each of such new Warrants to represent the right to purchase such
number of shares of the Nonvoting Common Stock as shall be designated by said
registered Holder at the time of such surrender, not to exceed the aggregate
shares of Nonvoting Common Stock purchasable on the exercise of all such
tendered Warrants.
(b) Transfer. This Warrant and all rights hereunder are transferable,
in whole or in part, but only upon the register provided for in Section 2 and
only upon satisfaction of the conditions set forth in this Warrant, by the
registered Holder hereof, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant with the assignment form attached
hereto duly completed, at said office or agency of the Company. No sale,
transfer, or other disposition of this Warrant or the Warrant Shares issuable
hereunder will be made without registration under the Securities Act and
applicable state securities laws or pursuant to exemptions therefrom. The
Company may, as a condition to any such transfer, require an opinion of counsel
reasonably satisfactory to it that such transfer complies with all applicable
federal and state securities laws.
(c) Replacement. Upon receipt by the Company at its office or agency
provided for in Section 2 of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor, in replacement of this Warrant; provided
that, if Wingate, Armbuck & Co., H C Crown Corp. or any of their respective
Affiliates shall be the registered holder hereof, an agreement of indemnity (in
form reasonably satisfactory to the Company) by such registered Holder shall be
sufficient for all purposes of this Section 3.
(d) Cancellation and Taxes. This Warrant shall be promptly cancelled
by the Company upon the surrender hereof in connection with any exchange,
transfer or replacement pursuant to this Section 3. The Company shall pay all
taxes and other expenses and charges payable in connection with the
preparation, execution and delivery of Warrants pursuant to this Section 3,
excluding, however, any thereof imposed on or measured by the overall net
income of the Holder of this Warrant or any other Person by any jurisdiction in
which such Holder or such other Person is located.
(e) Legend. All Warrants issued upon transfer hereof, including all
amendments to any such Warrants shall be imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
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<PAGE> 6
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS WARRANT WERE PURCHASED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT DATED
AS OF JULY 14, 1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P. NEITHER
THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW AND
SECTION 3 OF THIS WARRANT.
Section 4. Exercise of This Warrant.
(a) Procedure for Exercise.
(i) In order to exercise this Warrant in whole or in part,
the registered Holder hereof shall complete a subscription form in the form
attached hereto and deliver to the Company at its office or agency provided for
in Section 2 such subscription form, this Warrant and the aggregate Purchase
Price of the shares of the Nonvoting Common Stock then being purchased;
provided that any single exercise of this Warrant not made in whole must be for
a minimum of 5,000 Warrant Shares.
(ii) Such Purchase Price shall be paid to the Company in
lawful money of the United States by company check of Wingate or an Affiliate
of Wingate, or, if the Holder is other than Wingate or an Affiliate of Wingate,
by certified check drawn as a banking institution chartered by the government
of the United States or any state thereof or wire transfer of funds.
(iii) The exercise of this Warrant shall be deemed to have
been effected and the Purchase Price and the number of shares of the Nonvoting
Common Stock issuable in connection with such exercise shall be determined as
of the close of business on the Business Day on which the last to be delivered
of such completed subscription form and all other items required to be
delivered in connection with such exercise by the registered Holder hereof
pursuant to this Section 4 shall have been delivered at the requisite office or
agency of the Company. Upon receipt of such form and other items, the Company
shall, as promptly as practicable, and in any event within five (5) Business
Days thereafter, issue such shares of Nonvoting Common Stock and execute or
cause to be executed and delivered to the registered Holder hereof a
certificate or certificates representing the aggregate number of shares of the
Nonvoting Common Stock specified in such form. The Holder shall be deemed to be
a shareholder of the Company for all purposes upon receipt of such form and
other items, notwithstanding the fact that certificates representing such
Nonvoting Common Stock have not been issued. If this Warrant shall have been
exercised only in part, the Company shall, at its expense at the time of
delivery of such stock certificate or certificates, deliver to the registered
Holder hereof a new Warrant evidencing the rights of such Holder to purchase
the remaining shares of the Nonvoting Common Stock covered by this Warrant. The
Company shall pay all taxes (other than any taxes imposed on or measured by the
overall net income of such Holder in any jurisdiction in which such Holder is
located) and other expenses and charges payable in
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connection with the preparation, execution and delivery of stock certificates
pursuant to this Section 4.
(b) Character of Warrant Shares. All shares of the Nonvoting Common
Stock issuable upon the exercise of this Warrant shall, when issued and paid
for in accordance with such Warrant, be duly authorized, validly issued, fully
paid, and nonassessable.
Section 5. Payment of Taxes. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Warrant Shares or of other securities or property
deliverable upon exercise of the Warrants evidenced by this Warrant
representing such shares or securities (other than income taxes imposed on
Holders); provided that the Company shall not be required to pay any such tax
or other charge that may be imposed in connection with any transfer involved in
the issue of any certificate for Warrant Shares or other securities or
property, or payment of cash, to any Person other than the Holder who
surrendered a Warrant upon exercise, and in case of any such tax or charge, the
Company shall not be required to issue any security or property or pay any cash
until such tax or charge has been paid or it has been established to the
Company's satisfaction that no such tax or charge is payable.
Section 6. Share Adjustment Provisions; Adjustment of Purchase Price.
The Purchase Price from time to time in effect under this Warrant, and the
number of Warrant Shares subject to purchase hereunder, shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.
(a) Common Stock Splits. Upon any subdivision by the Company on or
after the Initial Issue Date of all of its outstanding shares of Common Stock
into a greater number of shares or upon any issuance by the Company on or after
such date of a greater number of shares of Common Stock in a pro rata exchange
for all of its outstanding shares of Common Stock, then in each case from and
after the record date for such subdivision or exchange the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be increased in
proportion to such increase in the number of outstanding shares of Common
Stock, and the Purchase Price then in effect shall be correspondingly
decreased. Upon any pro rata reduction by the Company on or after the Initial
Issue Date of its outstanding shares of Common Stock as a whole or upon any
issuance by the Company after such date of a lesser number of shares of Common
Stock in a pro rata exchange for all of its outstanding shares of Common Stock,
then in each case from and after the record date for such reduction or exchange
the number of Warrant Shares purchasable upon the exercise of this Warrant
shall be decreased in proportion to such reduction in the number of outstanding
shares of Common Stock, and the Purchase Price shall be correspondingly
increased.
(b) Common Stock Dividends. Upon any declaration and payment by the
Company on or after the Initial Issue Date of a dividend upon Common Stock
payable in Common Stock, then in each case from and after the record date for
the payment of such stock dividend, the number of Warrant Shares purchasable
upon the exercise of this Warrant shall be increased in proportion to the
increase in the number of outstanding shares of Common Stock through such stock
dividend, and the Purchase Price shall be correspondingly decreased.
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<PAGE> 8
(c) Other Issues. Upon any issuance by the Company of shares of Common
Stock on or after the Initial Issue Date (other than issuances of stock
requiring adjustments hereunder pursuant to the immediately preceding
subsections (a) and (b) of this Section 6) for a consideration lower than the
Market Price per share of stock in effect immediately prior to such issuance,
the Purchase 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 Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Common Stock outstanding immediately prior to the issue of such additional
Common Stock, E equals the Market Price per share of stock in effect
immediately prior to the issue of such additional Common Stock, F equals the
aggregate consideration (before deducting underwriting discounts, commissions,
and other expenses) received or to be received by the Company in connection
with the issuance of such additional Common Stock, and G equals the Purchase
Price which would have been in effect immediately prior to such issuance had
all previous adjustments (if any) under this subsection (c) been made pursuant
to the foregoing formula. Upon any such reduction in the Purchase Price, the
number of Warrant Shares purchasable upon the exercise of this Warrant shall be
correspondingly increased. The provisions of this subsection (c) shall not be
applicable to any issuance of Common Stock upon actual exercise or actual
conversion of any option, warrant, right, or other security convertible into or
exercisable for Common Stock if the Purchase Price was fully and properly
adjusted pursuant to the immediately following subsection (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 Company on or after the Initial Issue Date of options,
warrants, or rights to subscribe for shares of Common Stock or of any
securities convertible into or exchangeable for shares of 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 Purchase Price shall be reduced (and the number of
shares of Common Stock purchasable upon the exercise of this Warrant shall be
appropriately increased), by making computations in accordance with subsection
(c) of this Section 6; provided that:
(i) The maximum number of shares of 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 Common Stock
provided for in such option, warrant, or right plus the consideration, if any,
received by the Company for such option, warrant, or right (before deducting
underwriting discounts, commissions, and other expenses);
(ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities or rights
shall be considered to have been delivered at the time of issuance of such
securities or rights, for a consideration equal to the consideration received
by the Company for such securities or rights (before deducting underwriting
discounts, commissions, and other expenses) plus the minimum consideration
(other than such securities) to be received by the Company upon the exchange or
conversion of such securities or rights;
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(iii) If the purchase or conversion price provided for in any
options, warrants, or rights referred to above, the additional consideration,
if any, payable upon the conversion or exchange of convertible securities or
rights referred to above, or the rate at which any convertible securities or
rights referred to above are convertible into or exchangeable for shares of
Common Stock shall change (other than under or by reason of provisions designed
to protect against dilution), the Purchase Price (and the number of shares of
Nonvoting Common Stock purchasable upon the exercise of this Warrant) in effect
at the time of such event shall be readjusted to the Purchase Price (and the
number of shares of Nonvoting Common Stock purchasable upon the exercise of
this Warrant) 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 option, warrant, or
right referred to above, the additional consideration, if any, payable upon the
conversion or exchange of convertible securities or rights referred to above,
or the rate at which any convertible securities or rights referred to above are
convertible into or exchangeable for shares of Common Stock shall be changed at
any time by reason of provisions designed to protect against dilution, then
when shares of Common Stock are delivered upon the exercise of any such option,
warrant, or right or upon conversion or exchange of any such convertible
security or rights, the Purchase Price (and the number of shares of Common
Stock purchasable upon the exercise of this Warrant) then in effect hereunder
shall be readjusted to such amount as would have been obtained had such option,
warrant, right, or convertible security never been issued as to such shares of
Common Stock and had the adjustments required hereunder been made at the time
of the issuance of the shares of 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
Purchase Price (and the number of shares of Common Stock purchasable upon the
exercise of this Warrant) then in effect shall be readjusted to the Purchase
Price (and the number of shares of Common Stock purchasable upon the exercise
of this Warrant) 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 subsection (iii)) been
made without reference to the number of shares of 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 Common Stock theretofore received by the Holder upon exercise of a
Warrant.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Initial Issue Date the
Company shall distribute to all holders of shares of 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 Common Stock or in securities to which the provisions of the
immediately following subsection (e)(ii) are applicable, the Company shall pay
to the Holder of this Warrant, upon the exercise hereof 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 exercised or
converted this Warrant on the record date fixed in connection with such
dividend or distribution, and the Company shall take whatever steps are
necessary or
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<PAGE> 10
appropriate to keep in reserve at all times any securities and other properties
which are required to fulfill such obligations of the Company. Notwithstanding
the foregoing, the rights of the Holder hereof under this subsection (e)(i)
upon the Company's declaration of a dividend or distribution in partial
liquidation payable only in securities convertible into shares of Common Stock
may be exercised only in lieu of any adjustment (in this subsection (e) called
a "subsection (d) adjustment") because of such dividend or distribution called
for under subsection (d) of this Section 6, and upon exercise hereof such
holder must elect (as indicated in the Subscription Form attached hereto)
either such subsection (d) adjustment or the rights and benefits provided for
in this subsection (e)(i). For the purposes of determining the Purchase Price
from time to time in effect and the number of shares from time to time subject
hereto prior to the exercise hereof, it shall be assumed that the Holder hereof
will so elect subsection (d) adjustments, but upon any election of the rights
and benefits provided for in this subsection (e)(i) made at the time of
exercise hereof the Purchase Price then in effect (and the number of
outstanding shares of Nonvoting Common Stock purchasable upon such exercise)
shall be redetermined to equal the amounts which would have been in effect had
such subsection (d) adjustments never been made. Notwithstanding the provisions
of this subsection (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 that certain Indenture dated as of December 1, 1997 by and among
the Company, the Subsidiary Guarantors (as defined therein) and United States
Trust Company of New York, as Trustee, 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 date hereof the Company
shall grant, issue, or sell any options or rights to purchase stock, warrants,
securities, or other property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), then each Holder shall be entitled (but not
obligated) to acquire, in lieu of any subsection (d) adjustment in respect of
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 Nonvoting Common Stock purchasable upon exercise of the Warrants
immediately prior to the time or times at which the Company 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 Company which are not adequately covered by the
provisions of this Section 6, and which might materially and adversely affect
the exercise rights of the Holders of Warrants, upon the request of a majority
in interest of the Holders the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, of the number of Warrant Shares purchasable upon the
exercise of the Warrants, on a basis consistent with the standards established
in the other provisions of this Section 6 and assuming all other adjustments
required pursuant to this Section 6 have been made, necessary in order to
preserve without diminution the rights of the holders of the Warrants. Upon
receipt of such opinion, the Board of Directors of the Company 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 Notes, the
Other Warrants, or the
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Preferred Stock shall be deemed to be made to all warrants held by the Holders
or their Affiliates in this series simultaneously, the intention being to avoid
any iterative calculations.
(g) Effect of Reorganization and Asset Sales. If any capital
reorganization of the Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Nonvoting Common
Stock shall be entitled to receive stock, securities, or assets (including
cash) of the Company or another Person with respect to or in exchange for
Nonvoting 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
exercise hereof at any time after the consummation of such Transaction, shall
be entitled to receive, and such Warrants shall thereafter represent the right
to receive, in lieu of the Nonvoting Common Stock issuable upon exercise or
conversion hereof 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
exercised or converted such Warrants 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 Section 6). The
Company shall not effect any Transaction unless prior to the consummation
thereof each Person (other than the Company) which may be required to deliver
any securities or other property upon the exercise of the Warrants as provided
herein shall assume, by written instrument delivered to each registered Holder
of the Warrants in form and substance reasonably satisfactory to a majority in
interest of the Holders, the obligation to continue to honor this Warrant and
to deliver to such Holder such securities or other property to which, in
accordance with the foregoing provisions, such Holder 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 all the outstanding Warrants 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 Purchase Price and upon each change in the
number of Warrant Shares issuable upon the exercise of this Warrant, and in the
event of any change in the rights of the Holder of this Warrant by reason of
other events herein set forth, the Company shall as soon as practicable give
written notice ("Notice of Adjustment") to the registered Holder(s) of this
Warrant: (i) describing the event; (ii) stating the adjusted Purchase Price,
the number of Warrant Shares issuable based upon the difference between the
Purchase Price before and after such adjustment; and (iii) stating how such
adjustment of Purchase Price or number of Warrant Shares was calculated and the
facts on which the calculation is based.
(i) Accountant's Opinion. Upon each adjustment of the Purchase Price
and upon each change in the number of Warrant Shares issuable upon the exercise
of this Warrant, and in the event of any change in the rights of the Holder of
this Warrant by reason of other events herein set forth, then and in each such
case, upon the reasonable written request of 50% in interest of the registered
Holders of Warrants in this series given to the Company within thirty (30) days
after the Company has given the Notice of Adjustment, the Company will promptly
obtain an opinion of independent certified public accountants selected by the
Company and reasonably satisfactory to such Holder(s), stating the adjusted
Purchase Price and the new
11
<PAGE> 12
number of Warrant Shares 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
Company will promptly mail a copy of such accountant's opinion to the
registered Holder of this Warrant. The costs of the accountant's opinion shall
be borne (i) by the Company, if the accountant's opinion reflects any change to
the adjusted Purchase Price or the number of Warrant Shares 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 Purchase Price or the number of
Warrant Shares 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 rules of the
American Arbitration Association. All costs and expenses (including reasonable
attorneys' fees) incurred by the Company 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 $.01. The Company shall not be required to
give notice of any adjustment of the Purchase Price in accordance with
subsection (h) above if the amount of such adjustment shall be less than $.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 $.01 per share; provided, however, that notice of each
such adjustment of the Purchase 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 subsection (j).
(k) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company or any of its subsidiaries, but the disposition of any such
shares to a third party shall be considered an issue or sale of Common Stock
for the purposes of this Section 6.
(l) Adjustment Exceptions. Anything in this Section 6 to the contrary
notwithstanding, no adjustment of the Purchase Price or the number of Warrant
Shares issuable upon the exercise of this Warrant shall be made upon (i) the
issuance of any Warrants, (ii) the issuance of any Warrant Shares, (iii) the
granting of any warrant concurrently with the granting of this Warrant,
including warrants granted under the Purchase Agreement, (iv) the issuance of
any shares of Common Stock upon the exercise of any warrant granted
concurrently with the granting of this Warrant, including warrants granted
under the Purchase Agreement, (v) the issuance of any Convertible Preferred
Stock by the Company in lieu of paying cash interest on the Notes, (vi) the
issuance of any shares of Common Stock upon the exchange of the Notes or
conversion of any Convertible Preferred Stock issued in lieu of cash interest
on the Notes or in exchange for the Notes, (vii) the issuance of rights to
acquire shares of Common Stock as a result of any antidilution adjustments in
any of the foregoing, (viii) the issuance of any shares of Common Stock or
other options or rights to purchase stock, warrants, other securities pursuant
to a Plan, and (ix) the issuance of shares of Common Stock or rights to acquire
Common Stock in connection with any redemption pursuant to Article 3 of either
of the Notes or in connection with any redemption of Preferred Stock.
12
<PAGE> 13
Section 7. Special Agreements of the Company. The Company covenants
and agrees that:
(a) Will Reserve Shares. The Company will authorize, reserve and set
apart and have available solely for issuance and delivery upon exercise at all
times, free from preemptive rights, those shares of the Nonvoting Common Stock
or other securities which are deliverable upon the exercise of the Warrants,
and the Company will have at all times all other rights or privileges necessary
to enable it at any time to fulfill all its obligations hereunder.
(b) Will Avoid Certain Actions. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities or otherwise, avoid
or take any action which would have the effect of avoiding the observance or
performance of any of the terms to be observed or performed hereunder by the
Company (including, without limitation by way of amending, altering, modifying,
or repealing any provision of the Company's Articles of Incorporation in any
manner which adversely affects the relative rights, preferences,
qualifications, powers, limitations or restrictions of the Nonvoting Common
Stock), but will at all times in good faith assist in carrying out all of the
Company's obligations pursuant to the provisions of this Warrant and in taking
all such action as may be necessary or appropriate in order to protect the
rights of the registered holder of this Warrant against dilution or other
impairment, and, in particular, will not permit the par value, if any, of any
share of the Nonvoting Common Stock to be or become greater than the then
effective Purchase Price.
(c) Will List on Securities Exchange. If and so long as the Common
Stock is listed on any national securities exchange (as defined in the Exchange
Act) or automatic quotation system, the Company will, at its expense, use its
reasonable best efforts to obtain and maintain the approval for listing on each
such exchange upon official notice of issuance of all shares of the Nonvoting
Common Stock receivable upon the exercise of the Warrants at the time
outstanding and in any event will use its reasonable best efforts to obtain and
maintain the listing of such shares after their issuance; and the Company will
so list on such national securities exchange or automatic quotation system, to
register under the Exchange Act (and any similar state statute then in effect),
and to maintain such listing of, any other securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange by the
Company.
(d) Will Bind Successors. This Warrant will be binding upon any Person
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
Section 8. Notifications by the Company. If at any time:
(a) the Company shall declare upon the Common Stock any dividend or
other distribution to the holders of the Common Stock;
(b) the Company shall make an offer for subscription pro rata to the
holders of the Voting Common Stock and/or Nonvoting Common Stock of any
additional shares of stock of any class or other rights;
13
<PAGE> 14
(c) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
statutory exchange or any consolidation of the Company or merger of the Company
with, or sale of all or substantially all of its assets to, another Person;
(d) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) a voluntary dissolution, liquidation
or winding-up of the Company; or
(e) the Company shall become subject to involuntary dissolution,
liquidation or winding-up;
then, in any one or more of such cases, the Company shall give notice thereof
to each registered Holder of Warrants or Warrant Shares, specifying (i) the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or (ii) the date on
which such reorganization, reclassification, statutory exchange, consolidation,
merger, sale, dissolution, liquidation or winding-up shall take place or be
voted upon by shareholders of the Company, as the case may be. Any such notice
under subsections (a) through (e) of this Section 8 shall also specify the date
as of which the holders of record of the Voting Common Stock and/or Nonvoting
Common Stock shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Voting Common Stock and/or
Nonvoting Common Stock for securities or other property deliverable upon such
reorganization, reclassification, statutory exchange, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be; such notice
shall be given not less than thirty (30) and not more than fifty (50) days
prior to the action in question (except in the case of notice for actions under
Section 8(e), which notice shall be promptly following such action) and not
less than thirty (30) and not more than fifty (50) days prior to the record
date or the date on which the Company's transfer books are closed in respect
thereto, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act or to a favorable vote of shareholders, if either is required.
Section 9. Notices. All notices, requests and other communications
required or permitted to be given or delivered to registered Holders shall be
in writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to each such Holder at the address shown
on such Holder's Warrant or Warrant Shares, or at such other address as shall
have been furnished to the Company by notice from such Holder. All notices,
requests and other communications required or permitted to be given or
delivered to the Company shall be in writing, and shall be delivered, or shall
be sent by certified or registered mail, postage prepaid and addressed, to
Company, as follows:
Kevco, Inc.
1300 South University, Suite 200
Fort Worth, Texas 76107
Attention: President
Telecopy Number: (817) 332-2765
with a copy to:
14
<PAGE> 15
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Byron F. Egan
Telecopy Number: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopy Number: (212) 225-3999
The Kevco Partners Investment Trust
c/o Wingate Partners II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
Attention: Frederick B. Hegi, Jr.
Telecopy Number: (214) 871-8799
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Telecopy Number: (214) 746-7777
or at such other address as shall have been furnished to the registered Holders
by notice from the Company. Each such notice sent by mail as described above
shall be deemed received on the date of receipt by the Holder or the Company,
as applicable.
Section 10. No Rights or Liabilities as Shareholder. This Warrant
shall not entitle any Holder hereof to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of the Nonvoting Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Purchase Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
Section 11. Governing Law. This Warrant shall be construed in
accordance with and governed by the laws of the State of Texas, without regard
to the provisions thereof relating to conflict of laws.
Section 12. Confidentiality. By its acceptance hereof each Holder of
this Warrant agrees that it will take all reasonable steps to keep confidential
any proprietary information of the Company furnished to it; provided, however,
that this restriction shall not apply to information which (i) has at the time
in question entered the public domain, (ii) is required to be disclosed by law
or by any order, rule or regulation (whether valid or invalid) of any court
15
<PAGE> 16
or governmental agency or authority, or (iii) is furnished to purchasers or
prospective purchasers hereof (exclusive of any Person who competes with, or is
an Affiliate of a Person who competes with, the Company) so long as such
purchasers and prospective purchasers have agreed to be subject to restrictions
identical to those imposed upon such Holder under this sentence.
Section 13. Miscellaneous. Unless otherwise expressly provided herein
or unless the registered Holder hereof otherwise consents in writing, all
financial statements and reports furnished pursuant to Section 6(i) or
otherwise furnished hereunder to the registered Holder hereof shall be prepared
and all computations and determinations pursuant hereto shall be made in
accordance with generally accepted accounting principles applied on a
consistent basis. This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against whom enforcement of the same is sought. The headings in this Warrant
are for purposes of reference only and shall not affect the meaning or
construction of any provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
16
<PAGE> 17
IN WITNESS WHEREOF, Kevco, Inc. has caused this Warrant to be
signed and delivered by its duly authorized officer, attested by its duly
authorized officer, and to be dated as of July 26, 1999.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
Title: President
ATTEST:
By: /s/ CLYDE REED
---------------------------------------
Name: Clyde A. Reed
Title: Executive Vice President
and Chief Operating Officer
17
<PAGE> 18
ASSIGNMENT FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
For Value Received, the Undersigned registered holder hereby
sells, assigns and transfers unto _______________________ the right to purchase
______ shares of the Nonvoting Common Stock covered by the within Warrant, and
does hereby irrevocably constitute and appoint ___________________________ as
Attorney to transfer the said Warrant on the books of the Company (as defined
in said Warrant), with full power of substitution.
Name of Registered Holder:
------------------------------------
Signature:
------------------------------------
Title of Signing Officer
or Agent (if any):
------------------------------------
Address of Registered Holder:
------------------------------------
------------------------------------
Dated:
------------------------------
Signed in the presence of
- ------------------------------------
<PAGE> 19
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
The undersigned registered holder hereby exercises the right
to purchase ______ shares of the Nonvoting Common Stock covered by the within
Warrant, according to the conditions thereof, and herewith makes payment of the
Purchase Price of such shares, $____________.
Name of Registered Holder:
------------------------------------
Signature:
------------------------------------
Title of Signing Officer
or Agent (if any):
------------------------------------
Address of Registered Holder:
------------------------------------
------------------------------------
Dated:
------------------------------
<PAGE> 1
EXHIBIT 10.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
OF THIS WARRANT WERE PURCHASED PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT DATED AS OF JULY 14,
1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P.
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND
SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND
SECTION 3 OF THIS WARRANT.
No. of Nonvoting Shares: 772,727 Shares Warrant No. 26
--------
WARRANT
To purchase Nonvoting Common Stock of
KEVCO, INC.
July 26, 1999
THIS WARRANT CERTIFIES THAT, for value received, the
registered holder hereof, The Kevco Partners Investment Trust, a Delaware
business trust, or its registered assigns, is entitled to purchase from Kevco,
Inc., a Texas corporation (the "Company"), at any time and from time to time
after the date hereof (the "Initial Issue Date") and on or before 5:00 p.m.
Central Time, on the Expiration Date (as hereinafter defined) 772,727 shares of
the Nonvoting Common Stock (as hereinafter defined) at the Basic Purchase Price
(as hereinafter defined), subject to the terms, conditions, and adjustments as
hereinafter provided in Section 6.
Section 1. Definitions and References. Unless otherwise specified,
references herein to sections, subsections, and similar subdivisions refer to
the sections, subsections, and subdivisions of this Warrant. For all purposes
of this Warrant, the following terms shall have the meanings hereinafter
indicated:
"Affiliate" with respect to a party to this Agreement shall
mean any Person that directly or indirectly (through one or more intermediaries
or otherwise) controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used in respect of any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement, or otherwise.
"Amendment" shall mean the Amendment to the Company's
Articles of Incorporation required by the Purchase Agreement to create the
Nonvoting Common Stock, a
<PAGE> 2
class of preferred stock designated "Series A 103/8% Convertible Pay-in-Kind
Voting Preferred Stock" and a class of preferred stock designated "Series B
103/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" (collectively, the
"Convertible Preferred Stock").
"Basic Purchase Price" shall mean the price of $5.50 per
share of the Nonvoting Common Stock.
"Board of Directors" shall mean the board of directors of the
Company.
"Business Day" shall mean a day on which commercial banks are
open for business with the public in New York, New York.
"Commission" shall mean the Securities and Exchange
Commission and any other similar or successor agency of the federal government
then administering the Securities Act or the Exchange Act.
"Common Stock" shall mean the voting common stock, par value
$.01 per share, of the Company ("Voting Common Stock"), and, after the adoption
of the Amendment the nonvoting common stock, par value $.01 per share, of the
Company ("Nonvoting Common Stock") and any capital stock into which such Common
Stock thereafter may be changed or converted.
"Common Stock Equivalents" shall mean (without duplication
with any other Common Stock or Common Stock Equivalents) rights, warrants,
options, convertible securities or convertible indebtedness, exchangeable
securities or exchangeable indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock, and any
stock appreciation rights or similar rights to payment based upon the value of
the Company's common equity, whether at the time or upon the occurrence of some
future event including all shares of Common Stock issuable in respect of this
Warrant and in respect of the Purchase Agreement and the documents and
instruments executed in connection with the Purchase Agreement and the
transactions contemplated thereby to the extent not issued and outstanding.
"Composite Tape" shall mean, with respect to any security,
the reporting by the National Association of Securities Dealers (or any
successor reporting mechanism) of all trades of such security occurring on all
exchanges on which such security is traded.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any similar or successor federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in
effect at the time in question.
"Expiration Date" shall mean the fifth anniversary of the
Initial Issue Date.
"Fully-Diluted Common Stock" shall mean, at any time, the
then outstanding shares of Common Stock of the Company plus (without
duplication) all shares of Common Stock issuable, whether at such time or upon
passage of time or the occurrence of future events, upon the exercise,
conversion, or exchange of all then-outstanding Common Stock Equivalents
(including, for purposes of such calculation, "phantom" shares of equivalent
value to any stock appreciation or equivalent equity-based payment right).
2
<PAGE> 3
"Holder" shall mean the initial holder of this Warrant, and
any Person to whom this Warrant, or any portion thereof, is subsequently
transferred of record, together with the registered holder(s) of any Warrant
Shares into which this Warrant (or any subsequent Warrant) is subsequently
converted.
"Independent Directors" shall mean any director of the
Company 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.
"Kimmel Designees" shall mean Jerry E. Kimmel, if he is a
director of the Company, and any other director of the Company elected or
appointed at the designation of Jerry E. Kimmel.
"Market Price" shall mean, with respect to any 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.
"NASDAQ" shall mean the NASDAQ Stock Market.
"Notes" shall mean collectively the $17.0 million and $6.5
million principal amount Series A and Series B Senior Subordinated Convertible
Exchangeable Notes issued by the Company pursuant to the Purchase Agreement.
"Other Warrants" shall mean collectively the warrant to
acquire 675,000 shares of Nonvoting Common Stock and the warrant to acquire
295,455 shares of Nonvoting Common Stock.
"Person" shall mean any individual, partnership, limited
liability company, joint venture, corporation, trust, unincorporated
organization, or other entity.
"Plans" shall mean any plan existing on the date hereof or
adopted by the Company after the date hereof providing for the issuance of
Common Stock or other options or rights to purchase stock, warrants or other
securities.
"Preferred Stock" shall mean collectively the Company's (i)
Series A 10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par value
$0.01 per share, and (ii) Series B 10 3/8% Convertible Pay-in-Kind Nonvoting
Preferred Stock, par value $0.01 per share.
"Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of July 14, 1999, by and between the Company and
Wingate.
"Purchase Price" shall mean, as of any date, the Basic
Purchase Price as adjusted pursuant to Section 6.
3
<PAGE> 4
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time in question.
"Special Committee" shall mean 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.
"Subsidiary" shall mean, with respect to any Person, any
other Person at least a majority of whose outstanding shares of capital stock
or other equity interests (having ordinary voting power for the election of
directors or comparable managers of such other Person) are owned, directly or
indirectly, by that Person.
"Trading Day" shall mean any day on which NADSAQ is open for
trading, or if the shares of Voting Common Stock are not quoted on NASDAQ, 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.
"transfer", as used in Section 3, shall mean any disposition
of this Warrant, any Warrant Shares, or of any interest therein, which would
constitute a sale of or an offer to sell such Warrant or Warrant Shares within
the meaning of the Securities Act.
"Warrant" or "Warrants" shall mean this Warrant and any
Warrant or Warrants issued upon transfer hereof, including all amendments to
any such Warrants and together with all Warrants issued in exchange, transfer
or replacement of any thereof.
"Warrant Shares" shall mean all shares of Common Stock
purchased or purchasable by the registered Holders of the Warrants upon the
exercise thereof, provided that such shares of Common Stock shall be deemed to
include all other shares of Common Stock issued or issuable in connection
therewith, whether as a result of stock dividends, exchanges, stock splits,
reverse stock splits, recapitalizations, mergers, consolidations, or otherwise.
"Wingate" shall mean Wingate Partners II, L.P., a Delaware limited
partnership.
Section 2. Ownership of this Warrant.
(a) Ownership. The Company may deem and treat the Person in whose name
this Warrant is registered as the Holder and owner hereof for all purposes,
notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company, and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in Section 3. The Company shall maintain, at its office or agency in
Fort Worth, Texas (or at such other office or agency of the Company as the
Company shall designate from time to time by notice to the registered holder of
this Warrant), a register for the Warrants, in which the Company shall record
the name and address of the Person in whose name each Warrant has been issued,
as well as the name and address of each transferee and each prior owner of such
Warrant. Within five (5) Business Days after any Holder shall by notice request
the same, the Company will deliver to such Holder a certificate, signed by one
of its authorized officers, listing the name and address of every other Holder
of Warrants of this series, as such information appears in such register and in
the stock transfer books of the Company at the close of business on the day
before such certificate is signed.
4
<PAGE> 5
(b) Term. This Warrant shall be void after 5:00 p.m. Central Time on
the Expiration Date.
Section 3. Exchange, Transfer and Replacement.
(a) Exchange. This Warrant is exchangeable, upon the surrender hereof
by the registered Holder to the Company at its office or agency provided for in
Section 2, for new Warrants of like tenor, representing in the aggregate the
right to purchase the number of shares of the Nonvoting Common Stock
purchasable hereunder or in the aggregate with any other Warrants tendered
herewith, each of such new Warrants to represent the right to purchase such
number of shares of the Nonvoting Common Stock as shall be designated by said
registered Holder at the time of such surrender, not to exceed the aggregate
shares of Nonvoting Common Stock purchasable on the exercise of all such
tendered Warrants.
(b) Transfer. This Warrant and all rights hereunder are transferable,
in whole or in part, but only upon the register provided for in Section 2 and
only upon satisfaction of the conditions set forth in this Warrant, by the
registered Holder hereof, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant with the assignment form attached
hereto duly completed, at said office or agency of the Company. No sale,
transfer, or other disposition of this Warrant or the Warrant Shares issuable
hereunder will be made without registration under the Securities Act and
applicable state securities laws or pursuant to exemptions therefrom. The
Company may, as a condition to any such transfer, require an opinion of counsel
reasonably satisfactory to it that such transfer complies with all applicable
federal and state securities laws.
(c) Replacement. Upon receipt by the Company at its office or agency
provided for in Section 2 of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor, in replacement of this Warrant; provided
that, if Wingate, Armbuck & Co., H C Crown Corp. or any of their respective
Affiliates shall be the registered holder hereof, an agreement of indemnity (in
form reasonably satisfactory to the Company) by such registered Holder shall be
sufficient for all purposes of this Section 3.
(d) Cancellation and Taxes. This Warrant shall be promptly cancelled
by the Company upon the surrender hereof in connection with any exchange,
transfer or replacement pursuant to this Section 3. The Company shall pay all
taxes and other expenses and charges payable in connection with the
preparation, execution and delivery of Warrants pursuant to this Section 3,
excluding, however, any thereof imposed on or measured by the overall net
income of the Holder of this Warrant or any other Person by any jurisdiction in
which such Holder or such other Person is located.
(e) Legend. All Warrants issued upon transfer hereof, including all
amendments to any such Warrants shall be imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
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THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS WARRANT WERE PURCHASED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT DATED
AS OF JULY 14, 1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P. NEITHER
THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW AND
SECTION 3 OF THIS WARRANT.
Section 4. Exercise of This Warrant.
(a) Procedure for Exercise.
(i) In order to exercise this Warrant in whole or in part, the
registered Holder hereof shall complete a subscription form in the form
attached hereto and deliver to the Company at its office or agency provided for
in Section 2 such subscription form, this Warrant and the aggregate Purchase
Price of the shares of the Nonvoting Common Stock then being purchased;
provided that any single exercise of this Warrant not made in whole must be for
a minimum of 5,000 Warrant Shares.
(ii) Such Purchase Price shall be paid to the Company in lawful
money of the United States by company check of Wingate or an Affiliate of
Wingate, or, if the Holder is other than Wingate or an Affiliate of Wingate, by
certified check drawn as a banking institution chartered by the government of
the United States or any state thereof or wire transfer of funds.
(iii) The exercise of this Warrant shall be deemed to have been
effected and the Purchase Price and the number of shares of the Nonvoting
Common Stock issuable in connection with such exercise shall be determined as
of the close of business on the Business Day on which the last to be delivered
of such completed subscription form and all other items required to be
delivered in connection with such exercise by the registered Holder hereof
pursuant to this Section 4 shall have been delivered at the requisite office or
agency of the Company. Upon receipt of such form and other items, the Company
shall, as promptly as practicable, and in any event within five (5) Business
Days thereafter, issue such shares of Nonvoting Common Stock and execute or
cause to be executed and delivered to the registered Holder hereof a
certificate or certificates representing the aggregate number of shares of the
Nonvoting Common Stock specified in such form. The Holder shall be deemed to be
a shareholder of the Company for all purposes upon receipt of such form and
other items, notwithstanding the fact that certificates representing such
Nonvoting Common Stock have not been issued. If this Warrant shall have been
exercised only in part, the Company shall, at its expense at the time of
delivery of such stock certificate or certificates, deliver to the registered
Holder hereof a new Warrant evidencing the rights of such Holder to purchase
the remaining shares of the Nonvoting Common Stock covered by this Warrant. The
Company shall pay all taxes (other than any taxes imposed on or measured by the
overall net income of such Holder in any jurisdiction in which such Holder is
located) and other expenses and charges payable in
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connection with the preparation, execution and delivery of stock certificates
pursuant to this Section 4.
(b) Character of Warrant Shares. All shares of the Nonvoting Common
Stock issuable upon the exercise of this Warrant shall, when issued and paid
for in accordance with such Warrant, be duly authorized, validly issued, fully
paid, and nonassessable.
Section 5. Payment of Taxes. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Warrant Shares or of other securities or property
deliverable upon exercise of the Warrants evidenced by this Warrant
representing such shares or securities (other than income taxes imposed on
Holders); provided that the Company shall not be required to pay any such tax
or other charge that may be imposed in connection with any transfer involved in
the issue of any certificate for Warrant Shares or other securities or
property, or payment of cash, to any Person other than the Holder who
surrendered a Warrant upon exercise, and in case of any such tax or charge, the
Company shall not be required to issue any security or property or pay any cash
until such tax or charge has been paid or it has been established to the
Company's satisfaction that no such tax or charge is payable.
Section 6. Share Adjustment Provisions; Adjustment of Purchase Price.
The Purchase Price from time to time in effect under this Warrant, and the
number of Warrant Shares subject to purchase hereunder, shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.
(a) Common Stock Splits. Upon any subdivision by the Company on or
after the Initial Issue Date of all of its outstanding shares of Common Stock
into a greater number of shares or upon any issuance by the Company on or after
such date of a greater number of shares of Common Stock in a pro rata exchange
for all of its outstanding shares of Common Stock, then in each case from and
after the record date for such subdivision or exchange the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be increased in
proportion to such increase in the number of outstanding shares of Common
Stock, and the Purchase Price then in effect shall be correspondingly
decreased. Upon any pro rata reduction by the Company on or after the Initial
Issue Date of its outstanding shares of Common Stock as a whole or upon any
issuance by the Company after such date of a lesser number of shares of Common
Stock in a pro rata exchange for all of its outstanding shares of Common Stock,
then in each case from and after the record date for such reduction or exchange
the number of Warrant Shares purchasable upon the exercise of this Warrant
shall be decreased in proportion to such reduction in the number of outstanding
shares of Common Stock, and the Purchase Price shall be correspondingly
increased.
(b) Common Stock Dividends. Upon any declaration and payment by the
Company on or after the Initial Issue Date of a dividend upon Common Stock
payable in Common Stock, then in each case from and after the record date for
the payment of such stock dividend, the number of Warrant Shares purchasable
upon the exercise of this Warrant shall be increased in proportion to the
increase in the number of outstanding shares of Common Stock through such stock
dividend, and the Purchase Price shall be correspondingly decreased.
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(c) Other Issues. Upon any issuance by the Company of shares of Common
Stock on or after the Initial Issue Date (other than issuances of stock
requiring adjustments hereunder pursuant to the immediately preceding
subsections (a) and (b) of this Section 6) for a consideration lower than the
Market Price per share of stock in effect immediately prior to such issuance,
the Purchase 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 Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Common Stock outstanding immediately prior to the issue of such additional
Common Stock, E equals the Market Price per share of stock in effect
immediately prior to the issue of such additional Common Stock, F equals the
aggregate consideration (before deducting underwriting discounts, commissions,
and other expenses) received or to be received by the Company in connection
with the issuance of such additional Common Stock, and G equals the Purchase
Price which would have been in effect immediately prior to such issuance had
all previous adjustments (if any) under this subsection (c) been made pursuant
to the foregoing formula. Upon any such reduction in the Purchase Price, the
number of Warrant Shares purchasable upon the exercise of this Warrant shall be
correspondingly increased. The provisions of this subsection (c) shall not be
applicable to any issuance of Common Stock upon actual exercise or actual
conversion of any option, warrant, right, or other security convertible into or
exercisable for Common Stock if the Purchase Price was fully and properly
adjusted pursuant to the immediately following subsection (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 Company on or after the Initial Issue Date of options,
warrants, or rights to subscribe for shares of Common Stock or of any
securities convertible into or exchangeable for shares of 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 Purchase Price shall be reduced (and the number of
shares of Common Stock purchasable upon the exercise of this Warrant shall be
appropriately increased), by making computations in accordance with subsection
(c) of this Section 6; provided that:
(i) The maximum number of shares of 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 Common Stock provided for in
such option, warrant, or right plus the consideration, if any, received by the
Company for such option, warrant, or right (before deducting underwriting
discounts, commissions, and other expenses);
(ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities or rights
shall be considered to have been delivered at the time of issuance of such
securities or rights, for a consideration equal to the consideration received
by the Company for such securities or rights (before deducting underwriting
discounts, commissions, and other expenses) plus the minimum consideration
(other than such securities) to be received by the Company upon the exchange or
conversion of such securities or rights;
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<PAGE> 9
(iii) If the purchase or conversion price provided for in any
options, warrants, or rights referred to above, the additional consideration,
if any, payable upon the conversion or exchange of convertible securities or
rights referred to above, or the rate at which any convertible securities or
rights referred to above are convertible into or exchangeable for shares of
Common Stock shall change (other than under or by reason of provisions designed
to protect against dilution), the Purchase Price (and the number of shares of
Nonvoting Common Stock purchasable upon the exercise of this Warrant) in effect
at the time of such event shall be readjusted to the Purchase Price (and the
number of shares of Nonvoting Common Stock purchasable upon the exercise of
this Warrant) 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 option, warrant, or
right referred to above, the additional consideration, if any, payable upon the
conversion or exchange of convertible securities or rights referred to above,
or the rate at which any convertible securities or rights referred to above are
convertible into or exchangeable for shares of Common Stock shall be changed at
any time by reason of provisions designed to protect against dilution, then
when shares of Common Stock are delivered upon the exercise of any such option,
warrant, or right or upon conversion or exchange of any such convertible
security or rights, the Purchase Price (and the number of shares of Common
Stock purchasable upon the exercise of this Warrant) then in effect hereunder
shall be readjusted to such amount as would have been obtained had such option,
warrant, right, or convertible security never been issued as to such shares of
Common Stock and had the adjustments required hereunder been made at the time
of the issuance of the shares of 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 Purchase
Price (and the number of shares of Common Stock purchasable upon the exercise
of this Warrant) then in effect shall be readjusted to the Purchase Price (and
the number of shares of Common Stock purchasable upon the exercise of this
Warrant) 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 subsection (iii)) been
made without reference to the number of shares of 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 Common Stock theretofore received by the Holder upon exercise of a
Warrant.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Initial Issue Date the
Company shall distribute to all holders of shares of 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 Common Stock or in securities to which the provisions of the
immediately following subsection (e)(ii) are applicable, the Company shall pay
to the Holder of this Warrant, upon the exercise hereof 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 exercised or
converted this Warrant on the record date fixed in connection with such
dividend or distribution, and the Company shall take whatever steps are
necessary or
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<PAGE> 10
appropriate to keep in reserve at all times any securities and other properties
which are required to fulfill such obligations of the Company. Notwithstanding
the foregoing, the rights of the Holder hereof under this subsection (e)(i)
upon the Company's declaration of a dividend or distribution in partial
liquidation payable only in securities convertible into shares of Common Stock
may be exercised only in lieu of any adjustment (in this subsection (e) called
a "subsection (d) adjustment") because of such dividend or distribution called
for under subsection (d) of this Section 6, and upon exercise hereof such
holder must elect (as indicated in the Subscription Form attached hereto)
either such subsection (d) adjustment or the rights and benefits provided for
in this subsection (e)(i). For the purposes of determining the Purchase Price
from time to time in effect and the number of shares from time to time subject
hereto prior to the exercise hereof, it shall be assumed that the Holder hereof
will so elect subsection (d) adjustments, but upon any election of the rights
and benefits provided for in this subsection (e)(i) made at the time of
exercise hereof the Purchase Price then in effect (and the number of
outstanding shares of Nonvoting Common Stock purchasable upon such exercise)
shall be redetermined to equal the amounts which would have been in effect had
such subsection (d) adjustments never been made. Notwithstanding the provisions
of this subsection (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 that certain Indenture dated as of December 1, 1997 by and among
the Company, the Subsidiary Guarantors (as defined therein) and United States
Trust Company of New York, as Trustee, 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 date hereof the Company shall
grant, issue, or sell any options or rights to purchase stock, warrants,
securities, or other property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), then each Holder shall be entitled (but not
obligated) to acquire, in lieu of any subsection (d) adjustment in respect of
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 Nonvoting Common Stock purchasable upon exercise of the Warrants
immediately prior to the time or times at which the Company 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 Company which are not adequately covered by the
provisions of this Section 6, and which might materially and adversely affect
the exercise rights of the Holders of Warrants, upon the request of a majority
in interest of the Holders the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, of the number of Warrant Shares purchasable upon the
exercise of the Warrants, on a basis consistent with the standards established
in the other provisions of this Section 6 and assuming all other adjustments
required pursuant to this Section 6 have been made, necessary in order to
preserve without diminution the rights of the holders of the Warrants. Upon
receipt of such opinion, the Board of Directors of the Company 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 Notes, the Other
Warrants, or the
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Preferred Stock shall be deemed to be made to all warrants held by the Holders
or their Affiliates in this series simultaneously, the intention being to avoid
any iterative calculations.
(g) Effect of Reorganization and Asset Sales. If any capital
reorganization of the Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Nonvoting Common
Stock shall be entitled to receive stock, securities, or assets (including
cash) of the Company or another Person with respect to or in exchange for
Nonvoting 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
exercise hereof at any time after the consummation of such Transaction, shall
be entitled to receive, and such Warrants shall thereafter represent the right
to receive, in lieu of the Nonvoting Common Stock issuable upon exercise or
conversion hereof 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
exercised or converted such Warrants 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 Section 6). The
Company shall not effect any Transaction unless prior to the consummation
thereof each Person (other than the Company) which may be required to deliver
any securities or other property upon the exercise of the Warrants as provided
herein shall assume, by written instrument delivered to each registered Holder
of the Warrants in form and substance reasonably satisfactory to a majority in
interest of the Holders, the obligation to continue to honor this Warrant and
to deliver to such Holder such securities or other property to which, in
accordance with the foregoing provisions, such Holder 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 all the outstanding Warrants 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 Purchase Price and upon each change in the
number of Warrant Shares issuable upon the exercise of this Warrant, and in the
event of any change in the rights of the Holder of this Warrant by reason of
other events herein set forth, the Company shall as soon as practicable give
written notice ("Notice of Adjustment") to the registered Holder(s) of this
Warrant: (i) describing the event; (ii) stating the adjusted Purchase Price,
the number of Warrant Shares issuable based upon the difference between the
Purchase Price before and after such adjustment; and (iii) stating how such
adjustment of Purchase Price or number of Warrant Shares was calculated and the
facts on which the calculation is based.
(i) Accountant's Opinion. Upon each adjustment of the Purchase Price
and upon each change in the number of Warrant Shares issuable upon the exercise
of this Warrant, and in the event of any change in the rights of the Holder of
this Warrant by reason of other events herein set forth, then and in each such
case, upon the reasonable written request of 50% in interest of the registered
Holders of Warrants in this series given to the Company within thirty (30) days
after the Company has given Notice of Adjustment, the Company will promptly
obtain an opinion of independent certified public accountants selected by the
Company and reasonably satisfactory to such Holder(s), stating the adjusted
Purchase Price and the new
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number of Warrant Shares 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
Company will promptly mail a copy of such accountant's opinion to the
registered Holder of this Warrant. The costs of the accountant's opinion shall
be borne (i) by the Company, if the accountant's opinion reflects any change to
the adjusted Purchase Price or the number of Warrant Shares 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 Purchase Price or the number of
Warrant Shares 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 rules of the
American Arbitration Association. All costs and expenses (including reasonable
attorneys' fees) incurred by the Company 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 $.01. The Company shall not be required to
give notice of any adjustment of the Purchase Price in accordance with
subsection (h) above if the amount of such adjustment shall be less than $.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 $.01 per share; provided, however, that notice of each
such adjustment of the Purchase 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 subsection (j).
(k) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company or any of its subsidiaries, but the disposition of any such
shares to a third party shall be considered an issue or sale of Common Stock
for the purposes of this Section 6.
(l) Adjustment Exceptions. Anything in this Section 6 to the contrary
notwithstanding, no adjustment of the Purchase Price or the number of Warrant
Shares issuable upon the exercise of this Warrant shall be made upon (i) the
issuance of any Warrants, (ii) the issuance of any Warrant Shares, (iii) the
granting of any warrant concurrently with the granting of this Warrant,
including warrants granted under the Purchase Agreement, (iv) the issuance of
any shares of Common Stock upon the exercise of any warrant granted
concurrently with the granting of this Warrant, including warrants granted
under the Purchase Agreement, (v) the issuance of any Convertible Preferred
Stock by the Company in lieu of paying cash interest on the Notes, (vi) the
issuance of any shares of Common Stock upon the exchange of the Notes or
conversion of any Convertible Preferred Stock issued in lieu of cash interest
on the Notes or in exchange for the Notes, (vii) the issuance of rights to
acquire shares of Common Stock as a result of any antidilution adjustments in
any of the foregoing, (viii) the issuance of any shares of Common Stock or
other options or rights to purchase stock, warrants, other securities pursuant
to a Plan, and (ix) the issuance of shares of Common Stock or rights to acquire
Common Stock in connection with any redemption pursuant to Article 3 of either
of the Notes or in connection with any redemption of Preferred Stock.
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Section 7. Special Agreements of the Company. The Company covenants
and agrees that:
(a) Will Reserve Shares. The Company will authorize, reserve and set
apart and have available solely for issuance and delivery upon exercise at all
times, free from preemptive rights, those shares of the Nonvoting Common Stock
or other securities which are deliverable upon the exercise of the Warrants,
and the Company will have at all times all other rights or privileges necessary
to enable it at any time to fulfill all its obligations hereunder.
(b) Will Avoid Certain Actions. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities or otherwise, avoid
or take any action which would have the effect of avoiding the observance or
performance of any of the terms to be observed or performed hereunder by the
Company (including, without limitation, by way of amending, altering,
modifying, or repealing any provision of the Company's Articles of
Incorporation in any manner which adversely affects the relative rights,
preferences, qualifications, powers, limitations or restrictions of the
Nonvoting Common Stock), but will at all times in good faith assist in carrying
out all of the Company's obligations pursuant to the provisions of this Warrant
and in taking all such action as may be necessary or appropriate in order to
protect the rights of the registered holder of this Warrant against dilution or
other impairment, and, in particular, will not permit the par value, if any, of
any share of the Nonvoting Common Stock to be or become greater than the then
effective Purchase Price.
(c) Will List on Securities Exchange. If and so long as the Common
Stock is listed on any national securities exchange (as defined in the Exchange
Act) or automatic quotation system, the Company will, at its expense, use its
reasonable best efforts to obtain and maintain the approval for listing on each
such exchange upon official notice of issuance of all shares of the Nonvoting
Common Stock receivable upon the exercise of the Warrants at the time
outstanding and in any event will use its reasonable best efforts to obtain and
maintain the listing of such shares after their issuance; and the Company will
so list on such national securities exchange or automatic quotation system, to
register under the Exchange Act (and any similar state statute then in effect),
and to maintain such listing of, any other securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange by the
Company.
(d) Will Bind Successors. This Warrant will be binding upon any Person
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
Section 8. Notifications by the Company. If at any time:
(a) the Company shall declare upon the Common Stock any dividend or
other distribution to the holders of the Common Stock;
(b) the Company shall make an offer for subscription pro rata to the
holders of the Voting Common Stock and/or Nonvoting Common Stock of any
additional shares of stock of any class or other rights;
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(c) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
statutory exchange or any consolidation of the Company or merger of the Company
with, or sale of all or substantially all of its assets to, another Person;
(d) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) a voluntary dissolution, liquidation
or winding-up of the Company; or
(e) the Company shall become subject to involuntary dissolution,
liquidation or winding-up;
then, in any one or more of such cases, the Company shall give notice thereof
to each registered Holder of Warrants or Warrant Shares, specifying (i) the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or (ii) the date on
which such reorganization, reclassification, statutory exchange, consolidation,
merger, sale, dissolution, liquidation or winding-up shall take place or be
voted upon by shareholders of the Company, as the case may be. Any such notice
under subsections (a) through (e) of this Section 8 shall also specify the date
as of which the holders of record of the Voting Common Stock and/or Nonvoting
Common Stock shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Voting Common Stock and/or
Nonvoting Common Stock for securities or other property deliverable upon such
reorganization, reclassification, statutory exchange, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be; such notice
shall be given not less than thirty (30) and not more than fifty (50) days
prior to the action in question (except in the case of notice for actions under
Section 8(e), which notice shall be promptly following such action) and not
less than thirty (30) and not more than fifty (50) days prior to the record
date or the date on which the Company's transfer books are closed in respect
thereto, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act or to a favorable vote of shareholders, if either is required.
Section 9. Notices. All notices, requests and other communications
required or permitted to be given or delivered to registered Holders shall be
in writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to each such Holder at the address shown
on such Holder's Warrant or Warrant Shares, or at such other address as shall
have been furnished to the Company by notice from such Holder. All notices,
requests and other communications required or permitted to be given or
delivered to the Company shall be in writing, and shall be delivered, or shall
be sent by certified or registered mail, postage prepaid and addressed, to
Company, as follows:
Kevco, Inc.
1300 South University, Suite 200
Fort Worth, Texas 76107
Attention: President
Telecopy Number: (817) 332-2765
14
<PAGE> 15
with a copy to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Byron F. Egan
Telecopy Number: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopy Number: (212) 225-3999
The Kevco Partners Investment Trust
c/o Wingate Partners II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
Attention: Frederick B. Hegi, Jr.
Telecopy Number: (214) 871-8799
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Telecopy Number: (214) 746-7777
or at such other address as shall have been furnished to the registered Holders
by notice from the Company. Each such notice sent by mail as described above
shall be deemed received on the date of receipt by the Holder or the Company,
as applicable.
Section 10. No Rights or Liabilities as Shareholder. This Warrant
shall not entitle any Holder hereof to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of the Nonvoting Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Purchase Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
Section 11. Governing Law. This Warrant shall be construed in
accordance with and governed by the laws of the State of Texas, without regard
to the provisions thereof relating to conflict of laws.
Section 12. Confidentiality. By its acceptance hereof each Holder of
this Warrant agrees that it will take all reasonable steps to keep confidential
any proprietary information of the Company furnished to it; provided, however,
that this restriction shall not apply to information which (i) has at the time
in question entered the public domain, (ii) is required to be disclosed by law
or by any order, rule or regulation (whether valid or invalid) of any court
15
<PAGE> 16
or governmental agency or authority, or (iii) is furnished to purchasers or
prospective purchasers hereof (exclusive of any Person who competes with, or is
an Affiliate of a Person who competes with, the Company) so long as such
purchasers and prospective purchasers have agreed to be subject to restrictions
identical to those imposed upon such Holder under this sentence.
Section 13. Miscellaneous. Unless otherwise expressly provided herein
or unless the registered Holder hereof otherwise consents in writing, all
financial statements and reports furnished pursuant to Section 6(i) or
otherwise furnished hereunder to the registered Holder hereof shall be prepared
and all computations and determinations pursuant hereto shall be made in
accordance with generally accepted accounting principles applied on a
consistent basis. This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against whom enforcement of the same is sought. The headings in this Warrant
are for purposes of reference only and shall not affect the meaning or
construction of any provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
16
<PAGE> 17
IN WITNESS WHEREOF, Kevco, Inc. has caused this Warrant to be
signed and delivered by its duly authorized officer, attested by its duly
authorized officer, and to be dated as of July 26, 1999.
Kevco, Inc.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
Title: President
ATTEST:
By: /s/ CLYDE A. REED
------------------------------------
Name: Clyde A. Reed
Title: Executive Vice President
and Chief Operating Officer
17
<PAGE> 18
ASSIGNMENT FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
For Value Received, the Undersigned registered holder hereby
sells, assigns and transfers unto _______________________ the right to purchase
______ shares of the Nonvoting Common Stock covered by the within Warrant, and
does hereby irrevocably constitute and appoint ___________________________ as
Attorney to transfer the said Warrant on the books of the Company (as defined
in said Warrant), with full power of substitution.
Name of Registered Holder:
---------------------------------------
Signature:
---------------------------------------
Title of Signing Officer
---------------------------------------
or Agent (if any):
Address of Registered Holder:
---------------------------------------
---------------------------------------
Dated:
-------------------------
Signed in the presence of
- -------------------------------
<PAGE> 19
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
The undersigned registered holder hereby exercises the right
to purchase ______ shares of the Nonvoting Common Stock covered by the within
Warrant, according to the conditions thereof, and herewith makes payment of the
Purchase Price of such shares, $____________.
Name of Registered Holder:
---------------------------------------
Signature:
---------------------------------------
Title of Signing Officer
---------------------------------------
or Agent (if any):
Address of Registered Holder:
---------------------------------------
---------------------------------------
Dated:
-------------------------
<PAGE> 1
EXHIBIT 10.5
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
OF THIS WARRANT WERE PURCHASED PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT DATED AS OF JULY 14,
1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P.
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND
SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND
SECTION 3 OF THIS WARRANT.
No. of Nonvoting Shares: 295,455 Shares Warrant No. 27
WARRANT
To purchase Nonvoting Common Stock of
KEVCO, INC.
July 26, 1999
THIS WARRANT CERTIFIES THAT, for value received, the
registered holder hereof, The Kevco Partners Investment Trust, a Delaware
business trust, or its registered assigns, is entitled to purchase from Kevco,
Inc., a Texas corporation (the "Company"), at any time and from time to time
after the date hereof (the "Initial Issue Date") and on or before 5:00 p.m.
Central Time, on the Expiration Date (as hereinafter defined) 295,455 shares of
the Nonvoting Common Stock (as hereinafter defined) at the Basic Purchase Price
(as hereinafter defined), subject to the terms, conditions, and adjustments as
hereinafter provided in Section 6.
Section 1. Definitions and References. Unless otherwise specified,
references herein to sections, subsections, and similar subdivisions refer to
the sections, subsections, and subdivisions of this Warrant. For all purposes of
this Warrant, the following terms shall have the meanings hereinafter indicated:
"Affiliate" with respect to a party to this Agreement shall
mean any Person that directly or indirectly (through one or more intermediaries
or otherwise) controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used in respect of any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement, or otherwise.
"Amendment" shall mean the Amendment to the Company's Articles
of Incorporation required by the Purchase Agreement to create the Nonvoting
Common Stock, a
<PAGE> 2
class of preferred stock designated "Series A 103/8% Convertible Pay-in-Kind
Voting Preferred Stock" and a class of preferred stock designated "Series B
103/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" (collectively, the
"Convertible Preferred Stock").
"Basic Purchase Price" shall mean the price of $5.50 per share
of the Nonvoting Common Stock.
"Board of Directors" shall mean the board of directors of the
Company.
"Business Day" shall mean a day on which commercial banks are
open for business with the public in New York, New York.
"Commission" shall mean the Securities and Exchange Commission
and any other similar or successor agency of the federal government then
administering the Securities Act or the Exchange Act.
"Common Stock" shall mean the voting common stock, par value
$.01 per share, of the Company ("Voting Common Stock"), and, after the adoption
of the Amendment the nonvoting common stock, par value $.01 per share, of the
Company ("Nonvoting Common Stock") and any capital stock into which such Common
Stock thereafter may be changed or converted.
"Common Stock Equivalents" shall mean (without duplication
with any other Common Stock or Common Stock Equivalents) rights, warrants,
options, convertible securities or convertible indebtedness, exchangeable
securities or exchangeable indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock, and any
stock appreciation rights or similar rights to payment based upon the value of
the Company's common equity, whether at the time or upon the occurrence of some
future event including all shares of Common Stock issuable in respect of this
Warrant and in respect of the Purchase Agreement and the documents and
instruments executed in connection with the Purchase Agreement and the
transactions contemplated thereby to the extent not issued and outstanding.
"Composite Tape" shall mean, with respect to any security, the
reporting by the National Association of Securities Dealers (or any successor
reporting mechanism) of all trades of such security occurring on all exchanges
on which such security is traded.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time in question.
"Expiration Date" shall mean the fifth anniversary of the
Initial Issue Date.
"Fully-Diluted Common Stock" shall mean, at any time, the then
outstanding shares of Common Stock of the Company plus (without duplication) all
shares of Common Stock issuable, whether at such time or upon passage of time or
the occurrence of future events, upon the exercise, conversion, or exchange of
all then-outstanding Common Stock Equivalents (including, for purposes of such
calculation, "phantom" shares of equivalent value to any stock appreciation or
equivalent equity-based payment right).
2
<PAGE> 3
"Holder" shall mean the initial holder of this Warrant, and
any Person to whom this Warrant, or any portion thereof, is subsequently
transferred of record, together with the registered holder(s) of any Warrant
Shares into which this Warrant (or any subsequent Warrant) is subsequently
converted.
"Independent Directors" shall mean any director of the Company
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.
"Kimmel Designees" shall mean Jerry E. Kimmel, if he is a
director of the Company, and any other director of the Company elected or
appointed at the designation of Jerry E. Kimmel.
"Market Price" shall mean, with respect to any 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.
"NASDAQ" shall mean the NASDAQ Stock Market.
"Notes" shall mean collectively the $17.0 million and $6.5
million principal amount Series A and Series B Senior Subordinated Convertible
Exchangeable Notes issued by the Company pursuant to the Purchase Agreement.
"Other Warrants" shall mean collectively the warrant to
acquire 675,000 shares of Nonvoting Common Stock and the warrant to acquire
772,727 shares of Nonvoting Common Stock.
"Person" shall mean any individual, partnership, limited
liability company, joint venture, corporation, trust, unincorporated
organization, or other entity.
"Plans" shall mean any plan existing on the date hereof or
adopted by the Company after the date hereof providing for the issuance of
Common Stock or other options or rights to purchase stock, warrants or other
securities.
"Preferred Stock" shall mean collectively the Company's (i)
Series A 10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par value $0.01
per share, and (ii) Series B 10 3/8% Convertible Pay-in-Kind Nonvoting Preferred
Stock, par value $0.01 per share.
"Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of July 14, 1999, by and between the Company and
Wingate.
"Purchase Price" shall mean, as of any date, the Basic
Purchase Price as adjusted pursuant to Section 6.
3
<PAGE> 4
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time in question.
"Special Committee" shall mean 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.
"Subsidiary" shall mean, with respect to any Person, any other
Person at least a majority of whose outstanding shares of capital stock or other
equity interests (having ordinary voting power for the election of directors or
comparable managers of such other Person) are owned, directly or indirectly, by
that Person.
"Trading Day" shall mean any day on which NADSAQ is open for
trading, or if the shares of Voting Common Stock are not quoted on NASDAQ, 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.
"transfer", as used in Section 3, shall mean any disposition
of this Warrant, any Warrant Shares, or of any interest therein, which would
constitute a sale of or an offer to sell such Warrant or Warrant Shares within
the meaning of the Securities Act.
"Warrant" or "Warrants" shall mean this Warrant and any
Warrant or Warrants issued upon transfer hereof, including all amendments to any
such Warrants and together with all Warrants issued in exchange, transfer or
replacement of any thereof.
"Warrant Shares" shall mean all shares of Common Stock
purchased or purchasable by the registered Holders of the Warrants upon the
exercise thereof, provided that such shares of Common Stock shall be deemed to
include all other shares of Common Stock issued or issuable in connection
therewith, whether as a result of stock dividends, exchanges, stock splits,
reverse stock splits, recapitalizations, mergers, consolidations, or otherwise.
"Wingate" shall mean Wingate Partners II, L.P., a Delaware
limited partnership.
Section 2. Ownership of this Warrant.
(a) Ownership. The Company may deem and treat the Person in whose name
this Warrant is registered as the Holder and owner hereof for all purposes,
notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company, and shall not be affected by any notice to the contrary,
until presentation of this Warrant for registration of transfer as provided in
Section 3. The Company shall maintain, at its office or agency in Fort Worth,
Texas (or at such other office or agency of the Company as the Company shall
designate from time to time by notice to the registered holder of this Warrant),
a register for the Warrants, in which the Company shall record the name and
address of the Person in whose name each Warrant has been issued, as well as the
name and address of each transferee and each prior owner of such Warrant. Within
five (5) Business Days after any Holder shall by notice request the same, the
Company will deliver to such Holder a certificate, signed by one of its
authorized officers, listing the name and address of every other Holder of
Warrants of this series, as such information appears in such register and in the
stock transfer books of the Company at the close of business on the day before
such certificate is signed.
4
<PAGE> 5
(b) Term. This Warrant shall be void after 5:00 p.m. Central Time on
the Expiration Date.
Section 3. Exchange, Transfer and Replacement.
(a) Exchange. This Warrant is exchangeable, upon the surrender hereof
by the registered Holder to the Company at its office or agency provided for in
Section 2, for new Warrants of like tenor, representing in the aggregate the
right to purchase the number of shares of the Nonvoting Common Stock purchasable
hereunder or in the aggregate with any other Warrants tendered herewith, each of
such new Warrants to represent the right to purchase such number of shares of
the Nonvoting Common Stock as shall be designated by said registered Holder at
the time of such surrender, not to exceed the aggregate shares of Nonvoting
Common Stock purchasable on the exercise of all such tendered Warrants.
(b) Transfer. This Warrant and all rights hereunder are transferable,
in whole or in part, but only upon the register provided for in Section 2 and
only upon satisfaction of the conditions set forth in this Warrant, by the
registered Holder hereof, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant with the assignment form attached
hereto duly completed, at said office or agency of the Company. No sale,
transfer, or other disposition of this Warrant or the Warrant Shares issuable
hereunder will be made without registration under the Securities Act and
applicable state securities laws or pursuant to exemptions therefrom. The
Company may, as a condition to any such transfer, require an opinion of counsel
reasonably satisfactory to it that such transfer complies with all applicable
federal and state securities laws.
(c) Replacement. Upon receipt by the Company at its office or agency
provided for in Section 2 of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in the case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor, in replacement of this Warrant; provided
that, if Wingate, Armbuck & Co., H C Crown Corp. or any of their respective
Affiliates shall be the registered holder hereof, an agreement of indemnity (in
form reasonably satisfactory to the Company) by such registered Holder shall be
sufficient for all purposes of this Section 3.
(d) Cancellation and Taxes. This Warrant shall be promptly cancelled by
the Company upon the surrender hereof in connection with any exchange, transfer
or replacement pursuant to this Section 3. The Company shall pay all taxes and
other expenses and charges payable in connection with the preparation, execution
and delivery of Warrants pursuant to this Section 3, excluding, however, any
thereof imposed on or measured by the overall net income of the Holder of this
Warrant or any other Person by any jurisdiction in which such Holder or such
other Person is located.
(e) Legend. All Warrants issued upon transfer hereof, including all
amendments to any such Warrants shall be imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
5
<PAGE> 6
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
WARRANT WERE PURCHASED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT DATED AS OF
JULY 14, 1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P. NEITHER THIS
WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW AND SECTION 3 OF THIS
WARRANT.
Section 4. Exercise of This Warrant.
(a) Procedure for Exercise.
(i) In order to exercise this Warrant in whole or in part, the
registered Holder hereof shall complete a subscription form in the form attached
hereto and deliver to the Company at its office or agency provided for in
Section 2 such subscription form, this Warrant and the aggregate Purchase Price
of the shares of the Nonvoting Common Stock then being purchased; provided that
any single exercise of this Warrant not made in whole must be for a minimum of
5,000 Warrant Shares.
(ii) Such Purchase Price shall be paid to the Company in lawful
money of the United States by company check of Wingate or an Affiliate of
Wingate, or, if the Holder is other than Wingate or an Affiliate of Wingate, by
certified check drawn as a banking institution chartered by the government of
the United States or any state thereof or wire transfer of funds.
(iii) The exercise of this Warrant shall be deemed to have been
effected and the Purchase Price and the number of shares of the Nonvoting Common
Stock issuable in connection with such exercise shall be determined as of the
close of business on the Business Day on which the last to be delivered of such
completed subscription form and all other items required to be delivered in
connection with such exercise by the registered Holder hereof pursuant to this
Section 4 shall have been delivered at the requisite office or agency of the
Company. Upon receipt of such form and other items, the Company shall, as
promptly as practicable, and in any event within five (5) Business Days
thereafter, issue such shares of Nonvoting Common Stock and execute or cause to
be executed and delivered to the registered Holder hereof a certificate or
certificates representing the aggregate number of shares of the Nonvoting Common
Stock specified in such form. The Holder shall be deemed to be a shareholder of
the Company for all purposes upon receipt of such form and other items,
notwithstanding the fact that certificates representing such Nonvoting Common
Stock have not been issued. If this Warrant shall have been exercised only in
part, the Company shall, at its expense at the time of delivery of such stock
certificate or certificates, deliver to the registered Holder hereof a new
Warrant evidencing the rights of such Holder to purchase the remaining shares of
the Nonvoting Common Stock covered by this Warrant. The Company shall pay all
taxes (other than any taxes imposed on or measured by the overall net income of
such Holder in any jurisdiction in which such Holder is located) and other
expenses and charges payable in
6
<PAGE> 7
connection with the preparation, execution and delivery of stock certificates
pursuant to this Section 4.
(b) Character of Warrant Shares. All shares of the Nonvoting Common
Stock issuable upon the exercise of this Warrant shall, when issued and paid for
in accordance with such Warrant, be duly authorized, validly issued, fully paid,
and nonassessable.
Section 5. Payment of Taxes. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Warrant Shares or of other securities or property
deliverable upon exercise of the Warrants evidenced by this Warrant representing
such shares or securities (other than income taxes imposed on Holders); provided
that the Company shall not be required to pay any such tax or other charge that
may be imposed in connection with any transfer involved in the issue of any
certificate for Warrant Shares or other securities or property, or payment of
cash, to any Person other than the Holder who surrendered a Warrant upon
exercise, and in case of any such tax or charge, the Company shall not be
required to issue any security or property or pay any cash until such tax or
charge has been paid or it has been established to the Company's satisfaction
that no such tax or charge is payable.
Section 6. Share Adjustment Provisions; Adjustment of Purchase Price.
The Purchase Price from time to time in effect under this Warrant, and the
number of Warrant Shares subject to purchase hereunder, shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.
(a) Common Stock Splits. Upon any subdivision by the Company on or
after the Initial Issue Date of all of its outstanding shares of Common Stock
into a greater number of shares or upon any issuance by the Company on or after
such date of a greater number of shares of Common Stock in a pro rata exchange
for all of its outstanding shares of Common Stock, then in each case from and
after the record date for such subdivision or exchange the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be increased in
proportion to such increase in the number of outstanding shares of Common Stock,
and the Purchase Price then in effect shall be correspondingly decreased. Upon
any pro rata reduction by the Company on or after the Initial Issue Date of its
outstanding shares of Common Stock as a whole or upon any issuance by the
Company after such date of a lesser number of shares of Common Stock in a pro
rata exchange for all of its outstanding shares of Common Stock, then in each
case from and after the record date for such reduction or exchange the number of
Warrant Shares purchasable upon the exercise of this Warrant shall be decreased
in proportion to such reduction in the number of outstanding shares of Common
Stock, and the Purchase Price shall be correspondingly increased.
(b) Common Stock Dividends. Upon any declaration and payment by the
Company on or after the Initial Issue Date of a dividend upon Common Stock
payable in Common Stock, then in each case from and after the record date for
the payment of such stock dividend, the number of Warrant Shares purchasable
upon the exercise of this Warrant shall be increased in proportion to the
increase in the number of outstanding shares of Common Stock through such stock
dividend, and the Purchase Price shall be correspondingly decreased.
7
<PAGE> 8
(c) Other Issues. Upon any issuance by the Company of shares of Common
Stock on or after the Initial Issue Date (other than issuances of stock
requiring adjustments hereunder pursuant to the immediately preceding
subsections (a) and (b) of this Section 6) for a consideration lower than the
Market Price per share of stock in effect immediately prior to such issuance,
the Purchase 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 Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Common Stock outstanding immediately prior to the issue of such additional
Common Stock, E equals the Market Price per share of stock in effect immediately
prior to the issue of such additional Common Stock, F equals the aggregate
consideration (before deducting underwriting discounts, commissions, and other
expenses) received or to be received by the Company in connection with the
issuance of such additional Common Stock, and G equals the Purchase Price which
would have been in effect immediately prior to such issuance had all previous
adjustments (if any) under this subsection (c) been made pursuant to the
foregoing formula. Upon any such reduction in the Purchase Price, the number of
Warrant Shares purchasable upon the exercise of this Warrant shall be
correspondingly increased. The provisions of this subsection (c) shall not be
applicable to any issuance of Common Stock upon actual exercise or actual
conversion of any option, warrant, right, or other security convertible into or
exercisable for Common Stock if the Purchase Price was fully and properly
adjusted pursuant to the immediately following subsection (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 Company on or after the Initial Issue Date of options,
warrants, or rights to subscribe for shares of Common Stock or of any securities
convertible into or exchangeable for shares of 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 Purchase Price shall be reduced (and the number of shares of
Common Stock purchasable upon the exercise of this Warrant shall be
appropriately increased), by making computations in accordance with subsection
(c) of this Section 6; provided that:
(i) The maximum number of shares of 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 Common Stock provided for in such
option, warrant, or right plus the consideration, if any, received by the
Company for such option, warrant, or right (before deducting underwriting
discounts, commissions, and other expenses);
(ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities or rights
shall be considered to have been delivered at the time of issuance of such
securities or rights, for a consideration equal to the consideration received by
the Company for such securities or rights (before deducting underwriting
discounts, commissions, and other expenses) plus the minimum consideration
(other than such securities) to be received by the Company upon the exchange or
conversion of such securities or rights;
8
<PAGE> 9
(iii) If the purchase or conversion price provided for in any
options, warrants, or rights referred to above, the additional consideration, if
any, payable upon the conversion or exchange of convertible securities or rights
referred to above, or the rate at which any convertible securities or rights
referred to above are convertible into or exchangeable for shares of Common
Stock shall change (other than under or by reason of provisions designed to
protect against dilution), the Purchase Price (and the number of shares of
Nonvoting Common Stock purchasable upon the exercise of this Warrant) in effect
at the time of such event shall be readjusted to the Purchase Price (and the
number of shares of Nonvoting Common Stock purchasable upon the exercise of this
Warrant) 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 option, warrant, or right referred
to above, the additional consideration, if any, payable upon the conversion or
exchange of convertible securities or rights referred to above, or the rate at
which any convertible securities or rights referred to above are convertible
into or exchangeable for shares of Common Stock shall be changed at any time by
reason of provisions designed to protect against dilution, then when shares of
Common Stock are delivered upon the exercise of any such option, warrant, or
right or upon conversion or exchange of any such convertible security or rights,
the Purchase Price (and the number of shares of Common Stock purchasable upon
the exercise of this Warrant) then in effect hereunder shall be readjusted to
such amount as would have been obtained had such option, warrant, right, or
convertible security never been issued as to such shares of Common Stock and had
the adjustments required hereunder been made at the time of the issuance of the
shares of 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 Purchase Price
(and the number of shares of Common Stock purchasable upon the exercise of this
Warrant) then in effect shall be readjusted to the Purchase Price (and the
number of shares of Common Stock purchasable upon the exercise of this Warrant)
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 subsection (iii)) been made without reference to
the number of shares of 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 Common
Stock theretofore received by the Holder upon exercise of a Warrant.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Initial Issue Date the Company
shall distribute to all holders of shares of 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
Common Stock or in securities to which the provisions of the immediately
following subsection (e)(ii) are applicable, the Company shall pay to the Holder
of this Warrant, upon the exercise hereof 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 exercised or converted
this Warrant on the record date fixed in connection with such dividend or
distribution, and the Company shall take whatever steps are necessary or
9
<PAGE> 10
appropriate to keep in reserve at all times any securities and other properties
which are required to fulfill such obligations of the Company. Notwithstanding
the foregoing, the rights of the Holder hereof under this subsection (e)(i) upon
the Company's declaration of a dividend or distribution in partial liquidation
payable only in securities convertible into shares of Common Stock may be
exercised only in lieu of any adjustment (in this subsection (e) called a
"subsection (d) adjustment") because of such dividend or distribution called for
under subsection (d) of this Section 6, and upon exercise hereof such holder
must elect (as indicated in the Subscription Form attached hereto) either such
subsection (d) adjustment or the rights and benefits provided for in this
subsection (e)(i). For the purposes of determining the Purchase Price from time
to time in effect and the number of shares from time to time subject hereto
prior to the exercise hereof, it shall be assumed that the Holder hereof will so
elect subsection (d) adjustments, but upon any election of the rights and
benefits provided for in this subsection (e)(i) made at the time of exercise
hereof the Purchase Price then in effect (and the number of outstanding shares
of Nonvoting Common Stock purchasable upon such exercise) shall be redetermined
to equal the amounts which would have been in effect had such subsection (d)
adjustments never been made. Notwithstanding the provisions of this subsection
(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 that certain
Indenture dated as of December 1, 1997 by and among the Company, the Subsidiary
Guarantors (as defined therein) and United States Trust Company of New York, as
Trustee, 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 date hereof the Company shall
grant, issue, or sell any options or rights to purchase stock, warrants,
securities, or other property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), then each Holder shall be entitled (but not
obligated) to acquire, in lieu of any subsection (d) adjustment in respect of
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 Nonvoting Common Stock purchasable upon exercise of the Warrants immediately
prior to the time or times at which the Company 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 Company which are not adequately covered by the
provisions of this Section 6, and which might materially and adversely affect
the exercise rights of the Holders of Warrants, upon the request of a majority
in interest of the Holders the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), whi ch shall give their opinion upon the
adjustment, if any, of the number of Warrant Shares purchasable upon the
exercise of the Warrants, on a basis consistent with the standards established
in the other provisions of this Section 6 and assuming all other adjustments
required pursuant to this Section 6 have been made, necessary in order to
preserve without diminution the rights of the holders of the Warrants. Upon
receipt of such opinion, the Board of Directors of the Company 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 Notes, the Other
Warrants, or the
10
<PAGE> 11
Preferred Stock shall be deemed to be made to all warrants held by the Holders
or their Affiliates in this series simultaneously, the intention being to avoid
any iterative calculations.
(g) Effect of Reorganization and Asset Sales. If any capital
reorganization of the Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Nonvoting Common
Stock shall be entitled to receive stock, securities, or assets (including cash)
of the Company or another Person with respect to or in exchange for Nonvoting
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
exercise hereof at any time after the consummation of such Transaction, shall be
entitled to receive, and such Warrants shall thereafter represent the right to
receive, in lieu of the Nonvoting Common Stock issuable upon exercise or
conversion hereof 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
exercised or converted such Warrants 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 Section 6). The
Company shall not effect any Transaction unless prior to the consummation
thereof each Person (other than the Company) which may be required to deliver
any securities or other property upon the exercise of the Warrants as provided
herein shall assume, by written instrument delivered to each registered Holder
of the Warrants in form and substance reasonably satisfactory to a majority in
interest of the Holders, the obligation to continue to honor this Warrant and to
deliver to such Holder such securities or other property to which, in accordance
with the foregoing provisions, such Holder 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 all the outstanding Warrants 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 Purchase Price and upon each change in the number
of Warrant Shares issuable upon the exercise of this Warrant, and in the event
of any change in the rights of the Holder of this Warrant by reason of other
events herein set forth, the Company shall as soon as practicable give written
notice ("Notice of Adjustment") to the registered Holder(s) of this Warrant: (i)
describing the event; (ii) stating the adjusted Purchase Price, the number of
Warrant Shares issuable based upon the difference between the Purchase Price
before and after such adjustment; and (iii) stating how such adjustment of
Purchase Price or number of Warrant Shares was calculated and the facts on which
the calculation is based.
(i) Accountant's Opinion. Upon each adjustment of the Purchase Price
and upon each change in the number of Warrant Shares issuable upon the exercise
of this Warrant, and in the event of any change in the rights of the Holder of
this Warrant by reason of other events herein set forth, then and in each such
case, upon the reasonable written request of 50% in interest of the registered
Holders of Warrants in this series given to the Company within thirty (30) days
after the Company has given the Notice of Adjustment, the Company will promptly
obtain an opinion of independent certified public accountants selected by the
Company and reasonably satisfactory to such Holder(s), stating the adjusted
Purchase Price and the new
11
<PAGE> 12
number of Warrant Shares 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
Company will promptly mail a copy of such accountant's opinion to the registered
Holder of this Warrant. The costs of the accountant's opinion shall be borne (i)
by the Company, if the accountant's opinion reflects any change to the adjusted
Purchase Price or the number of Warrant Shares 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 Purchase Price or the number of Warrant
Shares 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 rules of the American
Arbitration Association. All costs and expenses (including reasonable attorneys'
fees) incurred by the Company 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 $.01. The Company shall not be required to
give notice of any adjustment of the Purchase Price in accordance with
subsection (h) above if the amount of such adjustment shall be less than $.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 $.01 per share; provided, however, that notice of each such adjustment of
the Purchase 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
subsection (j).
(k) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company or any of its subsidiaries, but the disposition of any such
shares to a third party shall be considered an issue or sale of Common Stock for
the purposes of this Section 6.
(l) Adjustment Exceptions. Anything in this Section 6 to the contrary
notwithstanding, no adjustment of the Purchase Price or the number of Warrant
Shares issuable upon the exercise of this Warrant shall be made upon (i) the
issuance of any Warrants, (ii) the issuance of any Warrant Shares, (iii) the
granting of any warrant concurrently with the granting of this Warrant,
including warrants granted under the Purchase Agreement, (iv) the issuance of
any shares of Common Stock upon the exercise of any warrant granted concurrently
with the granting of this Warrant, including warrants granted under the Purchase
Agreement, (v) the issuance of any Convertible Preferred Stock by the Company in
lieu of paying cash interest on the Notes, (vi) the issuance of any shares of
Common Stock upon the exchange of the Notes or conversion of any Convertible
Preferred Stock issued in lieu of cash interest on the Notes or in exchange for
the Notes, (vii) the issuance of rights to acquire shares of Common Stock as a
result of any antidilution adjustments in any of the foregoing, (viii) the
issuance of any shares of Common Stock or other options or rights to purchase
stock, warrants, other securities pursuant to a Plan, and (ix) the issuance of
shares of Common Stock or rights to acquire Common Stock in connection with any
redemption pursuant to Article 3 of either of the Notes or in connection with
any redemption of Preferred Stock.
12
<PAGE> 13
Section 7. Special Agreements of the Company. The Company covenants and
agrees that:
(a) Will Reserve Shares. The Company will authorize, reserve and set
apart and have available solely for issuance and delivery upon exercise at all
times, free from preemptive rights, those shares of the Nonvoting Common Stock
or other securities which are deliverable upon the exercise of the Warrants, and
the Company will have at all times all other rights or privileges necessary to
enable it at any time to fulfill all its obligations hereunder.
(b) Will Avoid Certain Actions. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, issue or sale of securities or otherwise, avoid or take
any action which would have the effect of avoiding the observance or performance
of any of the terms to be observed or performed hereunder by the Company
(including, without limitation, by way of amending, altering, modifying, or
repealing any provision of the Company's Articles of Incorporation in any manner
which adversely affects the relative rights, preferences, qualifications,
powers, limitations or restrictions of the Nonvoting Common Stock), but will at
all times in good faith assist in carrying out all of the Company's obligations
pursuant to the provisions of this Warrant and in taking all such action as may
be necessary or appropriate in order to protect the rights of the registered
holder of this Warrant against dilution or other impairment, and, in particular,
will not permit the par value, if any, of any share of the Nonvoting Common
Stock to be or become greater than the then effective Purchase Price.
(c) Will List on Securities Exchange. If and so long as the Common
Stock is listed on any national securities exchange (as defined in the Exchange
Act) or automatic quotation system, the Company will, at its expense, use its
reasonable best efforts to obtain and maintain the approval for listing on each
such exchange upon official notice of issuance of all shares of the Nonvoting
Common Stock receivable upon the exercise of the Warrants at the time
outstanding and in any event will use its reasonable best efforts to obtain and
maintain the listing of such shares after their issuance; and the Company will
so list on such national securities exchange or automatic quotation system, to
register under the Exchange Act (and any similar state statute then in effect),
and to maintain such listing of, any other securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange by the
Company.
(d) Will Bind Successors. This Warrant will be binding upon any Person
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
Section 8. Notifications by the Company. If at any time:
(a) the Company shall declare upon the Common Stock any dividend or
other distribution to the holders of the Common Stock;
(b) the Company shall make an offer for subscription pro rata to the
holders of the Voting Common Stock and/or Nonvoting Common Stock of any
additional shares of stock of any class or other rights;
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<PAGE> 14
(c) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any statutory
exchange or any consolidation of the Company or merger of the Company with, or
sale of all or substantially all of its assets to, another Person;
(d) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) a voluntary dissolution, liquidation
or winding-up of the Company; or
(e) the Company shall become subject to involuntary dissolution,
liquidation or winding-up;
then, in any one or more of such cases, the Company shall give notice thereof to
each registered Holder of Warrants or Warrant Shares, specifying (i) the date on
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or (ii) the date on which such
reorganization, reclassification, statutory exchange, consolidation, merger,
sale, dissolution, liquidation or winding-up shall take place or be voted upon
by shareholders of the Company, as the case may be. Any such notice under
subsections (a) through (e) of this Section 8 shall also specify the date as of
which the holders of record of the Voting Common Stock and/or Nonvoting Common
Stock shall participate in such dividend, distribution or subscription rights,
or shall be entitled to exchange their Voting Common Stock and/or Nonvoting
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, statutory exchange, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be; such notice
shall be given not less than thirty (30) and not more than fifty (50) days prior
to the action in question (except in the case of notice for actions under
Section 8(e), which notice shall be promptly following such action) and not less
than thirty (30) and not more than fifty (50) days prior to the record date or
the date on which the Company's transfer books are closed in respect thereto,
and such notice shall state that the action in question or the record date is
subject to the effectiveness of a registration statement under the Securities
Act or to a favorable vote of shareholders, if either is required.
Section 9. Notices. All notices, requests and other communications
required or permitted to be given or delivered to registered Holders shall be in
writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to each such Holder at the address shown on
such Holder's Warrant or Warrant Shares, or at such other address as shall have
been furnished to the Company by notice from such Holder. All notices, requests
and other communications required or permitted to be given or delivered to the
Company shall be in writing, and shall be delivered, or shall be sent by
certified or registered mail, postage prepaid and addressed, to Company, as
follows:
Kevco, Inc.
1300 South University, Suite 200
Fort Worth, Texas 76107
Attention: President
Telecopy Number: (817) 332-2765
14
<PAGE> 15
with a copy to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Byron F. Egan
Telecopy Number: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopy Number: (212) 225-3999
The Kevco Partners Investment Trust
c/o Wingate Partners II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
Attention: Frederick B. Hegi, Jr.
Telecopy Number: (214) 871-8799
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Telecopy Number: (214) 746-7777
or at such other address as shall have been furnished to the registered Holders
by notice from the Company. Each such notice sent by mail as described above
shall be deemed received on the date of receipt by the Holder or the Company, as
applicable.
Section 10. No Rights or Liabilities as Shareholder. This Warrant shall
not entitle any Holder hereof to any of the rights of a shareholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase shares of the Nonvoting Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
Section 11. Governing Law. This Warrant shall be construed in
accordance with and governed by the laws of the State of Texas, without regard
to the provisions thereof relating to conflict of laws.
Section 12. Confidentiality. By its acceptance hereof each Holder of
this Warrant agrees that it will take all reasonable steps to keep confidential
any proprietary information of the Company furnished to it; provided, however,
that this restriction shall not apply to information which (i) has at the time
in question entered the public domain, (ii) is required to be disclosed by law
or by any order, rule or regulation (whether valid or invalid) of any court
15
<PAGE> 16
or governmental agency or authority, or (iii) is furnished to purchasers or
prospective purchasers hereof (exclusive of any Person who competes with, or is
an Affiliate of a Person who competes with, the Company) so long as such
purchasers and prospective purchasers have agreed to be subject to restrictions
identical to those imposed upon such Holder under this sentence.
Section 13. Miscellaneous. Unless otherwise expressly provided herein
or unless the registered Holder hereof otherwise consents in writing, all
financial statements and reports furnished pursuant to Section 6(i) or otherwise
furnished hereunder to the registered Holder hereof shall be prepared and all
computations and determinations pursuant hereto shall be made in accordance with
generally accepted accounting principles applied on a consistent basis. This
Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against whom
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any
provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
16
<PAGE> 17
IN WITNESS WHEREOF, Kevco, Inc. has caused this Warrant to be
signed and delivered by its duly authorized officer, attested by its duly
authorized officer, and to be dated as of July 26, 1999.
Kevco Inc.
By: /s/ JERRY E. KIMMEL
---------------------------------------
Name: Jerry E. Kimmel
Title: President
ATTEST:
By: /s/ CLYDE A. REED
---------------------------------------
Name: Clyde A. Reed
Title: Executive Vice President
and Chief Operating Officer
17
<PAGE> 18
ASSIGNMENT FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
For Value Received, the Undersigned registered holder hereby
sells, assigns and transfers unto _______________________ the right to purchase
______ shares of the Nonvoting Common Stock covered by the within Warrant, and
does hereby irrevocably constitute and appoint ___________________________ as
Attorney to transfer the said Warrant on the books of the Company (as defined in
said Warrant), with full power of substitution.
Name of Registered Holder:
-----------------------------------------
Signature:
-----------------------------------------
Title of Signing Officer
-----------------------------------------
or Agent (if any):
Address of Registered Holder:
-----------------------------------------
-----------------------------------------
Dated:
--------------------------
Signed in the presence of
- ------------------------------------------------
<PAGE> 19
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
The undersigned registered holder hereby exercises the right
to purchase ______ shares of the Nonvoting Common Stock covered by the within
Warrant, according to the conditions thereof, and herewith makes payment of the
Purchase Price of such shares, $____________.
Name of Registered Holder:
-----------------------------------------
Signature:
-----------------------------------------
Title of Signing Officer
-----------------------------------------
or Agent (if any):
Address of Registered Holder:
-----------------------------------------
-----------------------------------------
Dated:
--------------------------
<PAGE> 1
EXHIBIT 10.6
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (this "Agreement") is made as of July 26,
1999 between Kevco, Inc, a Texas corporation (the "Company"), and Mr. Gerald E.
Kimmel (the "Consultant"). Capitalized terms used without definition herein
shall have the meanings assigned to such terms in the Securities Purchase
Agreement, dated as of July 14, 1999, between the Company and Wingate Partners
II, L.P. (the "Securities Purchase Agreement").
WHEREAS, prior to the date hereof, the Consultant has served as the
Chairman of the Board of Directors of the Company (the "Board") and President
and Chief Executive Officer of the Company and has contributed greatly to the
Company's growth and success;
WHEREAS, on the date hereof, in connection with certain business
transactions which the Company is completing and in consideration of the
Company's obligations hereunder, the Company and the Consultant have agreed to
terminate the Consultant's current Employment Agreement, dated as of October 1,
1996 (the "Existing Agreement"), and the Consultant is resigning from the
positions described above;
WHEREAS, the Company desires to ensure the availability to the Company
of the Consultant's expertise and experience;
WHEREAS, following the date hereof, the Consultant will continue to be
the beneficial owner of a substantial amount of the Company's outstanding voting
common stock;
WHEREAS, the Company wishes the Consultant to continue to serve as a
Director of the Company and to serve as the non-executive Vice Chairman of the
Board and the Consultant is willing to and desirous of serving in such
positions; and
WHEREAS, the Consultant is willing to provide such assistance and
assurance, all upon and subject to the terms and conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth in this Agreement, the Company and the Consultant agree as
follows:
1. Term of Consultancy Engagement; Duties.
(a) Term. The Company hereby agrees to engage the Consultant as a
consultant, and the Consultant hereby agrees to serve in such capacity, for a
period of four years commencing on the date hereof (the "Term").
(b) Engagement. In his capacity as a consultant hereunder, the
Consultant periodically will make himself reasonably available to the Company to
advise with respect to issues that may arise from time to time concerning
aspects of the Company's businesses with which the Consultant has particular
expertise or experience. In performing his duties hereunder, the Consultant
shall coordinate and communicate his efforts with the Board. The Consultant
shall not be required to follow any formal schedule of duties or assignments and
shall perform the consultancy in a manner that the Consultant determines is
reasonable.
<PAGE> 2
2. Compensation; Benefits.
(a) Compensation. In consideration for the Consultant's consulting
undertakings as set forth in paragraph 1, the Company shall pay the Consultant
an annual fee of $210,000.00 per year, which amount shall be payable in equal
installments not less than once each month during the Term. The Company shall
reimburse the Consultant promptly after receipt of an invoice evidenced by
appropriate receipts, for all reasonable business expenses (including travel
expenses) incurred by the Consultant in connection with performing consulting
services for the Company hereunder.
(b) Medical and Dental Benefits. Until the death of the survivor of the
Consultant and the Consultant's Spouse (the "Coverage Term"), the Company shall
use its reasonable best efforts to include the Consultant and Consultant's
spouse in all present and future group health, medical, dental, hospitalization,
and similar programs offered by the Company and its subsidiaries to their
respective employees generally (collectively the "Insurance Coverage"), and the
Company shall not take any action, or fail to take any action, the effect or
result of which would be to exclude or otherwise disqualify the Consultant or
Consultant's spouse from inclusion in the Insurance Coverage. During the Term,
the Company shall bear all costs and expenses of the Insurance Coverage for the
Consultant and the Consultant's spouse but at all times thereafter during the
Coverage Term, the Consultant shall bear the premium costs and shall be
responsible for all co-payments, deductibles, and all other costs in the same
manner and to the same extent as the active employees of the Company with
respect to such Insurance Coverage. During the Term, if the Consultant or
Consultant's spouse cannot be included in or covered by the Insurance Coverage
or if there is no Insurance Coverage or to the extent there is no Insurance
Coverage, the Company shall obtain for Consultant or Consultant's spouse and
shall keep in full force and effect during the Term, comparable or additional
coverage for such persons; provided, however, if any such coverage is not
available or to the extent any of such coverage is not available, the Company
shall, at its sole cost and expense, pay or reimburse the Consultant and
Consultant's spouse for, all health, medical, dental, hospitalization,
deductibles, and other similar costs and expenses (collectively, the "Health
Costs") incurred or sustained by such persons during the Term not covered or
paid for by the Insurance Coverage or such other coverage, including the
insurance premiums for the Insurance Coverage or other coverage. In determining
whether coverage is "comparable coverage" the following factors, among others,
shall be considered relevant: quality of care, freedom to select facilities,
physicians, and other health care providers, relative financial responsibility
of insured and insurer to cover Health Costs, benefits and illnesses covered by
the applicable insurance, and each of obtaining health care provider services.
If the Company desires to sell or otherwise transfer to a third party
all or substantially all of the assets or equity of the Company, the Company
covenants and agrees to and with the Consultant to cause such third party to
assume the obligations set forth in this paragraph 2(b), but any such assumption
shall not relieve the Company of its obligations hereunder. The obligations of
the Company under this paragraph 2(b) shall survive the expiration of the Term.
(c) Obligations Absolute. The Company's obligations in respect of the
compensation payments and medical and dental benefits provided herein shall be
an absolute obligation of the Company and shall be paid regardless of whether
the Consultant actually performs any consulting services during the Term and
such obligations shall not be subject to any claims or rights of set-off,
mitigation or otherwise.
2
<PAGE> 3
3. Directorship; Information; Indemnity for Certain Expenses.
(a) Directorship.
(i) For so long as the Consultant remains the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended) of at least twelve percent (12%) of the outstanding common
stock of the Company, the Company shall use its reasonable best efforts to
ensure that at all times the Consultant and one other person designated by the
Consultant and reasonably acceptable to the Company (such person or any
replacement designated by the Consultant, hereinafter the "Designee") shall be
directors of the Company and, to such end, the Company agrees to (acting through
the Board or otherwise) nominate the Consultant and the Designee to serve as
directors of the Company, to include the Consultant and the Designee in the
slate of nominees recommended by the Board to the Company's shareholders for
election as directors at such annual meetings (or special meetings) as
applicable and to use its reasonable best efforts to cause the election of the
Consultant and the Designee as directors of the Company, including by soliciting
proxies in favor of the election of the Consultant and the Designee.
(ii) For so long as the Consultant remains the "beneficial
owner" of at least five percent (5%) of the outstanding common stock of the
Company but less than twelve percent (12%) of the outstanding common stock of
the Company, the Company shall use its reasonable best efforts to ensure that at
all times the Consultant shall be a director of the Company and, to such end,
the Company agrees to (acting through the Board or otherwise) nominate the
Consultant to serve as a director of the Company, to include the Consultant in
the slate of nominees recommended by the Board to the Company's shareholders for
election as directors at such annual meetings (or special meetings) as
applicable and to use its reasonable best efforts to cause the election of the
Consultant as a director of the Company, including by soliciting proxies in
favor of the election of the Consultant.
(iii) At all times during which the Consultant serves as a
director of the Company, the Company agrees to (acting through the Board or
otherwise) appoint the Consultant to serve as the non-executive Vice Chairman of
the Board.
(b) Information. At any time during which the Consultant has the right
to be nominated as a director pursuant to Section 3(a) hereof, the Company will
make available to the Consultant such financial and other information concerning
the Company and its business and affairs as he may reasonably request in
connection with his status as a director of the Company.
(c) Reimbursement for Certain Expenses. The Company agrees that, in
addition to any rights the Consultant may have to indemnification or
reimbursement from the Company pursuant to the provisions of the Company's
charter, under applicable law or any applicable policy of insurance, in his
capacities as a present or former officer and/or director of the Company, the
Company will reimburse the Consultant for costs or expenses (including
reasonable attorney's fees and expenses) incurred in defending or responding to
any claim, action, suit, proceeding or investigation arising out of or
pertaining to this Agreement, the Securities Purchase Agreement or any of the
transactions contemplated hereby or thereby, provided the Consultant is
ultimately found not to be liable to the Company or its shareholders in any such
claim, action, suit, proceeding, or investigation.
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4. Nondisclosure of Confidential Information. The Consultant acknowledges
that he may have access, during the course of service as a Consultant to the
Company, to certain confidential and proprietary information and products of the
Company (collectively referred to herein as the "Confidential Information").
Consultant agrees not to disclose any Confidential Information unless (i)
expressly authorized in writing by the Company, (ii) such Confidential
Information is publicly available or (iii) disclosure is required by any
governmental authority or in response to any valid legal process.
5. Demand Registration.
(a) Upon receipt by the Company at any time following the second
anniversary of the Closing Date of a written request from the Consultant for
registration of the resale of any Registrable Shares (as defined herein), the
Company shall use its commercially reasonable efforts to cause a registration
statement to be filed under the Securities Act, and any other applicable Laws,
within 60 days after the receipt of such request. The Company shall use all
commercially reasonable efforts to cause any such registration statement to
become effective and to maintain the effectiveness of such registration
statement until (x) the date all Registrable Shares have been sold pursuant
thereto or (y) 180 days after the effective date of such registration statement.
The term "registration statement" means a registration statement filed under the
Securities Act, or any similar disclosure document, filing, or listing
particulars utilized in connection with a Public Equity Offering. "Registrable
Shares" means shares of Stock owned by Consultant and his Affiliates on the date
of this Agreement and all other shares of Stock acquired from time to time by
the Consultant or his Affiliates and any securities issued or issuable with
respect to any such shares of Stock by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, share exchange,
merger, consolidation, reorganization, Business Combination, or otherwise. As to
any particular Registrable Shares, such securities shall cease to be Registrable
Shares when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act (or under the
applicable Laws of the relevant jurisdiction) and such securities shall have
been disposed of in accordance with the plan of distribution set forth in such
registration statement, (ii) such securities shall have been distributed in
accordance with Rule 144 of the Securities Act, or (iii) such securities shall
have been otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered in exchange therefor by
the Company and subsequent disposition of such shares shall not require
registration or qualification under the Securities Act or any other applicable
Law.
(b) The Consultant shall be permitted to make two requests pursuant to
the provisions of Section 5(a), provided that no request will be (i) allowed
unless the Company and the security offering shall at that time satisfy the
eligibility requirements for use of Form S-1 or any successor form and (ii)
counted against this limit unless, it has become effective and remained
effective for a period of at least 30 days; provided, however, that if, within
180 days after it has become effective, an offering of Registrable Shares
pursuant to a registration is interfered with by any stop order, injunction, or
other order or requirement of the Securities and Exchange Commission (the
"Commission") or other Governmental Body, such registration will be deemed not
to have been effected and will not count as a Demand Registration. A
registration that is undertaken by the Company in response to a valid request
made by the Consultant pursuant to this Section 5 shall be referred to herein as
a "Demand Registration." Notwithstanding the foregoing provisions of this
Section 5(b), the Company shall not be required to register any Registrable
Shares pursuant this Section 5(b) at any time (i) within 120 days of the
effective date
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<PAGE> 5
of any registration statement filed as a result of the exercise of any demand
registration rights by the Consultant or any other shareholder of the Company,
or (ii) in the event that the Company has registered shares of any class of its
capital stock pursuant to any demand registration rights on more than two
occasions in the preceding 12 months.
(c) The Company shall pay all registration expenses incurred with
respect to Section 5(a) (other than customary underwriting and broker
commissions), including, without limitation, the reasonable fees and
disbursements of one (but only one) legal firm or counsel to represent Purchaser
and the Consultant in the case of a Demand Registration.
(d) The offering of Registrable Shares pursuant to a Demand
Registration shall be in the form of a "firm commitment" underwritten offering.
The Board of Directors shall select the investment banking firm or firms to
manage the underwritten offering; provided, however, that such selection shall
be subject to the consent of the Consultant, which consent shall not be
unreasonably withheld or delayed.
6. Incidental or "Piggyback" Registration Rights.
(a) If the Company or any holder of shares of Stock proposes to sell
shares of Stock in a Public Equity Offering, the Company shall give written
notice, at least 15 days prior to the filing of a registration statement related
to such Public Equity Offering (other than a registration statement relating
solely to employee benefit plans or to effect any acquisition or combination
with another Person), of such proposed Public Equity Offering to the Consultant
which notice shall offer to the Consultant and his Affiliates the opportunity to
include in such Public Equity Offering such number of Registrable Shares as the
Consultant and his Affiliates may request. Within 20 days after receipt of such
notice, the Consultant and his Affiliates shall, subject to the following
sentence, have the right by notifying the Company in writing to require the
Company to include in the registration statement relating to such Public Equity
Offering such number of Registrable Shares as the Consultant or his Affiliates
may request. Notwithstanding the foregoing, (x) if at any time the managing
underwriter or underwriters of such Public Equity Offering (the "Managing
Underwriter") shall advise the Company in writing that, in its opinion, the
total number of shares proposed to be sold in such Public Equity Offering
(including the total number of Registrable Shares that the Consultant and his
Affiliates have requested to be sold in such Public Equity Offering and the
total number of shares of Stock requested to be included by any other selling
shareholder entitled to sell shares in such Public Equity Offering) exceeds the
maximum number of shares which the Managing Underwriter believes may be sold
without materially adversely affecting the price, timing, or distribution of the
Public Equity Offering, then the Company will be required to include in such
Public Equity Offering only that number of shares which the Managing Underwriter
believes may be sold without causing such adverse effect in the following order:
(i) all the shares that the Company proposes to sell in such Public Equity
Offering, (ii) all the shares that are proposed to be sold by any shareholder of
the Company who is exercising a demand registration right, if such Public Equity
Offering is being made pursuant to such demand, and (iii) shares of the
Consultant and his Affiliates and all other shares that are proposed to be sold
by any shareholder of the Company exercising a so-called "piggyback"
registration right on a pro rata basis in an aggregate number which is equal to
the difference between the maximum number of shares that may be distributed in
such Public Equity Offering as determined by the Managing Underwriter and the
number of shares to be sold in such Public Equity Offering pursuant to clauses
(i) and (ii) above, and (iv) any other shares of Stock requested to be included
in such Public Equity Offering.
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<PAGE> 6
(b) The Company will have the right to postpone or withdraw any
registration statement relating to a Public Equity Offering described under this
Section 6 prior to the effective date of such registration statement without
obligation to the Consultant or his Affiliates. Purchaser shall, and shall cause
its Affiliates to, use their respective commercially reasonable efforts to cause
all registration expenses of the Consultant and his Affiliates (other than
customary underwriting and broker commissions) to be paid by the Company in the
case of any and all registrations governed by this Section 6.
7. Suspension. In connection with any proposed registration of Registrable
Shares pursuant to Section 5 or 6, during any consecutive 365-day period, the
Company shall be entitled to postpone the filing of or to suspend availability
of a registration statement for up to two 60-consecutive-day periods if (i) at
the time the Company receives a request for a Demand Registration, the Company
or any Subsidiary is engaged in confidential negotiations or other confidential
business activities, disclosure of which would be required in such registration
statement (but would not be required if such registration statement were not
filed), and the Board of Directors determines in good faith that such disclosure
would be materially detrimental to the Company and its shareholders or would
have a material adverse effect on any such confidential negotiations or other
confidential business activities, (ii) prior to receiving such request, the
Board of Directors were to have determined to effect a Public Equity Offering
for the Company's account and the Company had taken substantial steps
(including, but not limited to, selecting a managing underwriter for such
offering) and is proceeding with reasonable diligence to effect such offering,
or (iii) the Company shall furnish to Purchaser a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company and its shareholders
for such registration to be pursued at such time; provided, however, that any
suspension under clause (iii) shall not exceed 60 days.
8. Preparation and Filing.
(a) Whenever the Company seeks to effect the registration of any
Registrable Shares in accordance with the provisions of Section 5 or 6, the
Company shall:
(i) prepare and file with the Commission or other applicable
Governmental Body a registration statement with respect to such
Registrable Shares and use its commercially reasonable efforts to cause
such registration statement to promptly become and, subject to Section
7, remain effective for the period set forth in subsection (ii) below
and promptly notify the Consultant (x) when such registration statement
becomes effective, (y) when any amendment to such registration
statement becomes effective and (z) of any request by the Commission or
other applicable Governmental Body for any amendment or supplement to
such registration statement or any prospectus relating thereto or for
additional information;
(ii) prepare and file with the Commission or other applicable
Governmental Body such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act, and any other applicable
Laws, with respect to the sale or other disposition of all securities
covered by such registration statement for a period of not less than
180 days after the effective date of such registration statement (or
such shorter period to the extent necessary to permit the completion of
the sale or distribution of such securities within such period);
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<PAGE> 7
(iii) furnish to the Consultant, prior to filing a
registration statement, copies of such registration statement as
proposed to be filed and thereafter, such number of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and financial statements, reports, and proxy
statements mailed to shareholders of the Company as the Consultant may
reasonably request in order to facilitate the disposition of the
Registrable Shares being sold;
(iv) use its commercially reasonable efforts to register or
qualify, not later than the effective date of any filed registration
statement, the Registrable Shares covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions
as the Consultant reasonably requests; provided, however, that the
Company will not be required to (A) qualify to do business as a foreign
corporation or as a dealer in any jurisdiction where it is not so
qualified, (B) subject itself to taxation in any jurisdiction where it
is not subject to taxation, (C) consent to general service of process
in any jurisdiction where it is not subject to general service of
process, or (D) take any action that would subject it to service of
process in suits other than those arising out of the offer or sale of
the Registrable Shares covered by the registration statement;
(v) make available, upon reasonable notice and during business
hours, for inspection by the managing underwriter(s) for the
Registrable Shares (and one counsel representing such managing
underwriter(s)) (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents, agreements, and
properties of the Company and its Subsidiaries and Affiliates as shall
be reasonably necessary to enable them to exercise their due diligence
responsibilities ("Records") and cause the Company's officers,
directors, and employees to supply all information reasonably requested
by any such Inspectors in connection with the registration statement;
provided, however, that, unless the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in the
registration statement or the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, the Company shall not be required to provide any
information under this subparagraph (v) if (A) the Company believes,
after consultation with counsel for the Company, that to do so would
cause the Company to forfeit an attorney-client privilege that was
applicable to such information or (B) if either (1) the Company has
requested and been granted from the Commission confidential treatment
of such information contained in any filing with the Commission or
documents provided supplementally or otherwise or (2) the Company
reasonably determines in good faith that such Records are confidential
and so notifies the Inspectors in writing unless prior to furnishing
any such information with respect to (A) or (B) such holder of
Registrable Shares requesting such information agrees to enter into a
confidentiality agreement in a form reasonably acceptable to the
Company; and, provided, further, that each holder of Registrable Shares
agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate
action and to prevent disclosure of the Records deemed confidential;
(vi) obtain a comfort letter from the Company's independent
public accountants dated within five business days prior to the
effective date of the registration statement (and as of such other
dates as the managing underwriter(s) for the Registrable Shares may
reasonably request) in customary form and covering such matters of the
type
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<PAGE> 8
customarily covered by such comfort letters as such managing
underwriter(s) reasonably request;
(vii) opinion of counsel dated the effective date of the
registration statement (and as of such other dates as the managing
underwriter(s) for the Registrable Shares may reasonably request) in
customary form and covering such matters of the type customarily
covered by such opinions as counsel designated by such managing
underwriter(s) reasonably request;
(viii) during the period when the registration statement is
required to be effective, notify the Consultant of the happening of any
event as a result of which the prospectus included in the registration
statement contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company will
forthwith prepare a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(ix) in the case of an underwritten offering, enter into an
underwriting agreement containing customary terms, including such
indemnity and contribution provisions as the managing underwriter(s)
customarily require or may reasonably require;
(x) cause such Registrable Shares to be listed for trading on
the primary securities exchange or quotation system upon which the
Stock is then listed or traded; and
(xi) otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the Commission, and
other applicable Governmental Bodies, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(b) The Consultant shall timely furnish to the Company such information
(including affidavits) regarding the distribution of such Registrable Shares as
the Company may from time to time reasonably request. The Company may exclude
from such registration the securities of the Consultant or his Affiliates if he
or they fail to furnish such information within 10 days after such request;
provided, however, that the Company's registration statement relating to such
offering is effective within 60 days after the expiration of such 10-day period.
(c) The Consultant agrees that upon the receipt of any notice from the
Company of the happening of any event of the kind described in paragraph
(a)(viii) above, it will forthwith discontinue disposition of Registrable Shares
pursuant to the registration statement covering such Registrable Shares until
the Consultant's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (a)(viii) above. If the Company gives any such notice,
the Company shall keep any such registration statement pursuant to a Demand
Registration effective for that number of additional days equal to the number of
days during the period from and including the date of the giving of such notice
pursuant to paragraph (a)(viii) above to and including the date on which copies
of such supplemented or amended prospectus are made available to the Consultant.
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(d) Indemnification. In connection with the filing of a registration
statement providing for the registration of any Registrable Shares pursuant to
Section 5 or 6, the Company shall indemnify and hold harmless the Consultant and
his Affiliates, to the extent customary and reasonable, pursuant to
indemnification and contribution provisions to be entered into by the Company at
the time of filing of such registration statement. The Consultant and his
Affiliates shall indemnify the Company and its directors and officers and each
Person who controls the Company (within the meaning of the Securities Act or the
Exchange Act) against any and all Losses resulting from any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, prospectus, or any preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission is made in reliance upon and in strict
conformity with information furnished in writing to the Company by Consultant
for use in such registration statement; provided, however, that the obligation
to indemnify will be several and not joint and several, among such sellers of
Registrable Shares, and the liability of each such seller of Registrable Shares
will be in proportion to, and provided further that such liability will be
limited to, the net amount received by such seller from the sale of Registrable
Shares pursuant to such registration statement; further provided, that such
seller of Registrable Shares shall not be liable in any such case to the extent
that prior to the filing of any such registration statement or prospectus or
amendment thereof or supplement thereto, such seller has furnished in writing to
the Company information expressly for use in such registration statement or
prospectus or amendment thereof or supplement thereto which corrected or made
not misleading information previously furnished to the Company.
9. Miscellaneous.
(a) Entire Agreement. This Agreement contains, and is intended as, a
complete statement of all of the terms and the arrangements between the parties
hereto with respect to the matters provided for herein, and supersedes any
previous agreements and understandings between the Company and the Consultant,
including the Existing Agreement.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE IN
AND TO BE WHOLLY PERFORMED IN SUCH STATE.
(c) Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or by
overnight mail, or four days after being mailed by registered mail, return
receipt requested, to a party at the following address:
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If to the Consultant, to:
Mr. Gerald E. Kimmel
6400 Cleburne Highway
Granbury, Texas 76049
Facsimile: (817) 326-2203
If to the Company, to:
Kevco, Inc.
1300 South University Drive
Suite 200
Fort Worth, Texas 76107
Facsimile: (817) 332-3403
(d) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
(e) Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either party without the prior written consent of
the other party.
(f) Amendments. This Agreement may be amended, supplemented or
modified, and any provision hereof may be waived, only pursuant to a written
instrument making specific reference to this Agreement signed by each of the
parties hereto.
(g) Independent Contractor. The Consultant shall be an independent
contractor and the Company shall not withhold any income or other taxes from the
payments hereunder.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and the Consultant have executed this
Agreement as of the day and year first above written.
KEVCO, INC.
By: /s/ CLYDE A. REED
-------------------------------------
Name: Clyde A. Reed
-----------------------------------
Title: Executive Vice President and COO
----------------------------------
/s/ JERRY E. KIMMEL
-----------------------------------------
GERALD E. KIMMEL
<PAGE> 1
EXHIBIT 10.7
FINANCIAL ADVISORY AGREEMENT
This Financial Advisory Agreement (this "Agreement") is made and
entered into effective as of July 26, 1999, among Kevco, Inc., a Texas
corporation ("Kevco" and, together with its subsidiaries, the "Clients"), and
Wingate Management Limited, L.L.C., a Delaware limited liability company
(together with its successors, "WML").
WHEREAS, the Clients have requested that WML render financial
advisory, investment banking, and other similar services to them in respect of
any future proposals for a tender offer, acquisition, sale, merger, exchange
offer, recapitalization, restructuring, or other similar transaction directly
or indirectly involving the Clients or any of their respective subsidiaries,
and any other person (collectively, "Extraordinary Transactions").
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by WML to the Clients, and to evidence the obligations of the Clients
to WML and the mutual covenants herein contained, the Clients hereby jointly
and severally agree as follows:
1. Retention. Each of the Clients acknowledges that it has retained
WML as its non-exclusive financial advisor in connection with any Extraordinary
Transaction that may be consummated during the term of this Agreement. WML
shall provide such financial advisory, investment banking, and other similar
services in connection with any such Extraordinary Transaction as may be
requested from time to time by the board of directors of Kevco.
2. Term. The term of this Agreement shall continue until the earlier
to occur of (i) the fifth anniversary of the delivery of a notice of
termination of this Agreement by either party hereof or (ii) the date on which
WML, Wingate Partners II, L.P., Armbuck & Co., H C Crown Corp. and their
respective affiliates (the "Initial Purchasers") cease in the aggregate to own
beneficially, directly or indirectly, five percent of the outstanding
securities of Kevco or its successors.
3. Compensation. As compensation for WML's financial advisory,
investment banking, and other similar services rendered in connection with any
Extraordinary Transaction pursuant to Section 1, the applicable Client shall
pay to WML, at the closing of any such Extraordinary Transaction, (i) a cash
fee in the amount of 1.5% of the Transaction Value of such Extraordinary
Transaction if WML originates the Extraordinary Transaction and no fee or
commission is payable by the applicable Client to any other financial advisor
or investment banking firm in respect of the origination of such Extraordinary
Transaction, or (ii) a cash fee in the amount of 1.0% of the Transaction Value
of such Extraordinary Transaction if WML does not originate such Extraordinary
Transaction but serves as the principal financial advisor to the applicable
Client in respect of the Extraordinary Transaction. "Transaction Value" means
the total value of the Extraordinary Transaction, including, the aggregate
amount of the funds required to complete the Extraordinary Transaction
(excluding any fees payable pursuant to this Section 3(a)) including the amount
of any indebtedness, preferred stock, or similar items assumed (or remaining
outstanding).
4. Reimbursement of Expenses. In addition to the compensation to be
paid pursuant to Section 3, the applicable Client or Clients shall reimburse
WML, promptly following demand therefor, together with invoices or reasonably
detailed descriptions thereof, for all reasonable disbursements and
out-of-pocket expenses (including fees and disbursements of counsel) incurred
by WML in connection with the performance by it of the services contemplated by
Section 1.
<PAGE> 2
5. Indemnification. The Clients jointly and severally shall indemnify
and hold harmless each of WML, its affiliates, and their respective directors,
officers, controlling persons (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20(a) of the Securities Exchange
Act of 1934, as amended), if any, agents, and employees (collectively, the
"Indemnified Persons") from and against any and all claims, liabilities,
losses, damages, and expenses incurred by any Indemnified Person (including
those resulting from the negligence of the Indemnified Person and fees and
disbursements of the respective Indemnified Person's counsel) which (i) are
related to or arise out of (A) actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by any Client
or (B) actions taken or omitted to be taken by an Indemnified Person with any
Client's consent or in conformity with any Client's instructions or any
Client's actions or omissions or (ii) are otherwise related to or arise out of
WML's engagement, and will reimburse each Indemnified Person for all costs and
expenses, including fees of any Indemnified Person's counsel, as they are
incurred, in connection with investigating, preparing for, defending, or
appealing any action, formal or informal claim, investigation, inquiry, or
other proceeding, whether or not in connection with pending or threatened
litigation, caused by or arising out of or in connection with WML's acting
pursuant to the engagement, whether or not any Indemnified Person is named as a
party thereto and whether or not any liability results therefrom. None of the
Clients will, however, be responsible for any claims, liabilities, losses,
damages, or expenses pursuant to clause (ii) of the preceding sentence that
have resulted primarily from WML's bad faith, gross negligence, or willful
misconduct. The Clients also agree that neither WML nor any other Indemnified
Person shall have any liability to any Client for or in connection with such
engagement except for any such liability for claims, liabilities, losses,
damages, or expenses incurred by any Client that have resulted primarily from
WML's bad faith, gross negligence, or willful misconduct. Each Client further
agrees that it will not, without the prior written consent of WML, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit, or proceeding in respect of which indemnification may be
sought hereunder (whether or not any Indemnified Person is an actual or
potential party to such claim, action, suit, or proceeding) unless such
settlement, compromise, or consent includes an unconditional release of WML and
each other Indemnified Person hereunder from all liability arising out of such
claim, action, suit, or proceeding. EACH CLIENT HEREBY ACKNOWLEDGES THAT THE
FOREGOING INDEMNITY SHALL BE APPLICABLE TO ALL CLAIMS, LIABILITIES, LOSSES,
DAMAGES, OR EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED
FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT, OR CONCURRENT ORDINARY
NEGLIGENCE OF WML OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that WML and/or any other Indemnified Person may have at common law or
otherwise and shall remain in full force and effect following the completion or
any termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this Agreement is brought against WML or any other Indemnified
Person.
It is understood that, in connection with WML's engagement, WML may
also be engaged to act for any Client in one or more additional capacities, and
that the terms of this engagement or any such additional engagement may be
embodied in one or more separate written agreements. This indemnification shall
apply to the engagement specified in the first paragraph hereof as well as to
any such additional engagement(s) (whether written or oral) and any
modification of said engagement or such additional engagement(s) and shall
remain in full force and effect following the completion or termination of said
engagement or such additional engagement(s).
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<PAGE> 3
Each Client further understands that if WML is asked to furnish any
Client a financial opinion letter or act for any Client in any other formal
capacity, such further action may be subject to a separate agreement containing
provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance of the
services hereunder, WML shall not divulge any confidential information, secret
processes, or trade secrets disclosed by any Client to it solely in its
capacity as a financial advisor, unless the applicable Client consents to the
divulging thereof or such information, secret processes, or trade secrets are
publicly available or otherwise available to WML without restriction or breach
of any confidentiality agreement or unless required by any governmental
authority or in response to any valid legal process.
7. Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained herein
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned
(other than in respect of the rights and obligations of WML, which may be
assigned to any one or more of its principals or affiliates) by any of the
parties without the prior written consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
10. Entire Agreement. All discussions, understandings, and agreements
theretofore made between any of the parties hereto in respect of the subject
matter hereof are merged in this Agreement, which alone fully and completely
expresses the agreement of the parties hereto.
11. Construction. Unless the context otherwise requires, (i) all
references to Sections contained in this Agreement are references to Sections
of this Agreement, (ii) words in the singular shall include the plural and vice
versa, (iii) words of any gender shall include each other gender, (iv)
"include," "including," and their derivatives shall mean "including without
limitation"; and (v) "person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
association, or other form of business or legal entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
WINGATE MANAGEMENT LIMITED, L.L.C.
By: /s/ FREDERICK B. HEGI, JR.
------------------------------------
Name: Frederick B. Hegi, Jr.
----------------------------------
Title: Manager
---------------------------------
KEVCO, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO MANAGEMENT, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO HOLDINGS, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO GP, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO COMPONENTS, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
4
<PAGE> 5
DCM DELAWARE, INC.
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
------------------------------------
Name: Jerry E. Kimmel
----------------------------------
Title: President
---------------------------------
5
<PAGE> 1
EXHIBIT 10.8
MONITORING AND OVERSIGHT AGREEMENT
This Monitoring and Oversight Agreement (this "Agreement") is made and
entered into effective as of July 26, 1999, among Kevco, Inc., a Texas
corporation ("Kevco" and, together with its subsidiaries, the "Clients"), and
Wingate Management Limited, L.L.C., a Delaware limited liability company
(together with its successors, "WML").
WHEREAS, the Clients have requested that WML render certain financial
oversight and monitoring services to them.
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by WML to the Clients, and to evidence the obligations of the Clients
to WML and the mutual covenants herein contained, the Clients hereby jointly and
severally agree as follows:
1. Retention. The Clients hereby acknowledge that they have retained
WML, and WML acknowledges that, subject to reasonable advance notice in order to
accommodate scheduling, WML will provide financial oversight and monitoring
services to the Clients as requested by the board of directors of each of the
Clients during the term of this Agreement, such services include (i) during such
times as no full-time chief executive officer shall be employed by Kevco,
providing a WML affiliate to perform the management and oversight duties
associated with such office; (ii) during such times as Kevco has employed a
full-time chief executive officer, providing a chairman of the board who will
take an active roll in the management and affairs of Kevco; (iii) providing
assistance in strategic planning for Kevco, including the analysis of Kevco's
and its subsidiaries' performance in various sectors of their respective
businesses and providing recommendations for growth strategies and opportunities
for new markets and products; (iv) providing guidance in regard to consolidation
and rationalization of acquired businesses; (v) providing assistance in
identifying, interviewing, and engaging suitable candidates for senior executive
positions; (vi) providing assistance in identifying and securing suitable
candidates to act as independent directors of Kevco, as required by the rules
promulgated in respect of the National Association of Securities Dealers
National Market System; (vii) providing assistance in Kevco's annual budgetary
process; (viii) providing assistance in the analysis of existing and proposed
credit arrangements for Kevco and, as and when appropriate, identifying lenders
and in negotiating credit documents; (ix) providing assistance in identifying
suitable consultants and advisors for Kevco's varying needs and negotiating
engagement arrangements for such consultants and advisors; and (x) providing
assistance in evaluating when and whether Kevco should access the public markets
for equity or debt capital and in identifying appropriate professionals to
assist in executing any strategy involving the public offering of equity or
debt.
2. Term. The term of this Agreement shall continue until the earlier to
occur of (i) the fifth anniversary of the delivery of a notice of termination of
this Agreement by either party hereto, or (ii) the date on which WML, Wingate
Partners II, L.P., Armbuck & Co., H C Crown Corp. and their respective
affiliates (the "Initial Investors") cease in the aggregate to own beneficially,
directly or indirectly, five percent of the outstanding voting securities of
Kevco or its successors.
3. Compensation.
(a) As compensation for WML's services under this Agreement,
the Clients shall be jointly and severally obligated to pay to WML an
annual fee (the "Monitoring Fee") of (i) $41,667.00 per month for each
of the first 24 months after the date hereof provided that the first
and last payments shall be prorated on a daily basis for a partial
calendar month commencing on the date hereof and (ii) thereafter,
through the end of the term of this Agreement, an annual fee (the "Base
Fee") of (a) $200,000, plus (b) 2.4% of Kevco's pre-tax income (on a
GAAP basis);
<PAGE> 2
provided, however, that (i) in the case of fees under clause (b), the
pre-tax income of Kevco for such year is at least $5,000,000, and (ii)
in the case of fees under clauses (a) and (b), such fees shall be
prorated on a daily basis for any partial calendar month or year, as
the case may be during the term of this Agreement. The fee pursuant to
clause (a) shall be payable quarterly in arrears in equal quarterly
installments on each January 1, April 1, July 1, and October 1 (each, a
"Payment Date") during the term of this Agreement, beginning with the
first applicable Payment Date following the date hereof, and the fee
pursuant to clause (b) shall be payable annually in arrears within 30
days after certification of the Company's audited financial statements
by its auditors. All payments shall be made by wire transfer of
immediately available funds to the account described on EXHIBIT A
hereto (or such other account as WML may hereafter designate in
writing).
(b) All past due payments in respect of the Monitoring Fee
shall bear interest at the lesser of the highest rate of interest which
may be charged under applicable law or the prime commercial lending
rate per annum of Chase Manhattan Bank or its successors (which rate is
a reference rate and is not necessarily its lowest or best rate of
interest actually charged to any customer) (the "Prime Rate") as in
effect from time to time, plus five percent, from the due date of such
payment to and including the date on which payment is made to WML in
full, including such interest accrued thereon.
4. Reimbursement of Expenses. In addition to the compensation to be
paid pursuant to Section 3, the Clients jointly and severally shall pay or
reimburse WML for all "Reimbursable Expenses," which shall consist of all
reasonable disbursements and out-of-pocket expenses (including costs of travel,
postage, deliveries, communications, etc.) incurred by WML or its affiliates and
representatives for the account of any of the Clients, or in connection with the
performance by WML of the services contemplated by Section 1. Promptly (but not
more than ten days) after request by or notice from WML, the applicable Client
shall pay WML, by wire transfer of immediately available funds to the account
described on EXHIBIT A hereto (or such other account as WML may hereafter
designate in writing), the Reimbursable Expenses for which WML has provided such
Client invoices or reasonably detailed descriptions. All past due payments in
respect of the Reimbursable Expenses shall bear interest at the lesser of the
highest rate of interest which may be charged under applicable law or the Prime
Rate plus five percent from the Payment Date to and including the date on which
such Reimbursable Expenses plus accrued interest thereon are fully paid to WML.
5. Indemnification. The Clients jointly and severally shall indemnify
and hold harmless each of WML, its affiliates, and their respective directors,
partners, members, managers, officers, controlling persons (within the meaning
of Section 15 of the Securities Act of 1933, as amended, or Section 20(a) of the
Securities Exchange Act of 1934, as amended), if any, agents and employees
(collectively, the "Indemnified Persons") from and against any and all claims,
liabilities, losses, damages, and expenses incurred by any Indemnified Person
(including those arising out of an Indemnified Person's negligence and fees and
disbursements of the respective Indemnified Person's counsel) which (i) are
related to or arise out of (A) actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by any of the
Clients or (B) actions taken or omitted to be taken by an Indemnified Person
with any Client's consent or in conformity with any Client's instructions or any
Client's actions or omissions or (ii) are otherwise related to or arise out of
WML's engagement, and will reimburse each Indemnified Person for all costs and
expenses, including fees and disbursements of any Indemnified Person's counsel,
as they are incurred, in connection with investigating, preparing for,
defending, or appealing any action, formal or informal claim, investigation,
inquiry, or other proceeding, whether or not in connection with pending or
threatened litigation, caused by or arising out of or in
2
<PAGE> 3
connection with WML's acting pursuant to the engagement, whether or not any
Indemnified Person is named as a party thereto and whether or not any liability
results therefrom. None of the Clients will, however, be responsible for any
claims, liabilities, losses, damages, or expenses pursuant to clause (i) or (ii)
of the preceding sentence that have resulted primarily from WML's bad faith,
gross negligence, or willful misconduct. Each of the Clients also agrees that
neither WML nor any other Indemnified Person shall have any liability to any
Client for or in connection with such engagement except for any such liability
for claims, liabilities, losses, damages, or expenses incurred by any Client
that have resulted primarily from WML's bad faith, gross negligence, or willful
misconduct. Each Client further agrees that it will not, without the prior
written consent of WML, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit, or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit,
or proceeding) unless such settlement, compromise, or consent includes an
unconditional release of WML and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit, or proceeding. EACH
CLIENT HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO
ALL CLAIMS, LIABILITIES, LOSSES, DAMAGES, OR EXPENSES THAT HAVE RESULTED FROM OR
ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT, OR
CONCURRENT ORDINARY NEGLIGENCE OF WML OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that WML and/or any other Indemnified Person may have at common law or otherwise
and shall remain in full force and effect following the completion or any
termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this Agreement is brought against WML or any other Indemnified
Person.
It is understood that, in connection with WML's engagement, WML may
also be engaged to act for any Client in one or more additional capacities, and
that the terms of this engagement or any such additional engagement may be
embodied in one or more separate written agreements. This indemnification shall
apply to the engagement specified in the first paragraph hereof as well as to
any such additional engagement(s) (whether written or oral) and any modification
of said engagement or such additional engagement(s) and shall remain in full
force and effect following the completion or termination of said engagement or
such additional engagement(s).
Each Client further understands that if WML is asked to furnish any
Client a financial opinion letter or act for any Client in any other formal
capacity, such further action may be subject to a separate agreement containing
provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance of the
services hereunder, WML shall not divulge any confidential information, secret
processes, or trade secrets disclosed by any Client to it solely in its capacity
as a financial advisor, unless such Client consents to the divulging thereof or
such information, secret processes, or trade secrets are publicly available or
otherwise available to WML without restriction or breach of any confidentiality
agreement or unless required by any governmental authority or in response to any
valid legal process.
7. Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained herein shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, neither this Agreement nor
any of the rights, interests, or obligations hereunder shall be assigned (other
than in respect of the rights and obligations of WML, which may be assigned to
any one
3
<PAGE> 4
or more of its principals or affiliates) by any of the parties without the prior
written consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.
10. Entire Agreement. All discussions, understandings, and agreements
theretofore made between any of the parties hereto in respect of the subject
matter hereof are merged in this Agreement, which alone fully and completely
expresses the agreement of the parties hereto. All calculations of the
Monitoring Fee, the Base Fee, and Reimbursable Expenses shall be made by WML
and, in the absence of mathematical error, shall be final and conclusive.
11. Construction. Unless the context otherwise requires, (i) all
references to Sections and Exhibits contained in this Agreement are references
to Sections and Exhibits of or to this Agreement, (ii) words in the singular
shall include the plural and vice versa, (iii) words of any gender shall include
each other gender, (iv) "include," "including," and their derivatives shall mean
"including without limitation"; and (v) "person" shall mean any individual,
corporation, partnership, limited liability company, joint venture, trust,
unincorporated association, or other form of business or legal entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
WINGATE MANAGEMENT LIMITED, L.L.C.
By: /s/ FREDERICK B. HEGI, JR.
---------------------------------
Name: Frederick B. Hegi, Jr.
-------------------------------
Title: Manager
------------------------------
KEVCO, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO MANAGEMENT, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO HOLDINGS, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO GP, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO COMPONENTS, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
5
<PAGE> 6
DCM DELAWARE, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
---------------------------
Name: Jerry E. Kimmel
-------------------------
Title: President
------------------------
KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
---------------------------
Name: Jerry E. Kimmel
-------------------------
Title: President
------------------------
6
<PAGE> 7
EXHIBIT A
WIRE TRANSFER INSTRUCTIONS
Chase Bank of Texas, N.A.
ABA #: 113000609
Account #: 08805134543
Credit: Wingate Partners II, L.P.
Reference: Payment of Monitoring Fees or Expenses by Kevco, Inc.
