<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KEVCO, INC.
(AND CERTAIN SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW)
(EXACT NAME OF CO-REGISTRANTS AS SPECIFIED IN THEIR CHARTER)
TEXAS 3429 75-2666013
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
1300 S. UNIVERSITY DR., SUITE 200
FORT WORTH, TX 76107
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
CO-REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
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JERRY E. KIMMEL
KEVCO, INC.
1300 S. UNIVERSITY DR., SUITE 200
FORT WORTH, TX 76107
(817) 332-2758
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPY TO:
RICHARD S. TUCKER
JACKSON WALKER L.L.P.
777 MAIN STREET
SUITE 1800
FORT WORTH, TX 76102-5322
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this registration statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(A) OFFERING PRICE(A) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 3/8% Series B Senior
Subordinated Notes
due 2007.............. $105,000,000 100% $105,000,000 $31,818.18
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Senior Subordinated
Guarantees(b)......... -- -- -- --
</TABLE>
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(a) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
(b) The 10 3/8% Senior Subordinated Notes are being guaranteed by certain co-
registrants on a senior subordinated basis. No separate consideration will
be paid in respect of such guarantees in accordance with Rule 457(n) under
the Securities Act of 1933, as amended.
(1) The following direct and indirect subsidiaries of Kevco, Inc., each of
which has the I.R.S. Employer Identification Number indicated, is a co-
registrant: Kevco Delaware, Inc. (#75-1456023); Sunbelt Wood Components,
Inc. (#75-2675496); Bowen Supply, Inc. (#58-1145787); Encore Industries,
Inc. (#58-1889577); Consolidated Forest Products, Inc. (#75-2688773);
Shelter Components Corporation (#22-2825183); BPR Holdings, Inc.
(35-1968302); Shelter Components of Indiana, Inc. (#22-2825585); Design
Components, Inc. (#35-1894544); Duo-Form of Michigan, Inc. (#38-2111623);
DCM, Inc. (#62-0636511); Shelter Distribution, L.P. (#35-1970242).
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THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 2, 1998
PROSPECTUS
KEVCO, INC.
OFFER TO EXCHANGE ITS SERIES B 10 3/8% SENIOR
SUBORDINATED NOTES DUE 2007 FOR ANY AND ALL OF ITS
OUTSTANDING SERIES A 10 3/8% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED.
Kevco, Inc., a Texas corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its Series B 10 3/8%
Senior Subordinated Notes due 2007 (the "Exchange Notes"), which will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this Prospectus is a part, for
each $1,000 principal amount of its outstanding Series A 10 3/8% Senior
Subordinated Notes due 2007 (the "Old Notes"), of which $105,000,000 principal
amount is outstanding. The form and terms of the Exchange Notes are the same as
the form and terms of the Old Notes (which they replace) except that the
Exchange Notes will bear a Series B designation and will have been registered
under the Securities Act and, therefore, will not bear legends restricting
their transfer and will not be entitled to registration rights or other rights
under the Registration Rights Agreement (as defined herein). See "The Exchange
Offer." The Exchange Notes will evidence the same debt as the Old Notes (which
they replace) and will be issued under and be entitled to the benefits of the
Indenture (the "Indenture") dated December 1, 1997 between the Company and the
United States Trust Company of New York, N.A., as Trustee (the "Trustee"),
governing the Old Notes. See "The Exchange Offer" and "Description of the
Notes." The Old Notes, together with the Exchange Notes, are referred to herein
as the "Notes" and holders of the Notes are sometimes referred to as the
"Holders."
Interest on the Notes will be payable semi-annually in arrears on June 1 and
December 1 of each year, commencing June 1, 1998. The Notes will mature on
December 1, 2007. The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after December 1, 2002 at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated
Damages (as defined herein), if any, to the redemption date. Notwithstanding
the foregoing, on or before December 1, 2000, the Company may redeem at any
time or from time to time up to 35% of the original aggregate principal amount
of the Notes at a redemption price equal to 110.375% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date, with the net cash proceeds of a Public Equity
Offering (as defined herein); provided, however, that at least 65% of the
original aggregate principal amount of Notes remains outstanding following such
redemption. Upon the occurrence of a Change of Control (as defined herein), the
Company will be required to make an offer to repurchase all or any part of the
Notes at a price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of repurchase. See "Description of the Notes."
SEE "RISK FACTORS" ON PAGE 17 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
The Old Notes are, and the Exchange Notes will be, guaranteed on a senior
subordinated basis by all existing and future Restricted Subsidiaries (as
defined herein) of the Company. The Notes and the Subsidiary Guarantees (as
defined herein) are general, unsecured obligations of the Company and the
Subsidiary Guarantors (as defined herein), respectively. The payment of the
principal of and interest, premium and Liquidated Damages, if any, on the
Notes will be subordinated in right of payment to all Senior Indebtedness (as
defined herein) of the Company and the Subsidiary Guarantors, respectively. As
of September 30, 1997, on a pro forma basis after giving effect to the
Transactions (as defined herein), the Company and its consolidated
subsidiaries had outstanding approximately $98.1 million of outstanding Senior
Indebtedness (including $93.2 million of Senior Indebtedness under the Senior
Credit Facility). The Indenture will prohibit the Company and the Subsidiary
Guarantors from incurring any Indebtedness (as defined herein) that is
subordinated in right of payment to any Senior Indebtedness unless such
Indebtedness is subordinated in right of payment to, or ranks pari passu with,
the Notes or the Subsidiary Guarantees, as applicable. See "Description of the
Notes--Subordination" and "--Certain Covenants--Limitations on Layering
Indebtedness.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York time, on , 1998, unless
extended by the Company in its sole discretion (the "Expiration Date").
Notwithstanding the foregoing, the Company will not extend the Expiration Date
beyond , 1998. Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Old Notes were sold by the Company on December 1,
1997 to the Initial Purchaser (as defined herein) in a transaction not
registered under the Securities Act in reliance upon an exemption under the
Securities Act. The Initial Purchaser subsequently placed the Old Notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Registration Rights
Agreement entered into by the Company in connection with the offering of the
Old Notes. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and "The Exchange Offer--
Resale of the Exchange Notes." Each broker-dealer (a "Participating Broker-
Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"Underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of one year
after the Expiration Date (or such shorter period during which all such
resales have occurred), it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
2
<PAGE>
There has not previously been any public market for the Notes. Although the
Initial Purchasers have informed the Company that they currently intend to
make a market in the Exchange Notes, they are not obligated to do so, and any
such market-making activities with respect to the Exchange Notes may be
discontinued at any time without notice. Accordingly, the Company does not
intend to list the Exchange Notes on any securities exchange or to seek
approval for quotation through any automated quotation system.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Risk Factors--Exchange
Offer Procedures" and "Exchange Offer--Consequences of Failure to Exchange."
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of one or more Global Notes (as defined herein),
which will be deposited with, or on behalf of, The Depository Trust Company
(the "Depositary") and registered in its name or in the name of Cede & Co.,
its nominee. Beneficial interests in a Global Note representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depositary and its participants. After the initial
issuance of the Global Notes, Exchange Notes in certificated form will be
issued in exchange for a Global Note only on the terms set forth in the
Indenture. See "Description of the Notes--Book Entry, Delivery and Form."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1998.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance
with any provision of any applicable security law.
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's Regional Offices in Chicago, Illinois (Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60604) and New
York, New York (7 World Trade Center, 13th Floor, New York, New York 10007).
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Additionally, the Commission maintains a web site
(http:www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission including the Company.
This Prospectus, which constitutes part of a Registration Statement filed by
the Company with the Commission under the Securities Act (the "Registration
Statement"), omits certain of the information contained in the Registration
Statement. Reference is made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company and the Exchange
Notes offered hereby. Copies of such Registration Statement are available from
the Commission. Statements contained herein concerning the provisions of
documents filed herewith as exhibits are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference
to the copy of the applicable document filed with the Commission. Under the
Indenture, the Company shall file with the Trustee annual, quarterly and other
reports within 15 days after it files such reports with the Commission (or
within 15 days after it would have been required to file such reports with the
Commission, in the event the Company is no longer subject to the informational
requirements of the Exchange Act). Annual reports delivered to the Trustee and
the holders of Exchange Notes will contain financial information that has been
examined and reported upon, with an opinion expressed by, an independent
certified public accountant. The Company will also furnish such other reports
as may be required by law.
4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to and should
be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated or the context otherwise requires, all
references in this Prospectus to the Company and its business, operations and
pro forma financial condition and results of operations give effect to the
Shelter Acquisition (as defined herein). As used in this Prospectus, unless
otherwise indicated or the context otherwise requires: (i) "Kevco" refers to
Kevco, Inc. and its subsidiaries prior to giving effect to the Shelter
Acquisition; (ii) "Shelter" refers to Shelter Components Corporation and its
subsidiaries prior to giving effect to the Shelter Acquisition and (iii) the
"Company" refers to the combined entity comprised of Kevco and its consolidated
subsidiaries, including Shelter.
THE COMPANY
The Company believes it is the largest wholesale distributor of building
products to the United States manufactured housing industry. Through its 47
distribution centers, the Company provides national distribution of more than
75,000 items to approximately 530 manufactured housing (79% of 1996 net sales)
and recreational vehicle ("RV") and other manufacturing facilities (21% of 1996
net sales) throughout the United States. In addition to its distribution
activities, the Company manufactures wood products, laminated wallboard and
thermoformed bathtubs and shower enclosures for the manufactured housing
industry. The Company believes that the combination of Kevco and Shelter
results in substantial operating synergies due to their complementary product
lines, overlapping marketing functions and national distribution networks, and
significant economies of scale. During the latest twelve months ended September
30, 1997, the Company's pro forma net sales and EBITDA (as defined) were $855.2
million and $45.7 million, respectively.
The manufactured housing industry has experienced significant growth over the
last several years. Since 1992, the number of manufactured home shipments has
experienced a compound annual growth rate of approximately 14.6%, growing from
210,787 homes shipped in 1992 to 363,411 homes shipped in 1996, which resulted
in approximately $14 billion in retail sales in 1996. As a result of this
growth, manufactured housing has outpaced traditional site-built housing growth
and increased as a percentage of total new single family houses sold, growing
from 25.7% in 1992 to 32.4% in 1996. The Company believes that demand for
manufactured housing has grown and will continue to grow due to: (i) the
increased quality of manufactured homes and the accompanying widespread
consumer acceptance of manufactured homes; (ii) steady employment and economic
growth in key regions; (iii) greater availability of mortgage financing for
manufactured homes; and (iv) continued substantial price advantages of
manufactured homes compared to site-built homes.
Suppliers and customers have been increasingly relying on distributors in an
attempt to focus on their core businesses and improve inventory management.
Larger, national distributors, like the Company, have benefited from trends in:
(i) suppliers and customers reducing the number of distributors they use to
increase operating efficiencies and reduce costs; (ii) suppliers and
manufacturers selecting distributors that are able to serve their needs through
national distribution networks; and (iii) manufacturers requiring distributors
to carry more comprehensive product lines. In addition, the Company believes it
leads the industry in providing value-added services to its customers,
including inventory management, product support and training, and
implementation of cost saving measures, all of which are services the Company
believes its suppliers cannot directly provide manufacturers in a cost-
effective manner.
Since its founding in 1964 by Jerry E. Kimmel, the Company's majority
shareholder, Chairman, Chief Executive Officer and President, the Company has
experienced substantial growth. In addition to positive manufactured housing
industry trends which favor larger distributors, the Company has primarily
grown through: (i) completing eight complementary acquisitions since the
beginning of 1993; (ii) adding distribution and
5
<PAGE>
manufacturing facilities to serve new markets; and (iii) increasing sales to
existing customers by distributing additional product lines. As a result, the
Company has increased net sales at a compound annual growth rate of 35.4% since
1992, from $254.8 million on a historical combined basis in 1992 to $855.7
million on a pro forma combined basis in 1996. During the same time period,
EBITDA grew at a compound annual growth rate of 42.3% from $12.4 million on a
historical combined basis in 1992 to $51.2 million on a pro forma combined
basis in 1996.
SHELTER ACQUISITION BENEFITS
The Company expects the following strategic and operating benefits as a
result of the Shelter Acquisition:
. INDUSTRY LEADERSHIP. The Company believes that the Shelter Acquisition
improves its competitive position by making it the largest wholesale
distributor of building products to the United States manufactured
housing industry, based on total sales. The Company expects to benefit
from its improved competitive position by: (i) better serving its
customers through its enhanced national distribution network; (ii)
serving as the exclusive distributor for certain of its suppliers that
are seeking to consolidate distributors of their products to the
manufactured housing and RV industries; and (iii) continuing to be a
leader in the consolidation of the industry.
. ACQUISITION OF COMPLEMENTARY PRODUCT LINES. While Shelter and Kevco
served a similar customer base, each company primarily distributed and
manufactured product lines with little overlap. Kevco had significant
market share in plumbing fixtures and supplies and wood products,
including wood trusses and cut lumber. Shelter had significant market
share in electrical products, exterior building products, laminated
wallboards, thermoformed products and hardware.
. SUBSTANTIAL COST REDUCTION OPPORTUNITIES. The Company believes the
Shelter Acquisition affords it substantial opportunities to eliminate
certain administrative and corporate positions and expenses. In
addition, the Company believes that it will be able to reduce selling
expense by consolidating its sales operations as both Kevco and Shelter
maintain active relationships with approximately 90% of all manufactured
housing production facilities. As the largest wholesale distributor in
the industry, the Company believes that it will be able to obtain
economies of scale through its increased purchasing volume. The Company
believes it will be able to increase the volume of purchases by
consolidating its purchases from suppliers where it has overlapping
product lines and by increasing sales from cross-selling its product
lines.
. RATIONALIZATION OF NATIONAL DISTRIBUTION NETWORKS. The Company believes
that it will be able to reduce operating costs by consolidating
distribution facilities and reducing overhead at such facilities.
Substantially all of Kevco's and Shelter's distribution facilities serve
the same geographic regions. On a pro forma combined basis, 45 of the
Company's 47 total distribution facilities serve overlapping markets,
providing the Company significant opportunities to realize distribution
efficiencies over time.
6
<PAGE>
BUSINESS STRATEGY
The Company's primary objective is to maintain and strengthen its position as
the leading national distributor of building products to the manufactured
housing and RV industries. The Company intends to continue to pursue this
objective through internal growth and opportunistic acquisitions. To achieve
its objective, the Company has adopted a strategy based on the following key
elements:
. PROVIDE SUPERIOR CUSTOMER SERVICE. The Company believes that its
emphasis on customer service differentiates it from other distributors
and fosters long-term relationships with its customers. The Company is
committed to a Total Quality Management program to serve its customers'
needs and to work in partnership with its suppliers and customers to
improve their operations. The Company seeks to be an integral part of
its customers' inventory management activities and manufacturing
process. The Company has received several industry awards in recognition
of its high level of customer service.
. LEVERAGE NATIONAL DISTRIBUTION NETWORK. The Company will continue to use
its national distribution network as a platform for growth and
profitability. The Company believes that its national presence provides
it with a significant competitive advantage due to its ability to
service the nationwide needs of its customers' manufacturing facilities.
The Company believes that its national distribution network has allowed
it to develop close relationships with its product suppliers and to
become the exclusive supplier of certain product lines.
. INCREASE CUSTOMER PENETRATION AND PRODUCT OFFERINGS. The Company
supplies over 90% of all manufactured housing plants in the United
States with one or more product lines. This established customer base
provides the Company with a significant opportunity to supply a greater
portion of its customers' building products needs as the customers seek
to reduce the number of their suppliers. The Company also intends to add
new product lines through internal growth and opportunistic
acquisitions. With its existing national distribution infrastructure,
the Company believes that additional product lines can be offered to
existing customers, thereby increasing net sales without adding
significant costs.
. EXPAND MANUFACTURING CAPABILITIES. The Company intends to expand its
manufacturing capabilities through internal growth and opportunistic
vertical acquisitions. By manufacturing certain of its own products, the
Company believes it can achieve greater profitability from its sales,
while obtaining direct control over product availability and quality.
The Company currently operates five wood products manufacturing
facilities and plans to expand to new markets, including opening new
manufacturing facilities in Arizona and North Carolina by the second
quarter of 1998. Through the Shelter Acquisition, the Company obtained
additional manufacturing platforms, including plastic thermoforming,
injection molding and laminated wallboard operations. The Company
believes that there are significant opportunities to grow its
manufacturing business through additional acquisitions and new
facilities.
. PURSUE OPPORTUNISTIC ACQUISITIONS. The Company intends to selectively
explore the acquisition of other distributors and manufacturers of
building products. The Company seeks to acquire distributors that offer
complementary product lines to extend its existing offerings and realize
significant operating synergies.
7
<PAGE>
THE TRANSACTIONS/RECENT DEVELOPMENTS
Pursuant to the terms of a definitive merger agreement entered into on
October 21, 1997 (the "Acquisition Agreement"), SCC Acquisition Corp.
("SCCAC"), an Indiana corporation and a wholly owned subsidiary of Kevco,
commenced the Tender Offer pursuant to which it offered to purchase all of the
outstanding shares of Shelter Common Stock. The Tender Offer expired on
December 1, 1997 at which time Kevco accepted for payment all validly tendered
shares of Shelter Common Stock, which represented approximately 95.5% of the
then issued and outstanding shares of Shelter Common Stock. On or about January
16, 1998, SCCAC will be merged (the "Merger") with and into Shelter, with
Shelter being the surviving corporation. As a result of the Merger, Shelter
will become a wholly owned subsidiary of Kevco. The consummation of the Tender
Offer and the Merger are collectively referred to herein as the "Shelter
Acquisition." Kevco expects that the aggregate consideration to be paid in the
Shelter Acquisition will be approximately $138.8 million, excluding the
repayment of Shelter's existing indebtedness and expenses relating to the
Shelter Acquisition and the Old Notes Offering (as defined herein).
On December 1, 1997, Kevco issued $105,000,000 aggregate principal amount of
Old Notes (the "Old Notes Offering"). The Company used the gross proceeds of
the Old Notes Offering, together with additional borrowings by the Company of
approximately $48.7 million under the Senior Credit Facility and $13.1 million
of then existing available cash held by Shelter, as follows: (i) approximately
$138.8 million was or will be used to purchase all outstanding shares of
Shelter Common Stock and retire outstanding options to acquire shares of common
stock held by employees and directors of Shelter; (ii) approximately $16.7
million was applied to repay existing indebtedness of Shelter; and (iii)
approximately $11.3 million was applied to pay the fees and expenses incurred
in connection with the Shelter Acquisition, the Old Notes Offering and related
transactions (collectively the "Transactions"). Shelter indebtedness repaid had
a final maturity date of March 31, 2005 and bore a blended interest rate of
9.0%.
On December 12, 1997, the Company acquired the inventory and certain
distribution rights of certain building products distributed by the
Manufactured Housing and Recreational Vehicle division of Shepherd Products
Company for a cash purchase price payable at closing of $5.9 million, with an
additional $2.0 million payable over a five-year period following the
acquisition.
THE OLD NOTES OFFERING
Old Notes................... The Old Notes were sold by the Company on
December 1, 1997 to Donaldson, Lufkin &
Jenrette Securities Corporation and
NationsBanc Montgomery Securities, Inc. (the
"Initial Purchasers") pursuant to a Purchase
Agreement dated November 21, 1997 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Old Notes to
qualified institutional buyers pursuant to
Rule 144A under the Securities Act.
Registration Rights Pursuant to the Purchase Agreement, the
Agreement................... Company and the Initial Purchasers entered
into a Registration Rights Agreement dated
December 1, 1997 (the "Registration Rights
Agreement"), which grants the holders of the
Old Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such exchange rights, which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.......... $105,000,000 aggregate principal amount of
Series B 10 3/8% Senior Subordinated Notes
due 2007 (the "Exchange Notes").
8
<PAGE>
The Exchange Offer.......... $1,000 principal amount of the Exchange Notes
in exchange for each $1,000 principal amount
of Old Notes. As of the date hereof,
$105,000,000 aggregate principal amount of
Old Notes are outstanding. The Company will
issue the Exchange Notes to holders on or
promptly after the Expiration Date. The terms
of the Exchange Notes and the Old Notes are
substantially identical.
Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties unrelated to the
Company, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by
any holder thereof (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and
that such holder does not intend to
participate and has no arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes.
Each Participating Broker-Dealer that
receives Exchange Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
in connection with any resale of such
Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. This
Prospectus, as it may be amended or
supplemented from time to time, may be used
by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities (other
than a resale of an unsold allotment from the
original sale of Old Notes). The Company has
agreed that, for a period of one year after
the Expiration Date (or such shorter period
during which all such resales have occurred),
it will make this Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution
of the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with any resale transaction.
Failure to comply with such requirements in
such instance may result in such holder
incurring liability under the Securities Act
for which the holder is not indemnified by
the Company.
9
<PAGE>
Expiration Date............. 5:00 p.m., New York time, on , 1998 unless
the Exchange Offer is extended, in which case
the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Interest on the Exchange
Notes and the Old Notes..... Each Exchange Note will bear interest from
the most recent date to which interest has
been paid or duly provided for on the Old
Note surrendered in exchange for such
Exchange Note or, if no interest has been
paid or duly provided for on such Old Note,
from December 1, 1997. The Exchange Notes
accrue interest at the rate of 10 3/8% per
annum, payable semiannually in arrears on
June 1 and December 1 of each year,
commencing June 1, 1998.
Holders of Old Notes whose Old Notes are
accepted for exchange will not receive
accrued interest on such Old Notes for any
period from and after the last date to which
interest has been paid or duly provided for
on the Old Notes prior to the original issue
date of the Exchange Notes or, if no such
interest has been paid or duly provided for,
will not receive any accrued interest on such
Old Notes, and will be deemed to have waived,
the right to receive any interest on such Old
Notes accrued from and after the last date to
which interest has been paid or duly provided
for on the Old Notes or, if no such interest
has been paid or duly provided for, from and
after December 1, 1997.
Procedures for Tendering Each holder of Old Notes wishing to accept
Old Notes................... the Exchange Offer must complete, sign and
date the accompanying Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together with the Old Notes and any other
required documentation to the Exchange Agent
(as defined herein) at the address set forth
in the Letter of Transmittal. By executing
the Letter of Transmittal, each holder will
represent to the Company that, among other
things, the Exchange Notes acquired pursuant
to the Exchange Offer are being obtained in
the ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes and that neither the holder
nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities
Act. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "The
Exchange Offer--Procedures for Tendering."
Untendered Old Notes........ Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate but who do not tender their Old
Notes will not have any further exchange
rights and such Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for
such Old Notes could be adversely affected.
10
<PAGE>
The Old Notes that are not exchanged pursuant
Consequences of Failure to to the Exchange Offer will remain restricted
Exchange.................... securities. Accordingly, such Old Notes may
be resold only (i) to the Company, (ii)
pursuant to Rule 144A or Rule 144 under the
Securities Act, (iii) pursuant to some other
exemption under the Securities Act (and based
on an opinion of counsel if the Company so
requests), (iv) outside the United States to
a foreign person pursuant to the requirements
of Rule 904 under the Securities Act, or (v)
pursuant to an effective registration
statement under the Securities Act. See "The
Exchange Offer--Consequences of Failure to
Exchange."
Shelf Registration If (i) the Exchange Offer is not permitted by
Statement................... applicable law or (ii) if any Holder of Old
Notes shall notify the Company within 20
Business Days following the Expiration Date
that (A) such Holder was prohibited by law or
Commission policy from participating in the
Exchange Offer or (B) such Holder may not
resell the Exchange Notes to the public
without delivering a prospectus and the
Prospectus relating to the Exchange Offer is
not appropriate or available for such resales
by such Holder or (C) such Holder is a
Broker-Dealer and holds Old Notes acquired
directly from the Company or any of its
affiliates, then the Company and the
Guarantors shall: (1) cause to be filed, on
or prior to 45 days after the earlier of (i)
the date on which the Company determines that
the Exchange Offer is not permitted by
applicable law and (ii) the date on which the
Company receives such notice from a Holder, a
shelf registration statement (the "Shelf
Registration Statement"), relating to all Old
Notes, and (2) shall use their respective
reasonable best efforts to cause such Shelf
Registration Statement to become effective on
or prior to 120 days after the date on which
the obligation of the Company and the
Subsidiary Guarantors to file the Shelf
Registration Statement arises.
The Company and the Subsidiary Guarantors
have agreed to use their respective
reasonable best efforts to keep any Shelf
Registration Statement continuously effective
for a maximum of two years (or such shorter
period in which all Old Notes covered by such
Shelf Registration Statement have been sold).
Special Procedures for
Beneficial Owners........... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender, should
contact such registered holder promptly and
instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time. The
11
<PAGE>
Company will keep the Exchange Offer open for
not less than twenty days in order to provide
for the transfer of registered ownership.
Guaranteed Delivery Holders of Old Notes who wish to tender their
Procedures.................. Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York time, on the Expiration
Date.
Acceptance of Old Notes and
Delivery of Exchange Notes The Company will accept for exchange, subject
............................ to the conditions described under "The
Exchange Offer--Conditions," any and all Old
Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer--
Terms of the Exchange Offer."
Use of Proceeds............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer.
Exchange Agent.............. United States Trust Company of New York, N.A.
THE EXCHANGE NOTES
General..................... The form and terms of the Exchange Notes are
the same as the form and terms of the Old
Notes (which they replace) except that (i)
the Exchange Notes bear a Series B
designation, (ii) the Exchange Notes have
been registered under the Securities Act and,
therefore, will not bear legends restricting
the transfer thereof, and (iii) the holders
of Exchange Notes will not be entitled to
certain rights under the Registration Rights
Agreement, including the provisions providing
for an increase in the interest rate on the
Old Notes in certain circumstances relating
to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer
is consummated. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer."
The Exchange Notes will evidence the same
debt as the Old Notes and will be entitled to
the benefits of the Indenture. See
"Description of the Notes." The Old Notes and
the Exchange Notes are referred to herein
collectively as the "Notes."
$105,000,000 aggregate principal amount of
Series B 10 3/8% Notes due 2007 of the
Company.
Issuer...................... Kevco, Inc.
12
<PAGE>
Maturity Date............... December 1, 2007.
Guarantors.................. The Notes will be guaranteed on a senior
subordinated basis by all existing and future
Restricted Subsidiaries of the Company.
Ranking..................... The Notes and the Subsidiary Guarantees will
be general, unsecured obligations of the
Company and the Subsidiary Guarantors,
respectively. The payment of the principal of
and interest and premium, if any, on the
Exchange Notes will be subordinated in right
of payment to all Senior Indebtedness of the
Company and the Subsidiary Guarantors,
respectively. As of September 30, 1997, on a
pro forma basis after giving effect to the
Transactions, the Company and its
consolidated subsidiaries had outstanding
approximately $98.1 million of outstanding
Senior Indebtedness (including $93.2 million
of Senior Indebtedness under the Senior
Credit Facility). The Indenture will prohibit
the Company and the Subsidiary Guarantors
from incurring any Indebtedness that is
subordinated in right of payment to any
Senior Indebtedness unless such Indebtedness
is subordinated in right of payment to, or
ranks pari passu with, the Notes or the
Subsidiary Guarantees, as applicable. See
"Description of the Notes--Subordination" and
"--Certain Covenants--Limitations on Layering
Indebtedness."
Optional Redemption......... The Notes are redeemable, in whole or in
part, at the option of the Company at any
time on or after December 1, 2002, at the
redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
redemption. In addition, at any time on or
before December 1, 2000, the Company may
redeem up to 35% of the original aggregate
principal amount of the Notes with the net
proceeds of a Public Equity the Old Notes
Offering at a redemption price equal to
110.375% of the principal amount thereof,
plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
date of redemption; provided, however, that
at least 65% of the original aggregate
principal amount of the Notes remains
outstanding following such redemption. See
"Description of the Notes--Optional
Redemption."
Change of Control........... Upon a Change of Control, each holder of the
Notes will have the right to require the
Company to repurchase all or any part of such
holder's Notes at a price equal to 101% of
the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages,
if any, thereon to the date of repurchase.
See "Description of the Notes--Certain
Covenants--Repurchase of Notes at the Option
of the Holder Upon a Change of Control."
Certain Covenants........... The Indenture contains certain covenants,
including, but not limited to, covenants
prohibiting or limiting: (i) the incurrence
by the Company and its Restricted
Subsidiaries of additional Indebtedness; (ii)
the payment of dividends or the making of
other restricted
13
<PAGE>
payments by the Company; (iii) the creation
of liens by the Company and its Restricted
Subsidiaries; (iv) the creation or existence
of restrictions on the ability of Restricted
Subsidiaries to pay dividends or make other
payments to the Company; (v) transactions by
the Company and its Restricted Subsidiaries
with affiliates; (vi) certain sales of assets
by the Company and its Restricted
Subsidiaries; (vii) the ability of the
Company and the Restricted Subsidiaries to
engage in certain lines of business; and
(viii) the Company's ability to consolidate
or merge with or into, or transfer all or
substantially all of its assets to, another
person. See "Description of the Notes--
Certain Covenants."
RISK FACTORS
See "Risk Factors" beginning on page 17 for a discussion of certain
information that should be considered by Holders of Old Notes prior to
tendering their Old Notes in the Exchange Offer.
14
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma condensed combined
balance sheet data at September 30, 1997 and summary unaudited pro forma
condensed combined statements of income for the year ended December 31, 1996,
the nine month period ended September 30, 1997 and the last twelve months ended
September 30, 1997. The pro forma condensed combined balance sheet data at
September 30, 1997 give effect to the Transactions as if they had occurred on
September 30, 1997. The pro forma condensed combined statements of income for
the fiscal year ended December 31, 1996, the nine month period ended September
30, 1997 and the last twelve months ended September 30, 1997 give effect to the
Pro Forma Transactions (as defined herein) as if they had occurred on January
1, 1996. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Financial Data," "Selected Consolidated
Financial Data," and the Consolidated Financial Statements and Notes thereto of
Kevco and Shelter, included elsewhere herein.
<TABLE>
<CAPTION>
LAST TWELVE
MONTHS ENDED NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................ $855,176 $652,091 $855,686
Gross profit..................... 119,616 89,866 122,773
Commission income................ 8,930 6,580 9,359
Selling, general and
administrative expenses......... 91,014 69,077 88,722
Operating income................. 37,532 27,369 43,410
Net income....................... 10,239 7,270 13,164
OTHER DATA:
EBITDA(1)........................ 45,686 33,456 51,243
Depreciation and amortization.... 8,154 6,087 7,833
Cash interest expense(2)......... 18,580 13,935 18,580
EBITDA/cash interest expense..... 2.5x -- --
Total debt/EBITDA................ 4.4x -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------
ACTUAL PRO FORMA
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 35,127 $ 71,413
Total assets............................................. 114,578 315,116
Total debt............................................... 45,849 203,103
Stockholders' equity..................................... 40,397 40,397
</TABLE>
- --------------------
(1) EBITDA for any relevant period presented above is defined as net income
plus interest expense, income taxes, depreciation, amortization, and other
expenses less other income reflected in the determination of net income.
EBITDA should not be construed as a substitute for operating income, as an
indicator of liquidity or as a substitute for net cash provided by
operating activities, which are determined in accordance with generally
accepted accounting principles. EBITDA is included because management
believes that certain readers may find it to be a useful tool for analyzing
operating performance, leverage, liquidity, and a company's ability to
service debt. See "Unaudited Pro Forma Condensed Combined Financial Data"
and the Consolidated Financial Statements and the Notes thereto of Kevco
and Shelter included elsewhere in this Prospectus.
(2) Cash interest expense represents total interest expense less amortization
of deferred financing costs, on a pro forma basis giving effect to the
issuance of the Old Notes pursuant to the Old Notes Offering at an interest
rate of 10 3/8%, borrowings under the Senior Credit Facility at a rate of
8.25% and the application of the net proceeds therefrom, as if the
Transactions had occurred on January 1, 1996.
15
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The summary historical consolidated financial data for and as of the end of
each of the years in the three-year period ended December 31, 1996 set forth
below have been derived from the audited consolidated financial statements of
Kevco and Shelter. The summary historical consolidated financial data set forth
below for and as of the end of the nine-month period ended September 30, 1997
have been derived from the unaudited condensed consolidated financial
statements of Kevco and Shelter. The historical condensed consolidated results
of operations of Kevco and Shelter for the nine months ended September 1997 are
unaudited and are not necessarily indicative of the results of operations of
Kevco and Shelter for the full year. The unaudited historical consolidated
financial data reflects all adjustments (consisting of normal, recurring
adjustments) which are, in the opinion of management of each company, necessary
for a fair summary of such company's financial position, results of operations
and cash flows for and as of the end of the periods presented. The following
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Unaudited Pro Forma
Financial Data," "Selected Consolidated Financial Data," and the Consolidated
Financial Statements and Notes thereto of Kevco and Shelter, included elsewhere
herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ---------------------------
HISTORICAL HISTORICAL
PRO FORMA -------------------------- PRO FORMA -----------------
1996(1) 1996 1995 1994 1997(1) 1997(2) 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Kevco
-----
INCOME STATEMENT DATA:
Net sales............... $401,119 $267,344 $182,519 $ 99,279 $289,952 $271,957 $205,048
Gross profit............ 59,646 40,691 26,878 15,923 39,056 36,819 30,993
Operating Income........ 24,282 16,465 8,599 5,048 12,895 12,494 12,503
OTHER DATA:
EBITDA(3)............... 27,700 18,257 9,640 5,447 15,350 14,666 13,821
Depreciation and
amortization........... 3,418 1,792 1,041 399 2,455 2,172 1,318
Capital expenditures.... -- 1,586 2,844 432 -- 2,000 1,086
Shelter
-------
INCOME STATEMENT DATA:
Net Sales............... $454,567 $521,022 $462,323 $333,104 $362,139 $357,879 $397,065
Gross profit............ 63,127 73,321 68,548 51,296 50,810 49,973 57,516
Operating income........ 15,033 15,586 18,844 15,271 11,645 11,237 15,052
OTHER DATA:
EBITDA(3)............... 18,629 18,936 21,741 17,303 14,509 13,691 17,497
Depreciation and
amortization........... 3,596 3,350 2,897 2,032 2,864 2,454 2,445
Capital expenditures.... -- 8,368 2,790 2,136 -- 6,210 6,057
Pro Forma Combined
------------------
EBITDA(4)............... $ 51,243 -- -- -- $ 33,456 -- --
</TABLE>
- --------------------
(1) Reflects the pro forma effect of (i) Kevco's acquisition of Bowen Supply,
Inc. ("Bowen") and Consolidated Forest Products, L.L.C. ("Consolidated
Forest") in February 1997, (ii) for 1996, Shelter's sale of operations and
certain assets of its carpet and yarn manufacturing subsidiary, Danube
Carpet Mills, Inc. ("Danube") on December 31, 1996 and (iii) the
acquisition of net assets and operations of Plastic Solutions, Inc. ("PSI")
in June 1997.
(2) The decline in Shelter's net sales is attributable to the sale of
operations and certain assets of its Danube subsidiary on December 31,
1996.
(3) EBITDA for any relevant period presented above is defined as net income
plus interest expense, income taxes, depreciation, amortization, and other
expenses less other income reflected in the determination of net income.
EBITDA should not be construed as a substitute for operating income, as an
indicator of liquidity or as a substitute for net cash provided by
operating activities, which are determined in accordance with generally
accepted accounting principles. EBITDA is included because management
believes that certain readers may find it to be a useful tool for analyzing
operating performance, leverage, liquidity, and a company's ability to
service debt. See "Unaudited Pro Forma Condensed Combined Financial Data"
and the Consolidated Financial Statements and the Notes thereto of Kevco
and Shelter included elsewhere in this Prospectus.
(4) EBITDA for Kevco and Shelter combined, including the estimated cost savings
associated with the Shelter Acquisition. See "Unaudited Pro Forma Condensed
Combined Financial Data."
16
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, Holders of Old Notes should consider carefully the factors
listed below before tendering their Old Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE
The Company has a substantial amount of indebtedness. As of September 30,
1997, on a pro forma basis after giving effect to the Transactions, the
Company had approximately $203.1 million of consolidated indebtedness and a
ratio of debt to total capitalization of 83.4%. See "Capitalization."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the
Company's indebtedness, acquisitions, working capital, capital expenditures or
other purposes may be impaired, (ii) funds available to the Company for its
operations and general corporate purposes or for capital expenditures will be
reduced as a result of the dedication of a substantial portion of the
Company's consolidated cash flow from operations to the payment of the
principal and interest on its indebtedness, (iii) the Company may be more
highly leveraged than certain of its competitors, which may place it at a
competitive disadvantage, (iv) the agreements governing the Company's and its
subsidiaries' long-term indebtedness and bank loans contain restrictive
financial and operating covenants, (v) an event of default (not cured or
waived) under financial and operating covenants contained in the Company's or
its subsidiaries' debt instruments, including the Indenture, could occur and
have a material adverse effect on the Company, (vi) certain of the borrowings
under debt agreements of the Company's subsidiaries have floating rates of
interest, which causes the Company and its subsidiaries to be vulnerable to
increases in interest rates and (vii) the Company's substantial degree of
leverage could make it more vulnerable to a downturn in general economic
conditions.
The ability of the Company and its subsidiaries to make principal and
interest payments under long-term indebtedness (including the Notes) and bank
loans will be dependent upon their future performance, which is subject to
financial, economic and other factors affecting the Company and its
subsidiaries, some of which are beyond their control. There can be no
assurance that the current level of operating results of the Company and its
subsidiaries will continue or improve. The Company believes that it will need
to access the capital markets in the future in order to provide the funds
necessary to repay a significant portion of its indebtedness. There can be no
assurance that any such refinancing will be possible or that any additional
financing can be obtained, particularly in view of the Company's anticipated
high levels of debt and the debt incurrence restrictions under its existing
debt agreements, including the Indenture. If no such refinancing or additional
financing were available, the Company and/or its subsidiaries could default on
their respective debt obligations. In such case, virtually all other debt of
the Company and its subsidiaries, including payments to be made under the
Notes, could be immediately due and payable.
SUBORDINATION
The Old Notes are, and the Exchange Notes will be, unsecured and
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company, including all indebtedness under the Senior
Credit Facility. Although the obligations of the Company under the Notes are
guaranteed by the Subsidiary Guarantors, such guarantees are also subordinated
in right of payment to all Senior Indebtedness of the Subsidiary Guarantors.
As of September 30, 1997, on a pro forma basis after giving effect to the
Transactions, the Company and its consolidated subsidiaries had approximately
$98.1 million of outstanding Senior Indebtedness (including $93.2 million of
Senior Indebtedness under the Senior Credit Facility). The Indenture permits
the Company and its Subsidiaries to incur additional indebtedness, including
Senior Indebtedness, subject to certain limitations.
By reason of the subordination of the Notes and Subsidiary Guarantees to all
Senior Indebtedness of the Company and the Subsidiary Guarantors, as
applicable, in the event of a liquidation or dissolution of the Company or a
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar
17
<PAGE>
proceeding relating to the Company or such Subsidiary Guarantor, the holders
of Senior Indebtedness will be entitled to receive payment in full before the
holders of the Notes receive any payment. In addition, the Company and the
Subsidiary Guarantors will not be permitted to make any payment to the holders
of the Notes for specified periods if (i) there occurs a payment default with
respect to any Senior Indebtedness or (ii) there occurs a default with respect
to Senior Indebtedness held by designated persons which permits the holders of
such Senior Indebtedness to accelerate its maturity and such holders notify
the Trustee (as defined herein) of such default. These provisions may have the
effect of reducing the amounts payable to or recoverable by the holders of the
Notes.
The Company currently conducts all of its business through subsidiaries.
Accordingly, the Company is dependent on the cash flow generated by its
subsidiaries for the payment of its obligations, including the Notes. Except
by virtue of the Subsidiary Guarantees, the subsidiaries of the Company have
no obligation to make payments under the Notes. To the extent that a
subsidiary of the Company does not become a Subsidiary Guarantor or the
Subsidiary Guarantee of a Subsidiary Guarantor is not enforceable under
applicable law, the Notes will be structurally subordinated to any
Indebtedness or other obligations of the subsidiaries of the Company.
RESTRICTIVE COVENANTS AND ASSET ENCUMBRANCES
The Senior Credit Facility and the Indenture contain numerous restrictive
covenants which limit the discretion of Company management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to pay dividends or make
other restricted payments, to make investments, loans and guarantees and to
sell or otherwise dispose of a substantial portion of assets to, or merge or
consolidate with, another entity. The Senior Credit Facility also contains a
number of financial covenants that require the Company to meet certain
financial ratios and tests and provide that a "change of control" will
constitute an event of default. A failure to comply with the obligations
contained in the Senior Credit Facility or the Indenture, if not cured or
waived, could permit acceleration of the related indebtedness and acceleration
of indebtedness under other instruments that contain cross-acceleration or
cross-default provisions. If the Company were obligated to repay all or a
significant portion of its indebtedness, there can be no assurance that the
Company would have sufficient cash to do so or that the Company could
successfully refinance such indebtedness. Other indebtedness of the Company
that may be incurred in the future may contain financial or other covenants
more restrictive than those applicable to the Senior Credit Facility or the
Notes. In addition, the obligations of the Company under the Senior Credit
Facility are secured by substantially all of the assets of the Company, and
the Indenture permits other Senior Indebtedness of the Company to be secured.
In the case of an event of default under the Senior Credit Facility or such
other secured indebtedness, the lenders thereunder would be entitled to
exercise the remedies available to a secured lender under applicable law. See
"Description of the Notes--Certain Covenants" and "Description of Senior
Credit Facility."
INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required
repurchases of Notes tendered. In addition, the Senior Credit Facility
prohibits the Company from making such required repurchases and there can be
no assurance that the Company's debt instruments existing at the time of any
Change of Control will allow the Company to make such required repurchases.
Notwithstanding these provisions, the Company could enter into certain
transactions, including certain recapitalization, that would not constitute a
Change of Control but would increase the amount of debt outstanding at such
time. See "Description of the Notes--Certain Covenants--Repurchase of Notes at
the Option of the Holder Upon a Change of Control."
18
<PAGE>
COMPETITION
The wholesale distribution industry relating to producers of manufactured
homes and RVs is highly competitive, and the barriers to entry are relatively
low. Competition exists in terms of price, product quality and features,
service, warranty terms and distribution facility location. The manufacturing
of roof trusses, laminated wallboard products and thermoformed bathroom
products are also highly competitive businesses. There are numerous companies,
both public and private, that are in direct competition with the Company, and
many of these competitors have been operating longer and have substantially
greater financial and other resources than the Company. A downturn in the
manufactured housing or RV industries could result in increased competition
adversely affecting the Company's results of operations or financial
condition. In addition, there are certain product manufacturers that sell and
distribute their products directly to manufactured home and RV producers.
There can be no assurance that additional manufacturers of products
distributed by the Company will not elect to sell and distribute directly in
the future. No assurance can be given that the Company will be able to compete
effectively in the future.
CYCLICAL NATURE OF THE MANUFACTURED HOUSING AND RV MARKETS
Approximately 79% of the Company's net sales for the year ended December 31,
1996, were to producers of manufactured homes. The manufactured housing market
historically has been cyclical and is influenced by many of the same national
and regional economic and demographic factors that affect the broader housing
market, including consumer confidence, interest rates, availability and terms
of financing, regional population and employment trends, availability and cost
of alternative housing and general economic conditions, including recessions.
The RV market has also historically been cyclical and is also influenced by
factors such as interest rates, availability and terms of financing and
general economic conditions, as well as gasoline prices. The Company may be
adversely affected by these factors.
GROWTH THROUGH ACQUISITIONS
Part of the Company's business strategy is to grow through strategic
acquisitions. There can be no assurance that the Company will be able to
identify attractive or willing acquisition candidates or that it will be able
to successfully integrate the operations of any companies it acquires. In
addition, there can be no assurance that such acquired companies would perform
in accordance with management's expectations or that the Company would not
encounter unanticipated problems or liabilities. Also, if the Company does not
have sufficient cash resources for any acquisition, its growth could be
limited. There can be no assurance that the Company will be able to obtain
adequate financing for any acquisition or that, if available, such financing
will be on terms acceptable to the Company. The Senior Credit Facility
requires the consent of the Company's lenders prior to the consummation of
certain acquisitions. There can be no assurance such consents will be granted
any time they are required or that the Company will be able to successfully
implement its acquisition strategy.
RISKS RELATED TO THE INTEGRATION OF KEVCO AND SHELTER
The Shelter Acquisition involves the integration of two companies that have
previously operated independently. The assimilation of the companies may be
difficult and will require integration and coordination of the Company's
product offerings, management, systems, manufacturing and sales and marketing
efforts. In addition, the process of integrating the operations of Kevco and
Shelter will require substantial attention from management and could cause the
interruption of, or a loss of momentum in, the business activities of the
Company, which could have an adverse effect on the Company's financial
position, results of operations and cash flows. Accordingly, no assurance can
be given that difficulties will not be encountered in integrating the
operations of Kevco and Shelter or that the efficiencies and benefits expected
from such integration will be realized.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent upon the continued services of the
Company's senior management, particularly its Chairman of the Board, President
and Chief Executive Officer, Jerry E. Kimmel.
19
<PAGE>
The loss of the services of Mr. Kimmel could have a material adverse effect on
the Company and its business. In addition, the Company's success and continued
growth will depend upon its ability to attract and retain experienced, quality
management personnel.
IMPORTANCE OF PRINCIPAL CUSTOMERS
The Company's two largest customers, Champion Enterprises, Inc. and
Fleetwood Enterprises, Inc., accounted for approximately 14% and 12%,
respectively, of the Company's combined historical net sales in 1996. Although
the Company has ongoing supply relationships with these customers, it does not
have a formal supply contract with these customers or most of its other
customers. The Company's business could be adversely affected if these
customers, or other major customers, substantially reduced or discontinued
purchases from the Company. Further, the Company can give no assurance that
its sales to its customers will continue at historical levels. See "Business--
Sales and Marketing" and Note 1 to the Consolidated Financial Statements of
Kevco and Shelter.
IMPORTANCE OF KEY SUPPLIERS
There are numerous competing suppliers of most of the products that the
Company purchases; however, if a particular supplier were to unexpectedly
discontinue sales of a product to the Company, the Company could experience
temporary shortages in that product until it obtains a replacement supplier.
Such a temporary shortage could have a negative impact on the Company's
relationships with its customers, which could in turn result in the loss of
one or more customers. The loss of one or more major customers could have a
material adverse effect on the Company and its business. See "Business--
Purchasing and Suppliers."
FLUCTUATIONS IN PRICES OF LUMBER
The Company has experienced significant fluctuations in the cost of lumber
products from primary producers. A variety of factors over which the Company
has no control, including environmental regulations, weather conditions and
natural disasters, impact the market price of lumber products. The Company
anticipates that these fluctuations will continue in the future. The Company's
purchase and resale practices seek to minimize the impact of fluctuations in
lumber prices. The Company prices its wood products on a monthly basis based
on the then-current lumber prices. It charges the raw material cost on a FIFO-
basis to cost of goods as products are sold. Periods of prolonged lumber price
decreases may have a material adverse impact on the Company's inventory value
and profitability.
CONTROL BY PRINCIPAL SHAREHOLDER
As of November 20, 1997, Jerry E. Kimmel, the Chairman of the Board,
President and Chief Executive Officer of the Company, owned approximately
55.1% of the outstanding Common Stock of the Company. As a result, Mr. Kimmel
is able to (i) elect the entire Board of Directors of the Company, (ii)
through his ability to elect directors, exercise control over the business,
officers, policies and management of the Company and (iii) in general,
determine the outcome of any matter submitted to a vote of the shareholders of
the Company, including an amendment to the Articles of Incorporation of the
Company, the authorization of additional shares of the Company's capital stock
or any merger, consolidation or other extraordinary corporate transaction
requiring a vote of the shareholders of the Company. See "Principal
Shareholders."
REGULATION
The Company's suppliers and customers are subject to a variety of federal,
state and local laws and regulations. The National Manufactured Housing
Construction and Safety Standards Act of 1974 and regulations promulgated
thereunder by the U.S. Department of Housing and Urban Development ("HUD")
impose comprehensive national construction standards for manufactured homes
and preempt conflicting state and local regulations. HUD has adopted
regulations that divide the United States into three "Wind Zones" and impose
20
<PAGE>
more stringent construction standards for homes to be sold in areas designated
as Wind Zones II or III. These regulations have resulted in higher
manufacturing and dealer costs. The Company cannot predict if additional
regulations will be adopted or the effect that any such regulations would have
on the Company. To the extent regulations make manufactured housing less
competitive with other housing alternatives, the Company's operations could be
negatively impacted. See "Business--Regulation."
FRAUDULENT CONVEYANCE
The Company believes that the indebtedness represented by the Notes was
incurred for proper purposes and in good faith, and that, based on present
forecasts, asset valuations and other financial information, after the
consummation of the Transactions, the Company will be solvent, will have
sufficient capital for carrying on its business and will be able to pay its
debts as they mature. Notwithstanding the Company's belief, however, if a
court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a debtor-in-
possession) were to find that, at the time of the incurrence of such
indebtedness, the Company was insolvent, was rendered insolvent by reason of
such incurrence, was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital, intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as
they matured, or intended to hinder, delay or defraud its creditors, and that
the indebtedness was incurred for less than reasonably equivalent value, then
such court could, among other things, (i) void all or a portion of the
Company's obligations to the holders of the Notes, the effect of which would
be that the holders of the Notes may not be repaid in full and/or (ii)
subordinate the Company's obligations to the holders of the Notes to other
existing and future indebtedness of the Company to a greater extent than would
otherwise be the case, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Notes.
The Company's obligations under the Notes are guaranteed, jointly and
severally, on a senior subordinated basis, by each of the Subsidiary
Guarantors. The Company believes that indebtedness represented by the
Guarantees was, and is being, incurred by the Subsidiary Guarantors for proper
purposes and in good faith, and that, based on present forecasts, asset
valuations and other financial information, after the consummation of the
Transactions, each of the Subsidiary Guarantors will be solvent, will have
sufficient capital for carrying on its business and will be able to pay its
debts as they mature. Notwithstanding the Company's belief, however, if a
court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a debtor-in-
possession) were to find that, at the time of the incurrence of such
indebtedness, the Subsidiary Guarantors were insolvent, were rendered
insolvent by reason of such incurrence, were engaged in a business or
transaction for which their remaining assets constituted unreasonably small
capital, intended to incur, or believed that they would incur, debts beyond
their ability to pay such debts as they matured, or intended to hinder, delay
or defraud their creditors, and that the indebtedness was incurred for less
than reasonably equivalent value, then such court could, among other things,
(i) void all or a portion of such Subsidiary Guarantors' obligations to the
holders of the Notes, the effect of which would be that the holders of the
Notes may not be repaid in full and/or (ii) subordinate such Subsidiary
Guarantors' obligations to the holders of the Notes to other existing and
future indebtedness of such Subsidiary Guarantors to a greater extent than
would otherwise be the case, the effect of which would be to entitle such
other creditors to be paid in full before any payment could be made on the
Notes. Among other things, a legal challenge to a guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the
Subsidiary Guarantors as a result of the issuance by the Company of the Notes.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for
21
<PAGE>
exchange. Old Notes that are not tendered or are tendered but not accepted
will, following the consummation of the Exchange Offer, continue to be subject
to the existing restrictions upon transfer thereof and, upon consummation of
the Exchange Offer, registration rights under the Registration Rights
Agreement generally will terminate. In addition, any holder of Old Notes who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transactions. Each Participating Broker-Dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. See "Plan
of Distribution." To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Old Notes were issued on December 1, 1997 to qualified institutional
buyers and are eligible for trading in the PORTAL Market, the National
Association of Securities Dealers' screen-based, automated market for trading
of securities eligible for resale under Rule 144A. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
the remaining untendered Old Notes could be adversely affected. There is no
existing trading market for the Exchange Notes, and there can be no assurance
regarding the future development of a market for the Exchange Notes, or the
ability of holders of the Exchange Notes to sell their Exchange Notes or the
price at which such holders may be able to sell their Exchange Notes. Although
the Initial Purchasers have informed the Company that they currently intend to
make a market in the Exchange Notes, they are not obligated to do so and any
such market making may be discontinued at any time without notice. As a
result, the market price of the Exchange Notes could be adversely affected.
The Company does not intend to apply to list the Old Notes or the Exchange
Notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation System. The liquidity
of, and trading market for, the Notes also may be adversely affected by
general declines in the market for similar securities, regardless of the
Company's financial performance or prospects.
22
<PAGE>
THE TRANSACTIONS
On October 28, 1997, SCCAC, a wholly-owned subsidiary of Kevco, commenced
the Tender Offer for all the outstanding shares of Shelter Common Stock at
$17.50 net per share as required under the terms of the Acquisition Agreement,
dated as of October 21, 1997 among Kevco, SCCAC and Shelter. The Tender Offer
expired on December 1, 1997, at which time Kevco accepted for payment all
validly tendered shares of Shelter Common Stock, which represented
approximately 95.5% of the then issued and outstanding shares of Shelter
Common Stock. On or about January 16, 1998, SCCAC will be merged with and into
Shelter, with Shelter being the surviving corporation. As a result of the
Merger, Shelter will become a wholly-owned subsidiary of Kevco. Kevco expects
that the aggregate consideration to be paid in the Shelter Acquisition will be
approximately $138.8 million, excluding the repayment of Shelter's existing
indebtedness and expenses relating to the Shelter Acquisition and the Old
Notes Offering, which is being funded by some combination of the proceeds of
the Old Notes Offering, additional borrowings under the Senior Credit Facility
and then existing available cash held by Shelter. See "Use of Proceeds".
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. The Exchange Offer is intended to satisfy
certain of the Company's obligations under the Registration Rights Agreement.
The Company used the gross proceeds of the Old Notes Offering of $105.0
million, together with additional borrowings by the Company of approximately
$48.7 million under the Senior Credit Facility and $13.1 million of then
existing available cash held by Shelter, as follows: (i) approximately $138.8
million was, or will be, used to purchase all outstanding shares of Shelter
Common Stock and retire outstanding options to acquire shares of Shelter
Common Stock held by employees and directors of Shelter; (ii) approximately
$16.7 million was applied to repay existing indebtedness of Shelter; and (iii)
approximately $11.3 million was applied to pay the fees and expenses incurred
in connection with the Transactions. Shelter indebtedness repaid had a final
maturity date of March 31, 2005 and bore a blended interest rate of 9.0%.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Kevco at September 30,
1997, (i) on an actual basis and (ii) on a pro forma basis to give effect to
the Transactions as set forth under "Use of Proceeds." This table should be
read in conjunction with the Consolidated Financial Statements of Kevco and
Shelter and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-----------------
ACTUAL PRO FORMA
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash....................................................... $ 77 $ 77
======= ========
Total debt:
Capital lease obligations.................................. $ 1,435 $ 1,435
Long-term notes payable.................................... -- 3,500
Senior Credit Facility:
Revolving Credit Facility................................. 14,414 3,168
Term Loan(1).............................................. 30,000 90,000
Old Notes Offering......................................... -- 105,000
------- --------
Total debt............................................... 45,849 203,103
Stockholders' equity....................................... 40,397 40,397
------- --------
Total capitalization..................................... $86,246 $243,500
======= ========
</TABLE>
- ---------------------
(1) The Indenture provides that the Company's borrowing capacity under the
Term Loan of the Senior Credit Facility is reduced by the cash
consideration necessary to purchase the amount of Shelter Common Stock not
acquired under the Tender Offer until such time as Kevco owns 100% of the
Shelter Common Stock.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The unaudited pro forma condensed combined financial data is based on the
consolidated financial statements of Kevco, the consolidated financial
statements of Bowen, the consolidated financial statements of Consolidated
Forest and the consolidated financial statements of Shelter included elsewhere
in this Prospectus. The unaudited pro forma financial data gives effect to:
(i) the effect on weighted average shares and earnings per share of the sale
of 2,415,000 shares of common stock of Kevco and the tax impact of Kevco's
conversion from an S corporation to a C corporation in November 1996
(including an over-allotment option of 315,000 shares exercised in December
1996) ("Public Offering"); (ii) the acquisition by Kevco of Bowen ("Bowen
Acquisition") and Consolidated Forest ("Consolidated Forest Acquisition" and,
collectively with the Bowen Acquisition, the "Kevco Acquisitions"); (iii)
Shelter's sale of the operations and certain assets of its Danube subsidiary
and the acquisition by Shelter of PSI ("PSI Acquisition"); (iv) the Shelter
Acquisition; (v) the Senior Credit Facility and (vi) the Old Notes Offering
(collectively, the "Pro Forma Transactions") as if these transactions had
occurred on January 1, 1996.
The unaudited pro forma condensed combined balance sheet at September 30,
1997 is based on the consolidated financial statements of Kevco adjusted to
give effect to the Transactions as if such transactions had occurred on
September 30, 1997. The unaudited pro forma condensed combined statements of
income for the year ended December 31, 1996, the nine month-period ended
September 30, 1997 and the last twelve months ended September 30, 1997, are
based on the consolidated financial statements of Kevco and adjusted to give
effect to the Pro Forma Transactions as if such transactions had occurred on
January 1, 1996. The acquisition adjustments and offering adjustments are
based upon historical financial information of Kevco, Bowen, Consolidated
Forest, PSI and Shelter and certain assumptions that management of Kevco
believes are reasonable. The Kevco Acquisitions, the PSI Acquisition and the
Shelter Acquisition are accounted for under the purchase method of accounting.
Under this method of accounting, the purchase price has been allocated to the
assets and liabilities acquired based on preliminary estimates of fair value.
The actual fair value is determined as of the consummation of each of the
acquisitions. The pro forma financial data does not necessarily reflect the
results of operations or the financial position of Kevco that actually would
have resulted had the Pro Forma Transactions occurred at the date indicated,
or project the results of operations or financial position of Kevco for any
future date or period.
The unaudited pro forma condensed combined financial data should be read in
conjunction with the consolidated financial statements of Kevco, Bowen,
Consolidated Forest and Shelter and the notes thereto included elsewhere in
this Prospectus.
25
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHELTER
KEVCO SHELTER ACQUISITION PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS(1) TOTAL
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.... $ 77 $ 13,139 $(13,139)(2) $ 77
Trade accounts receivable,
net......................... 25,190 33,010 -- 58,200
Inventories.................. 34,988 43,001 -- 77,989
Other current assets......... 1,447 3,327 -- 4,774
-------- -------- -------- --------
Total current assets....... 61,702 92,477 (13,139) 141,040
Property and equipment, net.... 18,563 25,929 -- 44,492
Intangible assets, net......... 33,600 13,126 (13,126)(3) 127,549
88,024 (3)
5,925 (4)
Other assets................... 713 1,322 -- 2,035
-------- -------- -------- --------
Total assets............... $114,578 $132,854 $ 67,684 $315,116
======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable....... $ 22,245 $ 33,079 $ -- $ 55,324
Accrued liabilities.......... 4,050 7,279 -- 11,329
Current portion of long-term
debt........................ 112 3,007 (2,271)(5) 848
Other liabilities 168 1,023 935 (6) 2,126
-------- -------- -------- --------
Total current liabilities.. 26,575 44,388 (1,336) 69,627
Long-term debt, less current
portion....................... 45,737 17,208 (14,444)(7) 202,255
153,754 (7)
Other liabilities.............. 1,869 968 -- 2,837
-------- -------- -------- --------
Total liabilities............ 74,181 62,564 137,974 274,719
Total stockholders' equity... 40,397 70,290 (70,290)(8) 40,397
-------- -------- -------- --------
Total liabilities and
stockholders' equity...... $114,578 $132,854 $ 67,684 $315,116
======== ======== ======== ========
</TABLE>
26
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) The Shelter Acquisition was accounted for using the purchase method of
accounting. The aggregate purchase price was determined as follows:
<TABLE>
<S> <C>
Shares outstanding at September 30, 1997........................ 7,765
Options outstanding at September 30, 1997....................... 376
--------
Total......................................................... 8,141
Purchase price per share........................................ $ 17.50
--------
$142,468
Exercise of options outstanding(a).............................. (3,625)
--------
Purchase price.................................................. $138,843
Acquisition costs(b)............................................ 5,410
--------
Total purchase price.......................................... $144,253
========
</TABLE>
(a) Represents cash to be received by Kevco in settlement of stock options
outstanding as of September 30, 1997 (options outstanding to purchase
376,000 shares of Shelter Common Stock at an average price of $9.64 per
share).
(b) Represents fees and costs directly associated with the Shelter
Acquisition consisting of investment banking, legal and other
professional costs.
(2) Reflects the utilization of existing cash to finance a portion of the
Shelter Acquisition.
(3) Goodwill was adjusted to reflect (i) the elimination of existing goodwill
of Shelter and (ii) the excess of purchase cost over the fair value of net
assets acquired which amount will be amortized on a straight line basis
over an estimated life of 40 years.
(4) Intangibles were adjusted to reflect the capitalization of financing costs
that will be amortized over the life of the Senior Credit Facility and the
Notes.
(5) Current portion of long-term debt was adjusted to reflect the retirement
of a portion of long-term debt of Shelter. See note (7).
(6) The adjustment reflects accrued severance costs related to the involuntary
termination of employees resulting from the Shelter Acquisition.
(7) Long-term debt was adjusted to reflect gross proceeds of $105,000 from the
issuance of the Notes and additional borrowings of $48,754 from the Senior
Credit Facility, net of $14,444 of long-term debt of Shelter that was
retired.
(8) The adjustment reflects the elimination of the stockholders' equity of
Shelter.
27
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
LAST TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
KEVCO SHELTER
PRO PRO THE OLD KEVCO
FORMA FORMA SHELTER NOTES COMBINED
TOTALS TOTALS ACQUISITION OFFERING PRO
(A) (B) ADJUSTMENTS ADJUSTMENTS FORMA
<S> <C> <C> <C> <C> <C>
Net sales............... $384,269 $470,907 $ -- $ -- $855,176
Cost of sales........... 330,583 404,977 -- -- 735,560
-------- -------- -------- -------- --------
Gross profit.......... 53,686 65,930 -- -- 119,616
Commission income....... 6,224 2,706 -- -- 8,930
-------- -------- -------- -------- --------
59,910 68,636 -- -- 128,546
Selling, general and
administrative
expenses............... 41,035 54,356 (5,346)(1) 91,014
(1,232)(2)
2,201 (3)
-------- -------- -------- -------- --------
Operating income...... 18,875 14,280 4,377 -- 37,532
Interest expense........ (4,068) (1,039) -- (18,580)(4) (19,536)
4,862 (4)
(711)(4)
Other income............ 174 447 -- -- 621
-------- -------- -------- -------- --------
Income before income
taxes................ 14,981 13,688 4,377 (14,429) 18,617
Income taxes 5,992 5,267 1,751(5) (4,632)(5) 8,378
-------- -------- -------- -------- --------
Net income............ $ 8,989 $ 8,421 $ 2,626 ($ 9,797) $ 10,239
======== ======== ======== ======== ========
Earnings per share...... $ 1.30 $ 1.48
======== ========
Weighted average shares
outstanding............. 6,916 6,916
======== ========
OTHER DATA:
Operating income...... $ 18,875 $ 14,280 $ 4,377 $ -- $ 37,532
Depreciation and
amortization......... 3,346 3,839 969 -- 8,154
-------- -------- -------- -------- --------
EBITDA (6)............ $ 22,221 $ 18,119 $ 5,346 $ -- $ 45,686
======== ======== ======== ======== ========
</TABLE>
- ---------------------
(A) Includes the pro forma effect of the Public Offering and the Kevco
Acquisitions. See details in "Unaudited Pro Forma Financial Data,"
beginning on page P-1.
(B) Includes the pro forma effect of the sale of the operations and certain
assets of Danube and the PSI Acquisition. See details in "Unaudited Pro
Forma Financial Data," beginning on page P-1.
28
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
LAST TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(1) Pursuant to EITF 95-3, Kevco has accrued liabilities for the involuntary
termination of certain employees which are included in the financial
statements along with the pro forma effect of the elimination of duplicate
costs. Costs include only direct costs and benefits of these employees.
Kevco believes that the elimination of duplicate employees will have no
material effect on the other reported amounts within the unaudited pro
forma condensed combined financial statements.
(2) To eliminate the historical amortization of goodwill of Shelter.
(3) Represents the amortization of excess purchase price over fair value of
net assets acquired related to the Shelter Acquisition over a period of 40
years.
(4) Interest expense was adjusted to reflect: (i) $18,580 resulting from the
effective interest rate of the Senior Credit Facility at 8.25% and the
Notes at 10 3/8%; (ii) the elimination of interest on existing debt of
$4,862 to be repaid from the proceeds of the Senior Credit Facility and
(iii) the amortization of financing costs of $711 over the life of the
indebtedness.
(5) Income tax expense was adjusted to reflect an effective tax rate of 45%,
which is the expected effective tax rate of the Company after giving
effect to the Shelter Acquisition. The effective rate is higher than the
statutory rate of approximately 40% because of the nondeductibility of
goodwill resulting from the Shelter Acquisition.
(6) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income reflected
in the determination of net income.
29
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE OLD
KEVCO SHELTER SHELTER NOTES KEVCO
PRO FORMA PRO FORMA ACQUISITION OFFERING COMBINED
TOTALS(A) TOTALS(B) ADJUSTMENTS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C>
Net sales............... $289,952 $362,139 $ -- $ -- $652,091
Cost of sales........... 250,896 311,329 -- -- 562,225
-------- -------- ------- -------- --------
Gross profit.......... 39,056 50,810 -- -- 89,866
Commission income....... 4,506 2,074 -- -- 6,580
-------- -------- ------- -------- --------
43,562 52,884 -- -- 96,446
Selling, general and
administrative
expenses............... 30,667 41,239 (3,597)(1) -- 69,077
(883)(2)
1,651 (3)
-------- -------- ------- -------- --------
Operating income...... 12,895 11,645 2,829 -- 27,369
Interest expense........ (2,869) (612) -- (13,935)(4) (14,652)
3,297 (4)
(533)(4)
Other income............ 52 447 -- -- 499
-------- -------- ------- -------- --------
Income before income
taxes................ 10,078 11,480 2,829 (11,171) 13,216
Income taxes............ 4,031 4,422 1,054 (5) (3,561)(5) 5,946
-------- -------- ------- -------- --------
Net income............ $ 6,047 $ 7,058 $ 1,775 $ (7,610) $ 7,270
======== ======== ======= ======== ========
Earnings per share...... $ 0.87 $ 1.05
======== ========
Weighted average
shares outstanding... 6,916 6,916
======== ========
OTHER DATA:
Operating income...... $ 12,895 $ 11,645 $ 2,829 $ -- $ 27,369
Depreciation and
amortization......... 2,455 2,864 768 -- 6,087
-------- -------- ------- -------- --------
EBITDA(6)............. $ 15,350 $ 14,509 $ 3,597 $ -- $ 33,456
======== ======== ======= ======== ========
</TABLE>
- ---------------------
(A) Includes the pro forma effect of the Kevco Acquisitions. See details in
"Unaudited Pro Forma Financial Data," beginning on page P-1.
(B) Includes the pro forma effect of the PSI Acquisition. See details in
"Unaudited Pro Forma Financial Data," beginning on page P-1.
30
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(1) Pursuant to EITF 95-3, Kevco has accrued liabilities for the involuntary
termination of certain employees which are included in the financial
statements along with the pro forma effect of the elimination of duplicate
costs. Costs include only direct costs and benefits of these employees.
Kevco believes that the elimination of duplicate employees will have no
material effect on the other reported amounts within the unaudited pro
forma condensed combined financial statements.
(2) To eliminate the historical amortization of goodwill of Shelter.
(3) Represents the amortization of excess purchase price over fair value of
net assets acquired related to the Shelter Acquisition over a period of 40
years.
(4) Interest expense was adjusted to reflect: (i) $13,935 resulting from the
effective interest rate of the Senior Credit Facility at 8.25% and the
Notes at 10 3/8%; (ii) the elimination of interest on existing debt of
$3,297 to be repaid from the proceeds from the Senior Credit Facility and
(iii) the amortization of financing costs of $533 over the life of the
indebtedness.
(5) Income tax expense was adjusted to reflect an effective tax rate of 45%,
which is the expected effective tax rate of the Company after giving
effect to the Shelter Acquisition. The effective rate is higher than the
statutory rate of approximately 40% because of the nondeductibility of
goodwill resulting from the Shelter Acquisition.
(6) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income reflected
in the determination of net income.
31
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE OLD
KEVCO SHELTER SHELTER NOTES KEVCO
PRO FORMA PRO FORMA ACQUISITION OFFERING COMBINED
TOTALS(A) TOTALS(B) ADJUSTMENTS ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C>
Net sales............... $401,119 $454,567 $ -- $ -- $855,686
Cost of sales........... 341,473 391,440 -- -- 732,913
-------- -------- ------ ------- --------
Gross profit.......... 59,646 63,127 -- -- 122,773
Commission income....... 6,900 2,459 -- -- 9,359
-------- -------- ------ ------- --------
66,546 65,586 -- -- 132,132
Selling, general and
administrative
expenses............... 42,264 50,553 (4,914)(1) -- 88,722
(1,382)(2)
2,201 (3)
-------- -------- ------ ------- --------
Operating income...... 24,282 15,033 4,095 -- 43,410
Interest expense........ (4,420) (1,994) -- (18,580)(4) (19,536)
6,169 (4)
(711)(4)
Other income............ 61 -- -- -- 61
-------- -------- ------ ------- --------
Income before income
taxes................ 19,923 13,039 4,095 (13,122) 23,935
Income taxes............ 7,969 5,072 1,535(5) (3,805)(5) 10,771
-------- -------- ------ ------- --------
Net income............ $ 11,954 $ 7,967 $2,560 $(9,317) $ 13,164
======== ======== ====== ======= ========
Earnings per share...... $ 1.73 $ 1.90
======== ========
Weighted average shares
outstanding............ 6,911 6,911
======== ========
OTHER DATA:
Operating income...... $ 24,282 $ 15,033 $4,095 $ -- $ 43,410
Depreciation and
amortization......... 3,418 3,596 819 -- 7,833
-------- -------- ------ ------- --------
EBITDA(6)............. $ 27,700 $ 18,629 $4,914 $ -- $ 51,243
======== ======== ====== ======= ========
</TABLE>
- ---------------------
(A) Includes the pro forma effect of the Public Offering and the Kevco
Acquisitions. See details in "Unaudited Pro Forma Financial Data,"
beginning on page P-1.
(B) Includes the pro forma effect of the sale of Danube and the PSI
Acquisition. See details in "Unaudited Pro Forma Financial Data,"
beginning on page P-1.
32
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(1) Pursuant to EITF 95-3, Kevco has accrued liabilities for the involuntary
termination of certain employees which are included in the financial
statements along with the pro forma effect of the elimination of duplicate
costs. Costs include only direct costs and benefits of these employees.
Kevco believes that the elimination of duplicate employees will have no
material effect on the other reported amounts within the unaudited pro
forma condensed combined financial statements.
(2) To eliminate the historical amortization of goodwill of Shelter.
(3) Represents the amortization of excess purchase price over fair value of
net assets acquired related to the Shelter Acquisition over a period of 40
years.
(4) Interest expense was adjusted to reflect: (i) $18,580 resulting from the
effective interest rate of the Senior Credit Facility at 8.25% and the
Notes at 10 3/8% (ii) the elimination of interest on existing debt of
$6,169 to be repaid from the proceeds from the Senior Credit Facility and
(iii) the amortization of financing costs of $711 over the life of the
indebtedness.
(5) Income tax expense was adjusted to reflect an effective tax rate of 45%,
which is the expected effective tax rate of the Company after giving
effect to the Shelter Acquisition. The effective rate is higher than the
statutory rate of approximately 40% because of the nondeductibility of
goodwill resulting from the Shelter Acquisition.
(6) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income reflected
in the determination of net income.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF KEVCO
The selected consolidated financial data for the five years ended December
31, 1996 are derived from Kevco's audited consolidated financial statements.
The financial data for the nine months ended September 30, 1996 and 1997 are
derived from Kevco's unaudited consolidated financial statements, which in the
opinion of management reflect all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of results for such
periods. Results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full year.
In the second quarter of fiscal 1997, Kevco changed the method of accounting
for its inventories from the last-in, first-out method to the first-in, first-
out method. Financial results for all periods presented prior to the change
have been restated to effect the new method of accounting for inventories. The
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ------------------
1996 1995 1994 1993 1992 1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $267,344 $182,519 $99,279 $80,257 $61,169 $271,957 $205,048
Cost of sales........... 226,653 155,641 83,356 67,884 50,530 235,138 174,055
-------- -------- ------- ------- ------- -------- --------
Gross profit.......... 40,691 26,878 15,923 12,373 10,639 36,819 30,993
Commission income....... 5,497 2,610 1,066 1,274 1,234 4,413 4,100
-------- -------- ------- ------- ------- -------- --------
46,188 29,488 16,989 13,647 11,873 41,232 35,093
Selling, general and
administrative
expenses............... 29,723 20,889 11,941 10,550 9,491 28,738 22,590
-------- -------- ------- ------- ------- -------- --------
Operating income...... 16,465 8,599 5,048 3,097 2,382 12,494 12,503
Other income............ -- -- 800 -- -- -- --
Interest expense, net... (2,058) (1,337) (281) (342) (334) (2,354) (1,626)
-------- -------- ------- ------- ------- -------- --------
Income before income
taxes................ 14,407 7,262 5,567 2,755 2,048 10,140 10,877
Income taxes............ 1,695 45 51 -- -- 4,056 30
-------- -------- ------- ------- ------- -------- --------
Net income............ $ 12,712 $ 7,217 $ 5,516 $ 2,755 $ 2,048 $ 6,084 $ 10,847
======== ======== ======= ======= ======= ======== ========
OTHER DATA:
EBITDA(1)............... $ 18,257 $ 9,640 $ 5,447 $ 3,406 $ 2,645 $ 14,666 $ 13,821
Ratio of earnings to
fixed charges(2)....... 5.1x 3.8x 5.8x 4.0x 3.6x 3.7x 4.9x
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- ------------------
1996 1995 1994 1993 1992 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 24,526 $ 19,744 $ 5,078 $ 4,363 $ 5,640 $ 35,127 $ 17,729
Total assets............ 55,739 55,669 18,067 15,365 12,007 114,578 61,772
Total debt.............. 9,831 31,263 6,385 5,547 1,815 45,849 25,428
Stockholders' equity.... 34,193 9,556 6,094 3,850 6,169 40,397 15,190
</TABLE>
- ---------------------
(1) EBITDA for any relevant period presented above is defined as net income
plus interest expense, income taxes, depreciation, amortization, and other
expenses less other income reflected in the determination of net income.
EBITDA should not be construed as a substitute for operating income, as an
indicator of liquidity or as a substitute for net cash provided by
operating activities, which are determined in accordance with generally
accepted accounting principles. EBITDA is included because management
believes that certain readers may find it to be a useful tool for
analyzing operating performance, leverage, liquidity, and a company's
ability to service debt. See Kevco's Consolidated Financial Statements and
the Notes thereto included elsewhere in this Prospectus.
(2) Ratio of earnings to fixed charges is computed by dividing fixed charges
into income before income taxes and minority interests plus fixed charges.
Fixed charges consist of interest expense, amortization of financing costs
and the estimated interest component of rent expense.
34
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF SHELTER
The selected consolidated financial data for the five years ended December
31, 1996 are derived from Shelter's audited consolidated financial statements.
The financial data for the nine months ended September 30, 1996 and 1997 are
derived from Shelter's unaudited consolidated financial statements, which in
the opinion of management reflect all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of results for such
periods. Results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full year.
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1996 1995 1994 1993 1992 1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $521,022 $462,323 $333,104 $236,958 $193,627 $357,879 $397,065
Cost of goods sold...... 447,701 393,775 281,808 198,311 161,448 307,906 339,549
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 73,321 68,548 51,296 38,647 32,179 49,973 57,516
Commission income....... 2,459 3,005 3,111 1,851 1,151 2,074 1,827
-------- -------- -------- -------- -------- -------- --------
75,780 71,553 54,407 40,498 33,330 52,047 59,343
Selling, general and
administrative
expenses............... 60,194 52,709 39,136 29,120 25,165 40,810 44,291
-------- -------- -------- -------- -------- -------- --------
Operating income....... 15,586 18,844 15,271 11,378 8,165 11,237 15,052
Other income (expense)
Interest income........ 177 142 38 80 47 755 102
Interest expense....... (1,831) (2,472) (1,035) (696) (1,212) (1,219) (1,398)
Gain on sale of
assets................ 5,919 -- -- -- -- 447 --
-------- -------- -------- -------- -------- -------- --------
Total other income
(expense)............ 4,265 (2,330) (997) (616) (1,165) (17) (1,296)
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes................ 19,851 16,514 14,274 10,762 7,000 11,220 13,756
Income taxes............ 8,153 6,476 5,577 4,200 2,780 4,320 5,365
-------- -------- -------- -------- -------- -------- --------
Net income............ $ 11,698 $ 10,038 $ 8,697 $ 6,562 $ 4,220 $ 6,900 $ 8,391
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(1)............... $18,936 $21,741 $17,303 $ 12,818 $ 9,785 $ 13,691 $ 17,497
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1996 1995 1994 1993 1992 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 50,084 $ 41,729 $ 40,776 $ 22,998 $ 21,148 $ 48,089 $ 45,621
Total assets............ 120,910 107,414 87,332 61,917 47,647 132,854 126,321
Total debt.............. 24,543 26,328 23,634 13,442 9,782 20,215 20,651
Stockholders' equity.... 62,780 51,168 38,116 29,729 23,336 70,290 59,598
</TABLE>
- ---------------------
(1) EBITDA for any relevant period presented above is defined as net income
plus interest expense, income taxes, depreciation, amortization, and other
expenses less other income reflected in the determination of net income.
EBITDA should not be construed as a substitute for operating income, as an
indicator of liquidity or as a substitute for net cash provided by
operating activities, which are determined in accordance with generally
accepted accounting principles. EBITDA is included because management
believes that certain readers may find it to be a useful tool for
analyzing operating performance, leverage, liquidity, and a company's
ability to service debt. See Shelter's Consolidated Financial Statements
and the Notes thereto included elsewhere in this Prospectus.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
From 1992 through 1996 Kevco experienced significant growth in earnings.
This growth was the result of internal expansion, including the opening of new
distribution centers, as well as the acquisition of distribution and
manufacturing facilities from Service Supply Systems, Inc. ("Service Supply")
in June 1995, for approximately $17.7 million in cash. In 1997, Kevco has
continued its expansion strategy through the acquisitions of Consolidated
Forest on February 27, 1997 and Bowen on February 28, 1997. The aggregate
purchase price for the Consolidated Forest and Bowen acquisitions was $33.5
million, including $31.0 million in cash. Through the Bowen and Consolidated
Forest acquisitions and the opening of one new distribution facility and one
new manufacturing facility, Kevco has increased the number of its distribution
and manufacturing facilities to 26 and five, respectively, from 21 and three
on December 31, 1996.
Shelter has experienced significant growth in sales and earnings from 1991
through 1996. This growth was the result of internal expansion, including
opening new distribution and manufacturing facilities and adding new product
lines. Shelter has also made several strategic acquisitions over this period
including acquisitions of Design Components, Inc., a wallboard laminating
company, in 1993; acquisitions of two distributors of products to the
manufactured housing and RV industries, TATCO, Inc. in 1994 and BABSCO, Inc.
("BABSCO") in 1995; and the June 1997 acquisition of PSI, a manufacturer of
injection molded plastic components. As a result, Shelter has increased the
number of its distribution and manufacturing facilities to 21 and nine,
respectively. In December 1996, Shelter sold the operations and certain assets
of its Danube subsidiary.
The Company's revenue and earnings growth are affected by changes in the
volume of industry-wide shipments of manufactured housing and RVs as well as
its ability to increase penetration of these markets. From 1992 through 1996,
manufactured housing shipments grew from approximately 211,000 to
approximately 363,400, a compound annual growth rate of 14.6%. Over the same
period, Kevco's sales grew from $61.2 million to $267.3 million, a compound
annual growth rate of 44.6%, and Shelter's sales grew from $193.6 million to
$521.0 million, a compound annual growth rate of 28.1%. The Company strives to
achieve revenue growth in excess of manufactured housing industry shipment
growth. The Company has been able to accomplish this growth by increasing its
product offerings, entering new markets, completing strategic acquisitions and
by developing strong customer relationships through its service-oriented
approach.
Management expects the consolidation of the two companies' operations to
result in substantial cost savings over time. The Company will seek to
capitalize on the significant common geographic presence of Kevco and Shelter
and shared customer relationships to obtain distribution and sales cost
reductions. In addition, the Company will seek to obtain greater utilization
of its existing corporate administrative resources to reduce the combined
overhead expense. The Company intends to eliminate redundant corporate
administrative functions and reduce warehousing and distribution staffs,
resulting in an estimated annual reduction in employee compensation of $5.3
million. The Company also intends to pursue opportunities to achieve greater
benefits over time through (i) the combination of multiple warehouse
facilities in single, larger facilities in certain markets, and (ii) achieving
economies of scale in purchasing materials and supplies as a larger combined
entity. There can be no assurances that the cost savings discussed here or
elsewhere will be realized or that there will not be significant delays in
achieving such cost savings.
The Company recognizes revenues from product sales at the time of shipment
(or the time of product receipt, in the case of direct shipments from
suppliers to customers). In some cases the Company sells on a commission
basis. Commissions are recognized when earned and represent amounts earned in
selling, warehousing and delivering products for certain manufacturers of
building products with which the Company has distribution agreements.
Commission arrangements do not require inventory investments or receivable
financing, and therefore are significantly less expensive to the Company than
traditional sales. To the extent the volume of items warehoused and shipped
under commission arrangements increases faster or slower than the volume of
items related to traditional sales, changes in net sales may not be
representative of actual shipment volume increases or decreases.
36
<PAGE>
RESULTS OF OPERATIONS
KEVCO
The following table sets forth, for the periods indicated, certain
Statements of Income data and that data as a percentage of Kevco's net sales.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------ --------------------------------
1996 1995 1994 1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $267,344 100.0% $182,519 100.0% $99,279 100.0% $271,957 100.0% $205,048 100.0%
Cost of sales........... 226,653 84.8 155,641 85.3 83,356 84.0 235,138 86.5 174,055 84.9
-------- ----- -------- ----- ------- ----- -------- ----- -------- -----
Gross profit........... 40,691 15.2 26,878 14.7 15,923 16.0 36,819 13.5 30,993 15.1
Commission income....... 5,497 2.1 2,610 1.4 1,066 1.1 4,413 1.6 4,100 2.0
-------- ----- -------- ----- ------- ----- -------- ----- -------- -----
46,188 17.3 29,488 16.1 16,989 17.1 41,232 15.1 35,093 17.1
Selling, general and
administrative
expenses............... 29,723 11.1 20,889 11.4 11,941 12.0 28,738 10.5 22,590 11.0
-------- ----- -------- ----- ------- ----- -------- ----- -------- -----
Operating income........ 16,465 6.2 8,599 4.7 5,048 5.1 12,494 4.6 12,503 6.1
Other income............ -- 0.0 -- 0.0 800 0.8 -- 0.0 -- 0.0
Interest expense, net... (2,058) (0.8) (1,337) (0.7) (281) (0.3) (2,354) (0.9) (1,626) (0.8)
-------- ----- -------- ----- ------- ----- -------- ----- -------- -----
Income before income
taxes................. $ 14,407 5.4% $ 7,262 4.0% $ 5,567 5.6% $ 10,140 3.7% $ 10,877 5.3%
======== ===== ======== ===== ======= ===== ======== ===== ======== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales increased by $67.0 million, or 32.7%, to $272.0 million for the
nine month period ended September 30, 1997 from $205.0 million for the
comparable 1996 period. The net sales increase primarily resulted from the
effect of the Kevco Acquisitions in February 1997. However, net sales, without
the effect of the Kevco Acquisitions, decreased from $205.0 million to $196.6
million, a decrease of 4.1%, which is comparable to the reported manufacturing
housing shipment decline of 3.4% from January through August 1997, as compared
to the prior period. Sales to the manufactured housing industry represented
approximately 90% of net sales for the nine months ended September 30, 1997.
Gross profit increased by $5.8 million, or 18.7%, to $36.8 million for the
nine month period ended September 30, 1997 from $31.0 million for the
comparable 1996 period due primarily to the Kevco Acquisitions. Gross profit,
as a percent of net sales, decreased to 13.5% for the nine month period ended
September 30, 1997 from 15.1% for the comparable 1996 period. The decrease in
gross profit, as a percent of net sales, is a result of lower gross margins
associated with the Consolidated Acquisition and lower margin dollars earned
from wood products as a whole due to declining lumber prices throughout the
nine months ended September 30, 1997 (such wood products represent
approximately 38% of net sales). To a lesser extent, gross margins from non-
lumber related business decreased primarily as a result of temporary price
increases of a major product line.
Commission income increased by $0.3 million, or 7.3%, to $4.4 million for
the nine month period ended September 30, 1997 from $4.1 million for the
comparable 1996 period. The increase was primarily attributable to Kevco's
expansion in commission-based distribution arrangements.
Selling, general and administrative expenses increased by $6.1 million, or
27.0%, to $28.7 million for the nine month period ended September 30, 1997
from $22.6 million for the comparable 1996 period. The increase was primarily
due to increased sales volume related to the Kevco Acquisitions. Selling,
general and administrative expenses, as a percent of net sales, decreased to
10.5% for 1997 from 11.0% for the comparable 1996 period. The decrease
reflects Kevco's continued efforts in increasing efficiency.
Net income decreased by $0.6 million, or 9.0%, to $6.1 million for the nine
months ended September 30, 1997 from $6.7 million for the comparable 1996
period on a pro forma basis giving effect to Kevco's conversion from an S
corporation to a C corporation. The decrease in net income is primarily
attributable to lower gross margins as discussed above.
37
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Net sales increased by $84.8 million, or 46.5%, to $267.3 million in 1996
from $182.5 million in 1995. The increase in net sales was primarily
attributable to the inclusion of a full year of sales from the Service Supply
acquisition in 1996 compared to six months of sales from the Service Supply
acquisition in 1995. However, net sales, on a combined basis as if the
acquisition of Service Supply had occurred on January 1, 1995, increased from
$241.8 million in 1995 to $267.3 million in 1996, an increase of 10.5%. The
increase in net sales on such a combined basis primarily resulted from an
increase in the volume and variety of products sold. Management believes the
increase in the volume and variety of products sold was primarily the result
of the establishment of national plumbing products accounts with several
customers, sales of Kevco product lines to existing Service Supply customers
(as well as sales of Service Supply product lines to existing Kevco customers)
and improved customer demand. The increase in net sales, on such a combined
basis, was in excess of the 6.9% increase in reported manufactured home
shipments in 1996 compared to 1995 (approximately 363,400 homes reported
shipped in 1996 compared to approximately 340,000 homes reported shipped in
1995). Sales to the manufactured housing industry represented approximately
90% of Kevco's net sales in 1996.
Gross profit increased by $13.8 million, or 51.3%, to $40.7 million in 1996
from $26.9 million in 1995. This increase in gross profit was primarily
attributable to the inclusion of a full year of gross profit from the Service
Supply acquisition in 1996 compared to six months gross profit from the
Service Supply acquisition in 1995. Gross profit, on a combined basis as if
the acquisition of Service Supply had occurred on January 1, 1995, increased
from $34.0 million in 1995 to $40.6 million in 1996, an increase of 19.4%.
This increase in gross profit on such a combined basis resulted primarily from
an overall increase in the volume of net sales. Actual gross profit, as a
percent of actual net sales, increased to 15.2% in 1996 from 14.7% in 1995.
This increase was primarily the result of improving margins associated with
Service Supply's sales. Gross profit, as a percent of net sales, on a combined
basis as if the acquisition of Service Supply had occurred on January 1, 1995,
increased from 14.1% in 1995 to 15.2% in 1996. Management believes that both
the increase in actual gross profit, as a percent of net sales, and the
increase in gross profit, as a percent of net sales, on a combined basis are a
direct result of Kevco's ability to take advantage of purchasing opportunities
following the acquisition of Service Supply.
Commission income increased by $2.9 million, or 111.5%, to $5.5 million in
1996 from $2.6 million in 1995. Although a portion of the increase resulted
from the inclusion of a full year of commission income from the Service Supply
acquisition in 1996 compared to six months of commission income from the
Service Supply acquisition in 1995, the most significant factor in the
increase was that Kevco entered into commission-based distribution
arrangements with two manufacturers of component products.
Selling, general and administrative expenses increased by $8.8 million, or
42.1%, to $29.7 million in 1996 from $20.9 million in 1995. The increase was
primarily related to the inclusion of a full year of selling, general and
administrative expenses from the Service Supply acquisition in 1996 compared
to six months of selling, general and administrative expenses in 1995 and, to
a lesser extent, the increased expenses related to the overall net sales
increase. Selling, general and administrative expenses, as a percent of net
sales, decreased to 11.1% in 1996 from 11.4% in 1995, reflecting the reduction
of redundant overhead and warehousing costs associated with Service Supply
and, generally, Kevco's ability to increase sales without a proportionate
increase in related operating expenses.
Net income increased by $7.1 million, or 97.3%, to $14.4 million in 1996
from $7.3 million in 1995. The increase was primarily a result of the
inclusion of a full year of gross profit from the Service Supply acquisition
in 1996 compared to six months of gross profit from the Service Supply
acquisition in 1995, and the remainder of the increase was attributable to the
increase in net sales without a proportionate increase in operating expenses.
The increase in net income was net of additional interest expense incurred of
$0.5 million in 1996 related to the term loan associated with the acquisition
of Service Supply, outstanding for a full year period compared to six months
in 1995.
38
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Net sales increased by $83.2 million, or 83.8%, to $182.5 million in 1995
from $99.3 million in 1994. The increase in net sales was primarily
attributable to the inclusion of six months of sales from the Service Supply
facilities in 1995. However, net sales, on a combined basis as if the
acquisition of Service Supply had occurred on January 1, 1994, also increased
in 1995 to $241.8 million from $200.2 million in 1994, an increase of 20.8%.
The increase in net sales on such a combined basis primarily resulted from an
increase in the volume and variety of products sold. Management believes the
increase in the volume and variety of products sold was primarily the result
of the establishment of national plumbing products accounts with several
customers, sales of Kevco product lines to existing Service Supply customers
(as well as sales of Service Supply product lines to existing Kevco customers)
and improved customer demand. The increase in net sales, on such a combined
basis, was in excess of the 11.8% increase in reported manufactured home
shipments in 1995 compared to 1994 (approximately 340,000 homes reported
shipped in 1995 compared to approximately 304,000 homes reported shipped in
1994). Sales to the manufactured housing industry represented approximately
85% of Kevco's net sales in 1995.
Gross profit increased by $11.0 million, or 69.2%, to $26.9 million in 1995
from $15.9 million in 1994. This increase in gross profit was primarily
attributable to the inclusion of six months of gross profit from the Service
Supply facilities in 1995. Gross profit, on a combined basis as if the
acquisition of Service Supply had occurred on January 1, 1994, increased in
1995 to $34.0 million from $28.5 million in 1994, an increase of 19.3%. This
increase in gross profit on such a combined basis resulted primarily from an
overall increase in the volume of net sales. Actual gross profit, as a percent
of actual sales, decreased to 14.7% in 1995 from 16.0% in 1994. This decrease
was primarily the result of lower margins associated with Service Supply's
sales. Gross profit, as a percent of sales, on a combined basis as if the
acquisition of Service Supply had occurred on January 1, 1994, decreased to
14.1% in 1995 from 14.3% in 1994, a decrease which management believes was
primarily the result of competition from other suppliers attempting to
increase their market shares.
Commission income increased by $1.5 million, or 136.4%, to $2.6 million in
1995 from $1.1 million in 1994. A significant amount of the increase resulted
from the inclusion of six months of commission income from the Service Supply
facilities in 1995. An additional significant factor in this increase was the
increase in sales volume for which Kevco is compensated on a commission basis.
Selling, general and administrative expenses increased by $9.0 million, or
75.6%, to $20.9 million in 1995 from $11.9 million in 1994. The increase was
primarily related to the inclusion of six months of selling, general and
administrative expenses from the Service Supply facilities in 1995 and, to a
lesser extent, the increased expenses related to the overall net sales
increase. Selling, general and administrative expenses, as a percent of sales,
decreased to 11.4% in 1995 from 12.0% in 1994, reflecting the reduction of
redundant overhead and warehousing costs associated with Service Supply and,
generally, Kevco's ability to increase sales without a proportionate increase
in related operating expenses.
Net income increased by $1.7 million, or 30.4%, to $7.3 million in 1995 from
$5.6 million in 1994. Excluding insurance proceeds of $0.8 million recognized
as income in 1994 related to a former officer's disability, the increase in
net income from 1994 to 1995 would have been 59.1%. The increase was primarily
a result of the inclusion of six months of gross profit from the Service
Supply facilities in 1995, and the remainder of the increase was attributable
to the increase in net sales without a proportionate increase in operating
expenses. Also, the increase in net income was net of additional interest
expense incurred of $0.6 million in 1995 related to the term loan associated
with the acquisition of Service Supply.
RECENT OPERATING RESULTS
The Company believes that Kevco's net sales for the three months ending
December 31, 1997 are likely to be lower than its net sales for the three
months ended December 31, 1996 (on a pro forma basis after giving effect to
the Kevco Acquisitions), primarily as a result of reduced shipments of
manufactured housing units by
39
<PAGE>
Kevco's customers. Operating income is expected to decrease for the three
months ending December 31, 1997, as compared to the three months ended
December 31, 1996 (on a pro forma basis after giving effect to the Kevco
Acquisitions), primarily as a result of reduced margins on sales of wood
products, which as previously discussed, declined in the third quarter of 1997
due to a prolonged decrease in lumber prices during the period. While lumber
prices and wood margins have stabilized and improved slightly in October and
in the first part of November from the three months ended September 30, 1997,
Kevco's wood margins will most likely be below fourth quarter levels of 1996.
Operating income will also likely be reduced from the decline in industry
shipments.
SHELTER
SIGNIFICANT FACTORS
The 1995 and 1996 results include the acquired electrical distribution
operations of BABSCO, acquired on January 1, 1995. Pro forma information
regarding the 1994 results of this acquisition is reflected in Note 9 of the
Notes to Consolidated Financial Statements.
The results for the three years ended December 31, 1996 also include the
operations of Danube, Shelter's wholly-owned carpet manufacturing and yarn
processing subsidiary, the operations and certain assets of which were sold on
December 31, 1996. Historical financial information regarding Danube's results
of operations is reflected in Note 10 of the Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
Statements of Income data and that data as a percentage of Shelter's net
sales.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------- --------------------------------
1996 1995 1994 1997 1996
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $521,022 100.0% $462,323 100.0% $333,104 100.0% $357,879 100.0% $397,065 100.0%
Cost of sales........... 447,701 85.9 393,775 85.2 281,808 84.6 307,906 86.0 339,549 85.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit........... 73,321 14.1 68,548 14.8 51,296 15.4 49,973 14.0 57,516 14.5
Commission income....... 2,459 0.5 3,005 0.7 3,111 0.9 2,074 0.5 1,827 0.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
75,780 14.6 71,553 15.5 54,407 16.3 52,047 14.5 59,343 14.9
Selling, general and
administrative
expenses............... 60,194 11.6 52,709 11.4 39,136 11.7 40,810 11.4 44,291 11.1
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating income........ 15,586 3.0 18,844 4.1 15,271 4.6 11,237 3.1 15,052 3.8
Interest expense, net... (1,654) (0.3) (2,330) (0.5) (997) (0.3) (464) (0.1) (1,296) (0.3)
Gain on sale of assets.. 5,919 1.1 -- -- -- -- 447 0.1 -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before income
taxes................. $ 19,851 3.8% $ 16,514 3.6% $ 14,274 4.3% $ 11,220 3.1% $ 13,756 3.5%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales decreased by $39.2 million, or 9.9%, to $357.9 million for the
nine month period ended September 30, 1997 from $397.1 million for the
comparable 1996 period. On a comparable operations basis (excluding Danube
from 1996) net sales increased by $18.8 million, or 5.5%. Shelter's
distribution sales increased by 7.1% while (comparable operations)
manufacturing sales declined by 2.4%. Shelter increased its market share in
electrical, plumbing and doors distributed during the period to overcome the
3.4% decline in manufactured homes shipped through August 1997 compared to the
same period in 1996.
Gross profit decreased $7.5 million, or 13.0%, to $50.0 million for the nine
month period ended September 30, 1997 from $57.5 million for the comparable
1996 period. Gross profit margin for the nine month period ended September 30,
1997 was 14.0% compared to 14.5% for the first nine months of 1996. Excluding
Danube,
40
<PAGE>
gross profit margin was 13.8% for the first nine months of 1996. Shelter
experienced higher gross margin as certain lower manufacturing raw material
costs contributed to the improvements. Shelter has also begun to realize some
of the labor and overhead efficiencies anticipated in recent investments in
new equipment at certain manufacturing operations. Improvements in
manufacturing gross margin were partially offset by an increase in lower
margin distribution sales as a percentage of total sales.
Operating expenses decreased $3.5 million, or 7.9%, to $40.8 million for the
nine month period ended September 30, 1997 from $44.3 million for the
comparable 1996 period. As a percent of net sales, operating expenses
increased to 11.4% for the nine month period ended September 30, 1997 from
11.1% for the comparable 1996 period. Pro forma operating expenses were 10.8%
of net sales for the first nine months of 1996. The increase in this
percentage reflects higher self-insured medical claims in 1997 as well as the
absorption of fixed administrative overhead costs by the remaining operations
subsequent to the December 1996 sale of Danube's operations and the
amortization of goodwill from the June 1997 purchase of the net assets and
operations of PSI.
Interest income increased $0.7 million to $0.8 million for the nine month
period ended September 30, 1997 from $0.1 million for the comparable 1996
period, due to the income earned on funds available from the December 1996
sale of Danube's operations.
Interest expense decreased by $0.2 million, or 14.3%, to $1.2 million for
the nine month period ended September 30, 1997 from $1.4 million for the
comparable 1996 period, due to the elimination of short-term borrowing
requirements using funds available from the December 1996 sale of Danube's
operations, coupled with scheduled principal reductions in long-term debt.
1997 interest expense includes charges accrued for the $3.5 million notes
issued in connection with the June 1997 purchase of the net assets and
operations of PSI.
Income taxes as a percentage of income before income taxes decreased to
38.5% for the nine month period ended September 30, 1997 from 39.0% for the
comparable 1996 period, due to strategies implemented by Shelter to reduce its
overall state and local tax burdens.
Net income decreased $1.5 million, or 17.9%, to $6.9 million for the nine
month period ended September 30, 1997 from $8.4 million for the comparable
1996 period. As a percent of net sales, net income decreased to 1.9% for the
nine month period ended September 30, 1997 from 2.1% for the comparable 1996
period. Pro forma net income was 1.9% of pro forma net sales for the first
nine months of 1996. The 1997 results include gains on the sale of certain
excess real estate totaling $0.4 million (pre-tax) which had a 0.1% favorable
impact on net income as a percentage of net sales.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Net sales increased by $58.7 million, or 12.7%, to $521.0 million in 1996
from $462.3 million in 1995. Sales to the manufactured housing industry
represented approximately 75% of consolidated net sales in 1996. The
manufactured housing industry recorded a 6.9% increase in homes shipped in
1996 (363,400 homes) compared to 1995 (340,000 homes). With the exception of
carpeting, Shelter improved its market share in all major product categories
during 1996 to account for the total sales increase in excess of increased
industry demand. During the year, Shelter was particularly successful at
improving its market share in electrical products, stemming from the January
1, 1995 acquisition of BABSCO. Shelter's sales also benefitted from new
regional distribution operations added in 1995 in Arizona, Minnesota, and
Pennsylvania, where Shelter has established its presence. Management estimates
that less than 2% of the sales increase during 1996 compared with 1995 was due
to selling price increases.
Gross profit increased by $4.8 million, or 7.0%, to $73.3 million in 1996
from $68.5 million in 1995. Gross profit margin decreased from 14.8% in 1995
to 14.1% in 1996. Of the 0.7% decrease in gross profit margin as a percentage
of net sales, 0.6% relates to Shelter's carpet manufacturing operations and
0.1% is attributed to the remaining operations. During 1996, the finishing
operation of the carpet mill reached production levels in excess
41
<PAGE>
of "efficient capacity" and required a percentage of the finishing to be
outsourced at a cost considerably higher than the internal cost of this
process. It was discovered that the inventory costing system did not
adequately recognize these higher costs and a negative year-end adjustment was
necessary, adversely impacting Shelter's consolidated results for the fourth
quarter of 1996.
In addition to the decreased margins from the carpet manufacturing
operations, Shelter experienced a reduction in gross profit margins at its
Design Components laminating operations. This reduction was due to strong
competition in the marketplace combined with increases in the cost of gypsum
during 1996. Shelter's distribution operations experienced a modest decline in
gross margins primarily due to an increase in lower margin "direct ship"
business (for truckload quantities) as a percentage of all distributed product
sales.
Commission income is earned by Shelter's distribution operations from
selling, warehousing and delivery services to certain product manufacturers.
Commission income decreased by $0.5 million, or 16.7%, from $3.0 million in
1995 to $2.5 million in 1996 primarily due to a decrease in the commission
rate received for warehousing and delivery of wood molding products and a
change to a buy-sell arrangement on certain plumbing products.
Selling, general and administrative expenses increased $7.5 million, or
14.2%, to $60.2 million in 1996 from $52.7 million in 1995. As a percent of
net sales, selling, general and administrative expenses increased to 11.6% in
1996 from 11.4% in 1995. Management has begun to implement strategies to
reduce its selling, general, and administrative expenses as a percentage of
net sales including efforts to eliminate duplicate costs as well as reviewing
staffing levels and incentive systems.
Interest expense decreased $0.7 million, or 28.0%, from $2.5 million in 1995
to $1.8 million in 1996, due to strong cash flows during 1996 which resulted
in a reduction in average borrowings outstanding on Shelter's $25 million bank
revolving line of credit during the year. Shelter increased its average
accounts payable balance with certain vendors by negotiating more favorable
payment terms, thus reducing the need for bank borrowings. In addition,
Shelter negotiated lower market-based rates on its bank revolver.
Income taxes increased $1.7 million, or 26.2%, to $8.2 million in 1996 from
$6.5 million in 1995. Income taxes as a percentage of income before income
taxes, increased from 39.2% in 1995 to 41.1% in 1996. The increase in the
effective rate in 1996 is due to the write-off of $800,000 of non-deductible
goodwill in connection with the sale of the carpet and yarn operations.
Net income increased $1.7 million, or 17.0%, to $11.7 million in 1996 from
$10.0 million in 1995. The 1996 results include a $3.2 million (after-tax)
gain on the sale of the carpet manufacturing and yarn processing operations.
Net income for 1996, exclusive of this gain, was 1.6% of net sales. Net
income, as a percent of net sales, exclusive of both the carpet and yarn
operations and the gain on the sale thereof, decreased from 1.9% in 1995 to
1.8% in 1996. The reduction in this percentage, exclusive of the gain on the
sale of the carpet operations, is primarily due to poor performance
experienced in Shelter's carpet manufacturing operations in 1996, and other
factors as discussed above.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Net sales increased by $129.2 million, or 38.8%, to $462.3 million in 1995
from $333.1 million in 1994. The increase consisted of 18% attributable to the
acquired electrical distribution operations of BABSCO and 21% by the other
operating units of Shelter. The 21% increase in comparable sales compared
favorably with the 12% increase in manufactured homes shipped in 1995 compared
to 1994, which reported 340,000 homes shipped in 1995 compared to 304,000
homes shipped in 1994. Sales to the manufactured housing industry represented
approximately 75% of Shelter's net sales in 1995. Shelter improved its market
share in 1995, particularly in decorative wallboard (produced by Design
Components) and in Shelter's building products distribution operations, as
sales in new territories continued to grow.
Management estimates that less than 3% of the sales increase during 1995
compared with 1994, was due to selling price increases.
42
<PAGE>
Gross profit increased $17.2 million, or 33.5%, to $68.5 million in 1995
from $51.3 million in 1994. Gross profit margin decreased from 15.4% in 1994
to 14.8% in 1995. The reduction of gross profit margin in 1995 reflects the
increased sales of lower margin laminated decorative wallboard and other
building products at a faster growth rate than certain of Shelter's other
products. Also, the increased demand for truckload quantities of product on a
"direct ship" basis had a slightly adverse impact on overall gross margin.
Commission income decreased $0.1 million, or 3.2%, from $3.1 million in 1994
to $3.0 million in 1995 primarily due to a decrease in the commission rate on
certain products distributed by Shelter for unaffiliated manufacturers.
Selling, general and administrative expenses increased $13.6 million, or
34.8%, to $52.7 million in 1995 from $39.1 million in 1994. As a percent of
sales, selling, general and administrative expenses decreased from 11.7% in
1994 to 11.4% in 1995. The reduction in this percentage reflected Shelter's
capacity to increase sales without a proportionate increase in fixed costs.
Interest expense increased $1.5 million, or 150.0%, to $2.5 million in 1995
from $1.0 million in 1994 due to the debt incurred and assumed in connection
with the January 1995 acquisition of the operations and net assets of BABSCO.
The increase also reflected higher prevailing short-term borrowing rates on
working capital debt outstanding during 1995 as compared to short-term
borrowing rates in 1994.
Income taxes as a percentage of income before income taxes were 39% for 1995
and 1994.
Net income increased $1.3 million, or 14.9%, to $10.0 million in 1995 from
$8.7 million in 1994. As a percent of net sales, net income decreased from
2.6% for 1994 to 2.2% for 1995, respectively. The primary cause of the decline
in this percentage was the acquisition of BABSCO in 1995. BABSCO accounted for
13% of 1995 net sales and less than 2% of net income. The addition of these
operations had a 0.3% adverse effect on 1995 net income as a percentage of net
sales. The remaining decline of 0.1% was a result of the decline in gross
margins as a percentage of net sales, as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Kevco's growth has been financed through cash flow from
operations, borrowings under its bank credit facilities, proceeds from the
November 1996 initial public offering and the expansion of trade credit. Net
cash provided by operating activities was $12.2 million, $8.4 million and $3.1
million in 1996, 1995 and 1994, respectively. Kevco's capital expenditures
were $1.6 million, $2.8 million and $0.4 million in 1996, 1995 and 1994,
respectively. For the nine months ended September 30, 1997, cash flow from
operations and capital expenditures were $6.2 million and $2.0 million,
respectively. In November 1996, Kevco raised approximately $26.0 million
through its initial public offering, a portion of the proceeds of which were
used to repay all of its then outstanding debt. Kevco is also obligated to
make payments on various capital leases in varying amounts, maturing through
2007. Additionally, Kevco is obligated to make payments under non-compete and
consulting agreements, related to the Service Supply acquisition, in varying
amounts, maturing through 1999. See Notes 4 and 6 to Kevco's Consolidated
Financial Statements.
Shelter has historically funded its growth through cash flow from
operations, borrowings under various credit facilities and the December 1996
sale of the operations and certain assets of its Danube subsidiary. Net cash
provided (used) by operating activities was $15.0 million, $11.9 million and
($6.8) million in 1996, 1995 and 1994, respectively. Shelter's capital
expenditures were $8.4 million, $2.8 million and $2.1 million in 1996, 1995
and 1994, respectively. For the nine months ended September 30, 1997, cash
flow from operations and capital expenditures were $7.4 million and $6.2
million, respectively. In 1996, Shelter generated $16.4 million in proceeds
from the sale of the operations and net assets of Danube (net of expenses paid
in 1996 in connection with the divestiture).
43
<PAGE>
As a result of the Transactions, the Company has a substantial amount of
indebtedness. As of September 30, 1997, after giving pro forma effect to the
Transactions, the Company had consolidated debt of $203.1 million consisting
of: (i) $1.4 million in capital lease obligations; (ii) $3.5 million of long-
term notes payable; (iii) $3.2 million outstanding under the Revolving Credit
Facility; (iv) $90.0 million under the Term Loan Facility; and (v) $105.0
million of the Notes. See "Capitalization" and "The Transactions."
The Company's primary capital requirements following completion of the
Transactions are for working capital, capital expenditures and payments of
interest expense. The Company expects combined capital expenditures before any
acquisitions of approximately $9.0 million in 1997 and ranging from $8.5
million to $9.5 million in 1998.
On December 1, 1997, Kevco entered into an amended and restated $125.0
million credit facility (the "Senior Credit Facility"), with NationsBank of
Texas, N.A. as lender and administrative agent and certain other banks
consisting of a $90.0 million term loan and a $35.0 million revolving credit
facility. See "Description of Senior Credit Facility."
The Company intends to increase the number of its manufacturing, and to a
lesser extent, distribution facilities, primarily through acquisitions.
Management believes there are currently a number of acquisition opportunities
in the manufactured housing and RV industries, and from time to time
additional opportunities will arise. On December 12, 1997, the Company
acquired the inventory and certain distribution rights of certain building
products distributed by the Manufactured Housing and Recreational Vehicle
division of Shepherd Products Company for a cash purchase price payable at
closing of $5.9 million, with an additional $2.0 million payable over a five-
year period following the acquisition.
The Company believes that cash flow from operations, plus, if necessary,
additional borrowings under the Senior Credit Facility, will be sufficient to
meet its capital and operating needs and debt service requirements through the
end of 1998.
ASSET MANAGEMENT
The Company actively manages its assets and liabilities. All corporate and
profit center managers participate in an incentive-based compensation plan
that measures the individual's effectiveness in net asset control and return
on net assets employed. Managers are rewarded for receivables collection,
inventory control and profits in relation to these and other net assets
employed.
For Kevco as of December 31, 1996, days sales in average receivables was
approximately 22 days, days sales in average inventory was approximately 33
days and days sales in average payables was approximately 27 days. For Shelter
as of December 31, 1996, days sales in average receivables was approximately
17 days, days sales in average inventory was approximately 37 days and days
sales in average payables was approximately 19 days.
INFLATION
Generally, inflation and changing prices have had a minimal impact on the
Company's operating results, as increases in the sales prices of products have
closely followed increases in materials costs.
SEASONALITY
The business and results of the Company are seasonal. Historically,
manufactured housing shipments have been strongest in the spring and summer
and weaker in the winter as a result of the impact of adverse weather on
retail sales of manufactured homes. Accordingly, the Company usually
experiences higher levels of revenue in the second and third fiscal quarters
and relatively lower levels of revenue in the first and fourth fiscal
quarters.
44
<PAGE>
QUARTERLY RESULTS
The following table represents certain unaudited historical financial
information for the quarters indicated and does not include pro forma
adjustments.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------------------------- --------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
(DOLLARS IN THOUSANDS)
KEVCO
- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales............. $ 64,234 $ 71,364 $ 69,449 $ 62,297 $ 72,099 $101,305 $ 98,553
Gross profit.......... 9,488 10,853 10,652 9,698 10,123 13,871 12,825
Operating income...... 3,552 4,521 4,434 3,958 3,721 5,402 3,371
EBITDA................ 4,019 4,957 4,849 4,432 4,301 6,208 4,157
SHELTER
- -------
Net Sales............. $119,796 $137,958 $139,311 $123,957 $106,532 $122,801 $128,546
Gross profit.......... 17,516 19,681 20,319 15,805 15,281 16,889 17,803
Operating income...... 4,182 5,140 5,730 534 2,801 4,201 4,235
EBITDA................ 4,914 5,913 6,670 1,439 3,512 4,987 5,192
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128 simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, Earnings Per Share
("Opinion 15"), and makes them comparable to international EPS standards. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. SFAS 128 requires restatement of all prior-period EPS data
presented. The Company is currently evaluating SFAS 128. However, management
does not believe that it will have a material impact on the consolidated
financial statements of the Company.
In February 1997, The FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS
No. 129"). SFAS No. 129 establishes standards for disclosing information about
an entity's capital structure and applies to all entities. This statement is
effective for financial statements for periods ending after December 15, 1997.
It is not expected that the Company will experience any material revision in
its disclosures when SFAS No. 129 is adopted.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. This statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. This
statement has no impact on the financial condition or results of operations of
the Company, but may require changes to the Company's disclosure requirements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for fiscal years beginning after
December 15, 1997. This statement has no impact on the financial condition or
results of operations of the Company, but may require changes in the Company's
disclosure requirements.
45
<PAGE>
BUSINESS
THE COMPANY
The Company believes it is the largest wholesale distributor of building
products to the United States manufactured housing industry. Through its 47
distribution centers, the Company provides national distribution of more than
75,000 items to approximately 530 manufactured housing (79% of 1996 net sales)
and recreational vehicle ("RV") and other manufacturing facilities (21% of
1996 net sales) throughout the United States. In addition to its distribution
activities, the Company manufactures wood products, laminated wallboard and
thermoformed bathtubs and shower enclosures for the manufactured housing
industry. The Company believes that the combination of Kevco and Shelter
results in substantial operating synergies due to their complementary product
lines, overlapping marketing functions and national distribution networks, and
significant economies of scale. During the latest twelve months ended
September 30, 1997, the Company's pro forma net sales and EBITDA were $855.2
million and $45.7 million, respectively.
The manufactured housing industry has experienced significant growth over
the last several years. Since 1992, the number of manufactured home shipments
has experienced a compound annual growth rate of approximately 14.6%, growing
from 210,787 homes shipped in 1992 to 363,411 homes shipped in 1996, which
resulted in approximately $14 billion in retail sales in 1996. As a result of
this growth, manufactured housing has outpaced traditional site-built housing
growth, and increased as a percentage of total new single family houses sold,
growing from 25.7% in 1992 to 32.4% in 1996. The Company believes that demand
for manufactured housing has grown and will continue to grow due to: (i) the
increased quality of manufactured homes and the accompanying widespread
consumer acceptance of manufactured homes; (ii) steady employment and economic
growth in key regions; (iii) greater availability of mortgage financing for
manufactured homes; and (iv) continued substantial price advantages of
manufactured homes compared to site-built homes.
Suppliers and customers have been increasingly relying on distributors in an
attempt to focus on their core businesses and improve inventory management.
Larger, national distributors, like the Company, have benefited from trends in
(i) suppliers and customers reducing the number of distributors they use to
increase operating efficiencies and reduce costs; (ii) suppliers and
manufacturers selecting distributors that are able to serve their needs
through national distribution networks; and (iii) manufacturers requiring
distributors to carry more comprehensive product lines. In addition, the
Company believes it leads the industry in providing value-added services to
its customers, including inventory management, product support and training,
and implementation of cost saving measures, all of which are services the
Company believes its suppliers cannot directly provide manufacturers in a
cost-effective manner.
Since its founding in 1964 by Jerry E. Kimmel, the Company's majority
shareholder, Chairman, Chief Executive Officer and President, the Company has
experienced substantial growth. In addition to positive manufactured housing
industry trends which favor larger distributors, the Company has primarily
grown through: (i) completing eight complementary acquisitions since the
beginning of 1993; (ii) adding distribution and manufacturing facilities to
serve new markets; and (iii) increasing sales to existing customers by
distributing additional product lines. As a result, the Company has increased
net sales at a compound annual growth rate of 35.4% since 1992, from $254.8
million on a historical combined basis in 1992 to $855.7 million on a pro
forma combined basis in 1996. During the same time period, EBITDA grew at a
compound annual growth rate of 42.3% from $12.4 million on a historical
combined basis in 1992 to $51.2 million on a pro forma combined basis in 1996.
SHELTER ACQUISITION BENEFITS
The Company expects the following strategic and operating benefits as a
result of the Shelter Acquisition:
. INDUSTRY LEADERSHIP. The Company believes that the Shelter Acquisition
improves its competitive position by making it the largest wholesale
distributor of building products to the United States manufactured
housing industry, based on total sales. The Company expects to benefit
from its
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improved competitive position by: (i) better serving its customers
through its enhanced national distribution network; (ii) serving as the
exclusive distributor for certain of its suppliers that are seeking to
consolidate distributors of their products to the manufactured housing
and RV industries; and (iii) continuing to be a leader in the
consolidation of the industry.
. ACQUISITION OF COMPLEMENTARY PRODUCT LINES. While Shelter and Kevco
served a similar customer base, each company primarily distributed and
manufactured product lines with little overlap. Kevco had significant
market share in plumbing fixtures and supplies and wood products,
including wood trusses and cut lumber. Shelter had significant market
share in electrical products, exterior building products, laminated
wallboards, thermoformed products and hardware.
. SUBSTANTIAL COST REDUCTION OPPORTUNITIES. The Company believes the
Shelter Acquisition affords it substantial opportunities to eliminate
certain administrative and corporate positions and expenses. In
addition, the Company believes that it will be able to reduce selling
expense by consolidating its sales operations as both Kevco and Shelter
maintain active relationships with approximately 90% of all manufactured
housing production facilities. As the largest wholesale distributor in
the industry, the Company believes that it will be able to obtain
economies of scale through its increased purchasing volume. The Company
believes it will be able to increase the volume of purchases by
consolidating its purchases from suppliers where it has overlapping
product lines and by increasing sales from cross-selling its product
lines.
. RATIONALIZATION OF NATIONAL DISTRIBUTION NETWORKS. The Company believes
that it will be able to reduce operating costs by consolidating
distribution facilities and reducing overhead at such facilities.
Substantially all of Kevco's and Shelter's distribution facilities serve
the same geographic regions. On a pro forma combined basis, 45 of the
Company's 47 total distribution facilities serve overlapping markets
providing the Company significant opportunities to realize distribution
efficiencies over time.
BUSINESS STRATEGY
The Company's primary objective is to maintain and strengthen its position
as the leading national distributor of building products to the manufactured
housing and RV industries. The Company intends to continue to pursue this
objective through internal growth and opportunistic acquisitions. To achieve
its objective, the Company has adopted a strategy based on the following key
elements:
. PROVIDE SUPERIOR CUSTOMER SERVICE. The Company believes that its
emphasis on customer service differentiates it from other distributors
and fosters long-term relationships with its customers. The Company is
committed to a Total Quality Management program to serve its customers'
needs and to work in partnership with its suppliers and customers to
improve their operations. The Company seeks to be an integral part of
its customers' inventory management activities and manufacturing
process. The Company has received several industry awards in recognition
of its high level of customer service.
. LEVERAGE NATIONAL DISTRIBUTION NETWORK. The Company will continue to use
its national distribution network as a platform for growth and
profitability. The Company believes that its national presence provides
it with a significant competitive advantage due to its ability to
service the nationwide needs of its customers' manufacturing facilities.
The Company believes that its national distribution network has allowed
it to develop close relationships with its product suppliers and to
become the exclusive supplier of certain product lines.
. INCREASE CUSTOMER PENETRATION AND PRODUCT OFFERINGS. The Company
supplies over 90% of all manufactured housing plants in the United
States with one or more product lines. This established customer base
provides the Company with a significant opportunity to supply a greater
portion of its customers' building products needs as the customers seek
to reduce the number of their suppliers. The Company also intends to add
new product lines through internal growth and opportunistic
acquisitions. With its existing national distribution infrastructure,
the Company believes that additional product lines can be offered to
existing customers, thereby increasing net sales without adding
significant costs.
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. EXPAND MANUFACTURING CAPABILITIES. The Company intends to expand its
manufacturing capabilities through internal growth and opportunistic
vertical acquisitions. By manufacturing certain of its own products, the
Company believes it can achieve greater profitability from its sales,
while obtaining direct control over product availability and quality.
The Company currently operates five wood products manufacturing
facilities and plans to expand to new markets, including opening new
manufacturing facilities in Arizona and North Carolina by the second
quarter of 1998. Through the Shelter Acquisition, the Company obtained
additional manufacturing platforms, including plastic thermoforming,
injection molding and laminated wallboard operations. The Company
believes that there are significant opportunities to grow its
manufacturing business through additional acquisitions and new
facilities.
. PURSUE OPPORTUNISTIC ACQUISITIONS. The Company intends to selectively
explore the acquisition of other distributors and manufacturers of
building products. The Company seeks to acquire distributors, that offer
complementary product lines to extend its existing offerings and realize
significant operating synergies.
GENERAL
On November 6, 1996, Kevco consummated its initial public offering of
2,100,000 shares (and an additional 315,000 shares in connection with the
exercise of the underwriter over-allotment option on December 3, 1996) of the
common stock, par value $.01 per share.
Jerry E. Kimmel, the Company's Chairman of the Board, Chief Executive Officer
and President, has over 35 years of experience in the industry. The other
members of Kevco's senior management have an average of more than 10 years of
experience in the industry.
The Company's principal executive offices are located at University Centre I,
1300 S. University Drive, Suite 200, Fort Worth, Texas 76107. The Company's
telephone number is (817) 332-2758.
RECENT ACQUISITIONS
On February 27, 1997, Kevco consummated the acquisition of substantially all
of the assets, and assumed certain liabilities, of Consolidated Forest (a
manufacturer of wood products for the manufactured housing industry) in
exchange for approximately $13.0 million in cash and two promissory notes in
the aggregate original principal amount of approximately $1.0 million. On
February 28, 1997, Kevco consummated the acquisition of all of the outstanding
stock of Bowen (a wholesale distributor of building products to the
manufactured housing and RV industries) in exchange for approximately $18.0
million in cash and three promissory notes in the aggregate original principal
amount of $2.5 million. On June 27, 1997, Shelter consummated the acquisition
of the net assets of PSI, a manufacturer of injection molded plastic parts, for
approximately $0.9 million in cash and $3.5 million in convertible notes
payable to the sellers. On December 1, 1997, Kevco consummated the acquisition
of approximately 95.5% of the then issued and outstanding shares of Shelter
Common Stock pursuant to the Tender Offer. Kevco anticipates acquiring the
remaining outstanding shares of Shelter Common Stock by merger on or about
January 16, 1998. On December 12, 1997, the Company consummated the acquisition
of the inventory and certain distribution rights of certain building products
distributed by the Manufactured Housing and Recreational Vehicle division of
Shepherd Products Company for a cash purchase price payable at closing of $5.9
million, with an additional $2.0 million payable over a five year period
following the acquisition.
INDUSTRY
For the year ended December 31, 1996, approximately 79% of the Company's net
sales were to producers of manufactured homes. A manufactured home is a
complete single-family residence that is built in a factory and transported to
a site. Manufactured homes offer most of the amenities of, and are generally
built with the same materials as, site-built homes. Unless otherwise noted,
statistics in this Prospectus were obtained from the Manufactured Housing
Institute ("MHI") and Recreational Vehicle Industry Association ("RVIA"). MHI
and RVIA compile data from the U.S. Department of Commerce, Bureau of the
Census, National Conference of States, Building Codes and Standards, and other
industry sources.
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Manufactured housing has historically served as one of the most affordable
alternatives for the home buyer. In 1996, the average cost per square foot was
$25.18 for a single-section manufactured home and $29.56 for a multi-section
manufactured home, as compared to an average cost of $58.66 per square foot
for a site-built home, each excluding land costs. In 1996, reported retail
sales of new manufactured homes totaled approximately $14.0 billion.
Approximately 363,400 manufactured homes were reported as shipped in 1996
(which represents approximately 32.4% of all new single family homes sold in
1996). Reported shipments of new manufactured homes experienced compound
annual growth of approximately 14.6% for the four years ended December 31,
1996.
The Company believes steady employment growth, reduced inventories of
repossessed homes, greater availability of retail financing for the home buyer
and enhanced quality of manufactured homes have contributed to improved
industry conditions. Although the manufactured housing industry has
experienced significant growth over the past five years, the industry is
cyclical and is affected by many of the same factors that influence the
housing industry generally, including inflation, interest rates, availability
of financing, regional economic and demographic conditions and consumer
confidence levels, as well as the affordability and availability of
alternative housing, such as apartments, condominiums and conventional, site-
built homes.
The ten highest volume producers of manufactured homes in 1996 reportedly
accounted for approximately 71% of total manufactured home shipments in that
year. Management believes that only a few distributors are capable of
distributing a broad line of building products to meet the needs of these
manufacturers on a national basis.
For the year ended December 31, 1996, approximately 21% of the Company's net
sales were to producers of RVs and to other industries. RVs are motorized and
non-motorized vehicles that provide comfortable, self-contained living
facilities for short periods of time, but are not generally designed for
permanent living. RV shipments to retailers reportedly totaled approximately
$12.4 billion (at retail) in 1996. Although reported RV shipments declined
approximately 1.8% in 1996, the RV industry has experienced compound annual
growth in reported shipments of approximately 9.7% since 1992. Historically,
demand for RVs has been influenced by a number of factors, including the
availability and terms of financing to dealers and retail purchasers, the
abundance of motor vehicle fuels and fuel prices, as well as general economic
conditions.
The Company believes that the acquisition of Shelter enables the Company:
(i) to better serve its customers by supplying a more expansive product line
as Kevco's and Shelter's products have minimal overlap; (ii) to expand upon
Shelter's customer relationships through the application of Kevco's dedication
to Total Quality Management; (iii) to capitalize through the contacts of the
combined sales force on cross selling opportunities within the combined
product line; (iv) to further its goal of selective vertical integration
through the addition of manufacturing platforms in thermoforming bathtubs,
shower enclosures and tub wall surrounds for manufactured homes and RVs as
well as in laminated wall shelving systems for the retail home improvement
industry and (v) to realize economies of scale through centralized
distribution efficiencies and increased volume of purchases.
SUPPLIER AND CUSTOMER RELATIONSHIPS
The Company acts with its suppliers and customers to provide value-added
services in the distribution of manufactured home and RV building products by
managing inventories, providing product support and training, introducing cost
saving measures and providing a marketing and distribution network with
warehousing capabilities. The Company believes that the specialized product
knowledge and high level of service provided by the Company results in strong
ties between the Company and its customers and suppliers.
. INVENTORY MANAGEMENT. The Company's customers generally attempt to
minimize inventories and maximize the use of their facilities for the
assembly of manufactured homes and RVs. For this reason, the Company
actively manages customers' inventories of products supplied by the
Company. The Company's sales representatives generally visit customers'
plants weekly to count inventories, review production schedules, prepare
purchase orders and schedule deliveries in order to achieve the
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Company's goal of being a just-in-time supplier. In addition, because of
their detailed awareness of existing building codes for manufactured
homes and RVs, the Company's sales representatives are able to assist
customers in planning for, and maintaining product inventories in
accordance with, building code changes.
. PRODUCT SUPPORT AND TRAINING. At their weekly visits, sales
representatives also take the opportunity to resolve product problems
and train customer employees in the proper installation of products. The
Company has found that its willingness and availability to solve product
problems has resulted in its customers first turning to Company
representatives, rather than the Company's suppliers, when they have
problems with or questions about products. This benefits both the
Company's customers and suppliers in that the Company provides customer
support that the supplier might otherwise have to provide in order to
achieve the same level of customer satisfaction, and the Company's
customers receive support from individuals with expertise in serving the
manufactured housing and RV industries. The Company has also found that
its customers benefit from the training given by sales representatives
in the proper installation of products, since the Company's sales
representatives generally have significant expertise in the installation
and service of the products they sell. Sales representatives also take
the opportunity during their weekly visits to promote other Company
products, thus educating customers as to additional products the
customers can purchase from the Company and receive similar product
support.
. COST SAVING MEASURES. The Company's sales force also works with the
Company's customers and suppliers in suggesting and implementing cost
saving measures. The Company actively works to find ways for producers
of manufactured homes or RVs to reduce the number of stock-keeping units
("SKUs") they use in production in order to further reduce their
inventories. In its wood products operations, the Company also builds
steel forms to its customers' specifications to ensure the dimensional
tolerances of the roof trusses it manufactures, as strict adherence to
design specifications translates into reduced manufacturing costs for
the Company's customers.
. MARKETING AND DISTRIBUTION NETWORK. The Company believes that its
suppliers also benefit by utilizing the Company's extensive marketing
and distribution network. The Company also believes that it is generally
not cost effective for its suppliers to provide the same level of
service and delivery responsiveness as the Company to producers of
manufactured homes and RVs.
TOTAL QUALITY MANAGEMENT
The Company is committed to maintaining Total Quality Management throughout
its operations. The key elements of this operating philosophy are: (i) to
increase customer satisfaction by seeking to meet or exceed all customer
requirements and ensuring that all associates are "customer focused," which
the Company believes results in the Company becoming the supplier of choice;
(ii) to create the mindset and awareness within all of its associates that
each is responsible and accountable for the results of the Company's
operations; and (iii) to work with the Company's suppliers and customers to
create an environment where all are working together to improve the value of
the products supplied to the manufactured home or RV consumer. The Company's
executive office and profit centers hold weekly Total Quality Management
meetings attended by all employees. The meetings focus on training and on
reaffirming the Company's mission, quality and value statements in order to
achieve the goal of being the distributor, customer and employer of choice. An
integral part of the entire quality process is creating a culture where
communication can flourish among all internal and external parties, including
associates, customers and suppliers.
PRODUCTS
The Company distributes one of the most comprehensive product lines to the
manufactured housing and RV industries. Kevco is a leading industry
participant in its core manufactured housing/RV plumbing products distribution
business, while Shelter is a market leader in the manufactured housing/RV
electrical products, exterior building products and hardware distribution
segment. Prior to the Shelter Acquisition, Kevco distributed approximately
17,000 SKUs and Shelter distributed approximately 62,000 SKUs. Some of Kevco's
and Shelter's
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SKUs overlap, and the Company intends to rationalize and reduce total SKUs as
Shelter is integrated into the Company's operations.
KEVCO PRODUCT LINES
Plumbing Products. Kevco distributes a wide variety of plumbing fixtures and
supplies including tubs, toilets, faucets, ABS pipe, connectors and fittings.
Kevco supplies substantially everything necessary to carry water into and out
of a manufactured home or RV. For 1996, Kevco's plumbing products represented
18.3% of the Company's combined historical net sales.
Wood Products. At its five manufacturing facilities, Kevco manufactures roof
trusses and lumber cut to customer specifications for use in manufactured
homes. Roof trusses are rectangular or triangular structures that form the
principal roof support for a manufactured home. Kevco also distributes plywood
and mill direct lumber. For 1996, Kevco's wood products represented 8.1% of
the Company's combined historical net sales.
Other Building Products. Kevco distributes other building products,
including insulation, roof shingles, patio doors, aluminum and wood windows,
vinyl siding, fireplaces, kitchen cabinetry, aluminum siding, water heaters
(under an exclusive arrangement with State Industries) and electrical products
(including load-centers, circuit breakers and copper wire). For 1996, Kevco's
other building products represented 11.3% of the Company's combined historical
net sales.
SHELTER PRODUCT LINES
Building Products. Shelter distributes a wide variety of building products,
including vinyl windows, wood moulding, exterior wood and vinyl siding,
visqueen, gypsum board, parquet wood flooring, and windows. For 1996,
Shelter's building products represented 24.2% of the Company's combined
historical net sales.
Hardware, Fasteners, Power Tools and Mill Supplies. Shelter distributes
screws, bolts and nuts of various sizes and dimensions, lock sets, cabinet
door pulls, hinges, door slides and drapery hardware, stationary power tools,
table saws, hoists and related equipment used in the manufactured home and RV
manufacturing cycle, including complete plant set-ups, plastic film, tape,
glue, caulking, chemicals and abrasives. For 1996, Shelter's hardware,
fasteners, power tools and mill supplies represented 8.6% of the Company's
combined historical net sales.
Electrical Components. Shelter distributes electrical components, including
wire, wiring devices, power generators, circuit breakers, panels, air
conditioners, mill supplies and machinery. For 1996, Shelter's electrical
components represented 10.7% of the Company's combined historical net sales.
Plumbing Products. Shelter also distributes drain waste vent systems,
potable water systems and fixtures. For 1996, Shelter's plumbing products
represented 4.7% of the Company's combined historical net sales.
Thermoformed Products. Shelter manufactures and distributes bathtubs, shower
enclosures and tub wall surrounds for the manufactured housing and RV industry
using the thermoforming process. For 1996, Shelter's thermoformed products
represented 6.2% of the Company's combined historical net sales.
Laminated Wallboards. Shelter manufactures and distributes laminated
wallboard products primarily for the manufactured housing and RV industries
and, to a lesser extent, manufactures laminated wall shelving systems for the
retail home improvement industry. For 1996, Shelter's laminated wallboards
represented 7.9% of the Company's combined historical net sales.
SALES AND MARKETING
The Company's marketing programs center on fostering strong customer
relationships and providing superior customer service. The Company believes
its competitive advantage lies in its breadth of product offerings, the
knowledge and expertise of its sales representatives and its just-in-time
delivery capabilities,
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regular calling program, dedication to Total Quality Management and
competitive pricing. To certain producers of manufactured homes and RVs, the
Company is the sole provider of certain core product lines on a national
basis.
Kevco's national accounts are supported by a profit center manager and by
Kevco's management. Each potential customer within a distribution center's
geographic reach is regularly contacted by a sales representative, usually at
the purchasing manager level. Because of the specific nature of the wood
products business, these sales forces generally work independently. Each sales
representative works within an assigned sales territory associated with one of
Kevco's distribution centers or manufacturing facilities and is actively
supported by a manager at such distribution center or facility. Kevco intends
to integrate Shelter's sales force into a similar structure.
As of December 31, 1996, the Company marketed its products through 266 sales
representatives. Sales representatives, consisting of salespersons and sales
managers, are all Company employees and are generally compensated on a salary
and incentive based compensation arrangement. The incentive portion of the
salespersons' compensation is based on a percentage of the profits of the
sales region "profit center" in which that salesperson operates. The incentive
portion of the sales manager's compensation is determined by a variety of
factors, which include the profit center's sales and return as well as a
discretionary element.
The Company maintains active customer relationships with approximately 530
manufactured home production plants and RV production plants in 45 states. The
Company's two largest customers, Champion Enterprises, Inc. and Fleetwood
Enterprises, Inc., accounted for approximately 14% and 12%, respectively, of
the Company's combined historical net sales in 1996. Although the Company has
ongoing supply relationships with these customers, it does not have a formal
supply contract with these customers or most of its other customers. The
Company's business could be adversely affected if these customers, or other
major customers, substantially reduced or discontinued purchases from the
Company. Further, the Company can give no assurance that its sales to such
customers will continue at historical levels. The Company believes that it has
good relationships with its manufactured home and RV customers.
DISTRIBUTION
The Company maintains a national distribution network covering all of the
major locations in which manufactured homes are built. The Company's
facilities are strategically located near its customers' manufacturing plants
in order to provide prompt delivery and responsive customer service. In most
cases, the Company's desired service area is within a 250-mile radius of each
distribution center. As Kevco's 26 and Shelter's 21 distribution facilities
have significant geographical overlap, the Company expects to achieve
synergies through warehouse and management consolidation.
The Company generally uses a decentralized management structure that
emphasizes individual distribution center profit-and-loss responsibility. A
distribution center is typically comprised of warehouse and receiving space,
secure outdoor holding space and office space. Local sales efforts are
coordinated and supported at the distribution centers. The remaining
distribution center activities relate to receiving, storing and delivering
products.
Substantially all of Kevco's distribution centers are equipped with real-
time management information systems. In addition, Shelter is currently
enhancing its own management information system. The Company intends to
evaluate both management information systems with a view of integrating them
into a single, company-wide system. Kevco's system allows the distribution
centers to control and monitor inventory levels, perform invoicing and order
entry, and establish delivery schedules and routes. Corporate management also
uses Kevco's information system to monitor sales, inventory and profitability
by distribution center. By utilizing its computerized inventory management
system, Kevco is able to accurately predict inventory turns and minimize
inventory levels. Each morning, management is supplied with detailed accounts
receivable aging and inventory status reports from each distribution center.
Kevco is currently implementing an improved management information system with
a particular focus on inventory management, which will allow managers to
create
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customized, Microsoft Windows-based reports and to obtain faster access to
detailed inventory data. The Company anticipates that the upgrade will be
completed within the next year.
Kevco's inventories are kept on the perpetual method, with daily physical
counts of at least five items in each warehouse and a complete physical
inventory count performed twice a year. Shelter manages its inventory in a
similar manner, and the Company anticipates integrating Shelter into its
inventory management system. For book and tax purposes, the Company records
purchased inventories under the FIFO method.
In most cases the Company warehouses products before distributing them to
customers. The Company delivers the products it sells either by Company truck
or common carrier. Delivery is a key component of the Company's dedication to
customer service and is a competitive requirement. In some instances,
suppliers will "drop ship" products directly to the Company's customers, with
the Company retaining responsibility for selling, billing and collection.
Also, under certain arrangements, the Company receives fees for warehousing,
delivering, selling or other services without taking title to the products.
The Company records such fees as commission income.
PURCHASING AND SUPPLIERS
Inasmuch as the Company believes it is the largest distributor of building
products to the manufactured housing industry, the Company anticipates that it
will be able to achieve economies of scale in its purchasing. As a
distributor, the Company plays a valued role in linking product manufacturers
with customers and provides the level of customer service and just-in-time
delivery its customers require. The Company's position in the marketplace and
financial condition have enabled it to take advantage of volume discounts,
product promotions and other buying opportunities from suppliers, which allow
the Company to market a wide variety of products to its customers at
attractive prices.
The Company generally sells products from manufacturers on a non-exclusive
basis without geographical restrictions. In certain limited instances, a
supplier will grant the Company the exclusive right to market its products in
the manufactured housing or RV industries. Management believes that its
increased size, its national distribution capability and general industry
trends toward such exclusive relationships will allow the Company to increase
the number of products it distributes on a national and/or exclusive basis.
The Company generally negotiates the price and other purchase terms with its
vendors on a company-wide or regional basis. Payment, discount and volume
purchase programs are negotiated directly by the Company with its major
suppliers, with a significant portion of the Company's purchases made from
suppliers offering these programs. Distribution center managers are
responsible for inventory selection and ordering on terms negotiated
centrally, so that the Company remains responsive to local market demand.
Distribution center managers are also responsible for inventory management.
The Company continuously seeks to expand the variety of products it sells.
While the loss of a major supplier could have a material adverse effect on the
Company's business, the Company believes alternative suppliers for similar
products in each of its product lines are available. In addition, raw material
used by the Company for its manufactured products are generally available from
a number of sources and the loss of any one source would not have a material
adverse effect on the Company. The Company believes its relations with its
suppliers are good.
The Company has established a Supplier Certification Program, in which the
Company identifies the performance level of a supplier to the Company and
benchmarks such performance on a regular basis. Such benchmarking criteria
include minimum order fill rates and other factors.
MANUFACTURING
The Company manufactures wood products, laminated wallboard products,
plastic injection molded products and thermoformed bathtubs, shower enclosures
and tub wall surrounds.
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The Company manufactures wood products for distribution principally to
producers of manufactured homes. The Company's wood products include roof
trusses and lumber cut to customer specifications for structural support
within the manufactured home unit. Each of the Company's roof trusses are
built to meet the customer's specific requirements.
The Company utilizes automated saws to reduce the cutting time needed to
process raw wood, and fabricates steel forms based on customer specifications
in order to ensure the dimensional tolerances of its roof trusses. The quality
and structural strength of roof trusses are monitored closely by manufactured
home producers. Wind zone construction standards require that roof trusses
sold for use in certain regions meet increased strength benchmarks. Roof
trusses that meet exacting specifications can reduce customer installation
costs. The Company believes that its ability to produce roof trusses of
consistent quality that adhere to customer specifications provides a
competitive advantage.
The Company's wood products customers include producers of manufactured
homes as well as contract, "cut-to-order" customers outside of the
manufactured housing industry. Substantially all of the Company's wood product
sales are to manufactured home producers. The Company has roof truss
manufacturing facilities in Spruce Pine, Alabama; Ashburn, Georgia; Waco,
Texas; Haleyville, Alabama; and Baxter, Tennessee. The Company is planning to
open new facilities in Arizona and North Carolina by the end of the second
quarter of 1998.
The Company manufactures laminated wallboard products primarily for the
manufactured housing and RV industries and, to a lesser extent, manufactures
laminated wall shelving systems for the retail home improvement industry.
Decorative paper or vinyl wall coverings are laminated onto 48 x 88 sheets of
gypsum, MDF or lauan and are shipped directly to the customers from one of
Shelter's five manufacturing facilities located in Indiana, Georgia,
Tennessee, and Texas (two plants).
Further, the Company manufactures bathtubs, shower enclosures and tub wall
surrounds for the manufactured housing and RV industry using the thermoforming
process. Thermoforming is the heating of plastic sheet to a softening
temperature and forcing the hot flexible material over a mold by the use of
mechanical and vacuum pressure. Allowed to cool, the plastic retains the shape
and detail of the mold.
The Company has developed such manufacturing operations in furtherance of
its vertical integration strategy. In June 1995, the Company acquired Sunbelt,
which added wood products manufacturing for the manufactured housing and RV
industries to its operations. In February 1997, the Company acquired
Consolidated Forest, which substantially strengthened the Company's position
in this wood products industry. The acquisition of Shelter furthers the
Company's vertical integration strategy through the addition of manufacturing
platforms in laminated wallboard products, plastic injection molded products
and thermoformed bath products. The Company intends to continue to seek
vertical acquisitions on a selective basis as opportunities arise.
WARRANTY AND RETURNS
The Company's customers generally rely on the warranties issued by the
manufacturer of the products sold by the Company. The Company generally
provides a one year limited warranty on the products it sells, which warranty
covers the product and service calls. The Company's warranty on the product
itself is generally not utilized because the product manufacturer provides a
more comprehensive warranty. The Company's warranty expense in 1996 was
negligible. The Company also has an informal, unwritten return policy under
which, for one year following sale, the Company will generally accept the
nonwarranty return of unused products, after inspection by the Company
personnel, for a restocking charge.
In the event a manufactured home experiences a failure of a roof truss
manufactured by the Company, the Company will inspect the home to determine
whether there is a covered defect in the roof truss. If a covered defect is
discovered, the Company generally pays to replace the roof truss and the roof.
The Company has only had one such claim in the past three years. The Company
also maintains a limited warranty on its thermoformed products, which
generally ranges from one to five years, covers defects in materials and
workmanship by repair or replacement of the defective item and excludes labor
and consequential damages.
54
<PAGE>
FACILITIES
The following table sets forth certain information with respect to Kevco's
and Shelter's distribution and manufacturing facilities, which are leased
unless otherwise indicated. Kevco also leases its executive offices of
approximately 12,000 square feet in Fort Worth, Texas. Further, Shelter owns
its executive offices of approximately 19,000 square feet in Elkhart, Indiana.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION COMPANY SQUARE FEET FUNCTION
<S> <C> <C> <C>
Alabama
Bear Creek*.................................. Kevco 50,000 Distribution
Bear Creek*.................................. Shelter 90,000 Distribution
Haleyville*.................................. Kevco 86,000 Distribution
Haleyville................................... Kevco 146,000 Manufacturing
Haleyville................................... Kevco 44,000 Manufacturing
Phil Campbell................................ Kevco 30,000 Manufacturing
Spruce Pine*................................. Kevco 54,000 Manufacturing
Arizona
Phoenix...................................... Kevco 70,000 Distribution
Phoenix...................................... Shelter 59,000 Distribution
California
Riverside.................................... Shelter 35,000 Distribution
San Bernardino............................... Kevco 42,000 Distribution
Woodland..................................... Kevco 18,000 Distribution
Colorado
Fort Morgan.................................. Kevco 13,000 Distribution
Florida
Lakeland..................................... Shelter 36,000 Distribution
Ocala*....................................... Kevco 50,000 Distribution
Georgia
Americus..................................... Kevco 6,000 Distribution
Ashburn*..................................... Kevco 100,000 Manufacturing
Cordele*..................................... Kevco 60,000 Distribution
Douglas...................................... Kevco 72,000 Distribution
Tifton*...................................... Shelter 22,000 Manufacturing
Valdosta..................................... Shelter 73,000 Distribution
Idaho
Caldwell..................................... Kevco 24,000 Distribution
Indiana
Elkhart...................................... Kevco 61,000 Distribution
Elkhart...................................... Kevco 90,000 Distribution
Elkhart...................................... Kevco 35,000 Distribution
Elkhart...................................... Kevco 57,000 Distribution
Elkhart*..................................... Shelter 94,000 Distribution
Elkhart...................................... Shelter 15,000 Distribution
Elkhart*..................................... Shelter 65,000 Distribution
Elkhart*..................................... Shelter 70,000 Distribution
Elkhart*..................................... Shelter 27,000 Distribution
Elkhart...................................... Shelter 8,000 Distribution
Elkhart*..................................... Shelter 74,000 Manufacturing
Elkhart*..................................... Shelter 20,000 Manufacturing
Plymouth..................................... Shelter 5,000 Distribution
SouthBend.................................... Shelter 43,000 Manufacturing
Warsaw....................................... Shelter 10,000 Distribution
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION COMPANY SQUARE FEET FUNCTION
<S> <C> <C> <C>
Kansas
Newton....................................... Kevco 38,000 Distribution
Newton*...................................... Shelter 85,000 Distribution
Michigan
Edwardsburg*................................. Shelter 70,000 Manufacturing
Edwardsburg.................................. Shelter 7,000 Manufacturing
Minnesota
Redwood Falls*............................... Shelter 24,000 Distribution
Worthington.................................. Kevco 15,000 Distribution
New Mexico
Albuquerque.................................. Kevco 16,000 Distribution
Albuquerque.................................. Shelter 15,000 Distribution
North Carolina
Albemarle.................................... Kevco 62,000 Distribution
Concord*..................................... Shelter 65,000 Distribution
Richfield*................................... Kevco 44,000 Distribution
Oregon
Milwaukee.................................... Shelter 38,000 Distribution
Tigard....................................... Kevco 23,000 Distribution
Pennsylvania
Lancaster.................................... Shelter 119,000 Distribution
Leola........................................ Kevco 11,000 Distribution
Leola........................................ Kevco 26,000 Distribution
Tennessee
Baxter....................................... Kevco 55,000 Manufacturing
Cookeville................................... Kevco 30,000 Distribution
Madisonville................................. Shelter 38,000 Manufacturing
Morristown................................... Shelter 42,000 Distribution
Texas
Fort Worth................................... Shelter 110,000 Distribution
Hillsboro*................................... Kevco 48,000 Distribution
Mansfield*................................... Shelter 25,000 Manufacturing
Temple....................................... Shelter 44,000 Manufacturing
Waco......................................... Kevco 90,000 Distribution
Waco......................................... Kevco 135,000 Manufacturing
Waxahachie*.................................. Shelter 192,000 Manufacturing
</TABLE>
- ---------------------
* Company owned facility.
COMPETITION
The Company believes it is the largest distributor of building products to
the manufactured housing industry; however, the building products wholesale
distribution industry is highly competitive. Numerous companies, both public
and private, are in direct competition with the Company and many of those
competitors have longer operating histories and greater financial and other
resources than the Company. The Company believes its prices, wide array of
products and ability to deliver on short notice are competitive.
The Company believes that its business strategy has permitted it to compete
effectively in its marketing areas. While price is an important competitive
factor in the Company's business, the Company believes that its sales are
principally dependent upon its service, technical expertise, reputation and
experience. The Company's principal competitive strengths include (i) quality
assurance, service and installation support, (ii) a wide array of
56
<PAGE>
products and product availability due to the Company's ability to attract
major product manufacturers and (iii) the prompt and reliable delivery of
products to customers.
Certain product manufacturers sell and distribute their products directly to
producers of manufactured homes and RVs. However, the Company believes that,
for most product manufacturers, providing the same level of service and
offering the same delivery responsiveness as the Company is not cost-
effective.
EMPLOYEES
As of December 31, 1996, Kevco employed 625 persons. Kevco is a party to one
collective bargaining agreement, which covered, as of December 31, 1996, 11
employees at one of the Company's facilities in Elkhart, Indiana. Kevco has
not experienced any work stoppages as a result of labor disputes and the
Company considers its employee relations to be good.
As of December 31, 1996, Shelter had 1,127 full-time employees, of whom 196
were engaged in sales, 681 in warehouse, manufacturing and distribution
services, and 250 in administration. Shelter has indicated that it has
experienced no work stoppage arising from labor disputes and considers
employee relations to be good. None of Shelter's employees are covered by
collective bargaining agreements, except that effective February 1, 1997,
certain employees at Shelter's plastics operation in Texas are covered by a
two-year collective bargaining agreement.
LITIGATION
The Company is, and may be in the future, party to litigation arising in the
course of its business. While the Company has no reason to believe that any
pending claims are material, there can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities arising out of
such claims or that any such claims will be covered by the Company's
insurance. Any material claim that is not covered by insurance may have an
adverse effect on the Company's business. Claims against the Company,
regardless of their merit or outcome, may also have an adverse effect on the
Company's reputation and business.
REGULATION
The Company's suppliers and customers are subject to a variety of federal,
state and local laws and regulations. The National Manufactured Housing
Construction and Safety Standards Act of 1974 and regulations promulgated
thereunder by HUD impose comprehensive national construction standards for
manufactured homes and preempt conflicting state and local regulations. HUD
has adopted regulations that divide the United States into three "Wind Zones"
and impose more stringent construction standards for homes to be sold in areas
designated as Wind Zones II or Ill. These regulations have resulted in higher
manufacturing and dealer costs. The Company cannot predict if additional
regulations will be adopted or the effect any such regulations would have on
the Company. To the extent regulations make manufactured housing less
competitive with other housing alternatives, the Company's operations could be
negatively impacted.
The Company's operations are also subject to federal, state and local laws
and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. Governmental
authorities have the power to enforce compliance with their regulations, and
violations may result in the payment of fines, the entry of injunctions or the
imposition of other requirements necessary to achieve compliance. While the
Company does not believe it will be required under existing environmental laws
and enforcement policies to expend amounts which will have a material adverse
effect on its operations or financial condition, the Company is unable to
predict the ultimate cost of compliance with environmental laws and
enforcement policies. From time to time, the Company has taken remedial
actions with respect to environmental conditions at certain of its properties,
and it is likely that the Company will continue to do so from time to time in
the future. In connection with a pending contract to transfer certain Company
properties to a third party, the Company has agreed to oversee any required
remedial actions in connection with the properties to be transferred. The
Company is currently engaged in discussions with the proposed transferee of
such properties, as well as with environmental consultants, to determine the
extent of the required remediation at such properties. Although the Company
does not anticipate that costs incurred in connection with any required
remediation will be material, there can be no assurance that such will be the
case.
57
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the Company's
directors, certain officers and certain key employees. Inclusion in this list
as an officer or officer nominee is not intended to act as an admission that
such individual is or will become subject to Section 16 under the Exchange
Act.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Jerry E. Kimmel......... 60 Chairman of the Board, Chief Executive Officer and President
Clyde A. Reed, Jr. ..... 62 Executive Vice President, Chief Operating Officer and Director
Ellis L. McKinley, 46
Jr. ................... Vice President, Chief Financial Officer, Treasurer and Director
Richard S. Tucker....... 53 Secretary and Director
C. Lee Denham........... 49 President, Sunbelt
Gregory G. Kimmel....... 29 Vice President, Corporate Development and Director
Martin C. Bowen......... 54 Director
Richard Nevins.......... 50 Director
</TABLE>
Jerry E. Kimmel is a founder of the Company and has spent his entire career
in this industry. Mr. Kimmel has served as President of Kevco since 1978 and
has served as Chairman of the Board and Chief Executive Officer of the Company
since 1993. In 1992, Mr. Kimmel was inducted into the MH/RV Hall of Fame.
Mr. Kimmel served as the Chairman of the Board of Governors of the
Manufactured Housing Institute, a leading manufactured housing trade group, in
1983 and 1984, and has served in various other Manufactured Housing Institute
board capacities. Mr. Kimmel's term of office as a director of the Company
will expire in the year 2000.
Clyde A. Reed joined the Company in 1965 and has served as Executive Vice
President since 1986 and Chief Operating Officer since 1991. From 1978 to
1986, Mr. Reed served as Vice President of the Company. Mr. Reed has been a
director of the Company since November 1996. Mr. Reed's term of office as a
director of the Company will expire in 1999.
Ellis L. McKinley, Jr. joined the Company in 1995, has served as Vice
President and Chief Financial Officer since such time and has served as a
director and Treasurer of the Company since November 1996. From 1994 to 1995,
Mr. McKinley was Vice President of Finance, Chief Financial Officer, Secretary
and Treasurer of Renters Choice, Inc. From 1976 until 1994, Mr. McKinley was
employed with Grant Thornton, a public accounting firm in Dallas, Texas, where
he served as an audit partner from 1987 through 1994. Mr. McKinley received
his B.B.A. in Accounting from the University of Texas in 1976. Mr. McKinley's
term of office as a director of the Company will expire in 1999.
Richard S. Tucker has served as a director of the Company since 1976, as an
assistant secretary of the Company since 1988, and as the Secretary of the
Company since November 1996. Since 1995, Mr. Tucker has been a partner in the
law firm of Jackson Walker L.L.P., the Company's outside legal counsel. From
1984 to 1995, Mr. Tucker was a member of the law firm of Simon, Anisman, Doby
& Wilson, a Professional Corporation, located in Fort Worth, Texas. Mr. Tucker
received his B.B.A. in Accounting from the University of Texas in 1966 and his
J.D. from Southern Methodist University School of Law in 1969. Mr. Tucker's
term of office as a director of the Company will expire in the year 2000.
C. Lee Denham has served as President of Kevco's Sunbelt subsidiary since
November 1996 and as Vice President of the Sunbelt division of Kevco from 1995
to November 1996. Mr. Denham was division manager of Sunbelt from 1991 to
1995. From 1981 to 1991, Mr. Denham was President of Sunbelt. From 1970 until
founding Sunbelt in 1981, Mr. Denham was employed by Universal Forest
Products, Inc. Mr. Denham received his B.B.A. in Marketing from the University
of Georgia in 1970.
58
<PAGE>
Gregory G. Kimmel joined the Company in 1994 and has served as Vice
President since January 1996, as Vice President, Corporate Development since
August 1997 and as a director of the Company since May 1997. Mr. Kimmel
received his B.S. in Education from McMurry University in 1994. Gregory G.
Kimmel is the son of Jerry E. Kimmel, the Chairman, President and Chief
Executive Officer of the Company. Mr. Kimmel's term of office as a director of
the Company will expire in the year 2000.
Martin C. Bowen has served as a director of the Company since November 1996.
Mr. Bowen has served as President and Chief Executive Officer of Performing
Arts Fort Worth, Inc. since 1993, Vice President of Fine Line, Inc. since
January 1996 and as a director of Aztec Manufacturing Company since November
1993. From 1989 to 1992 he was Chairman of the Fort Worth Region for Team
Bank. From 1987 to 1989, Mr. Bowen served as Chairman & CEO of Texas American
Bank/Houston. From 1985 to 1987 he served as Executive Vice President of Texas
American Bank/Fort Worth. Mr. Bowen received his B.B.A. in Finance from Texas
A&M University in 1964 and his Bachelor of Foreign Trade degree from the
American Institute of Foreign Trade, Phoenix, Arizona, in 1968. Additionally,
he received his J.D. from Baylor University School of Law in 1973. Mr. Bowen's
term of office as a director of the Company will expire in 1998.
Richard Nevins has served as a director of the Company since November 1996.
Since 1992, Mr. Nevins has served as President of Richard Nevins & Associates,
a financial advisory firm. Mr. Nevins was elected as a director of Fruehauf
Trailer Corporation ("Fruehauf") in 1995 and was elected as Chairman of
Fruehauf's executive committee in August 1996. On October 7, 1996, Fruehauf
filed for relief under Chapter 11 of the Bankruptcy Code of the United States.
Together with the other members of the Fruehauf board who had been elected by
the shareholders, Mr. Nevins resigned his positions with Fruehauf effective
October 9, 1996. During 1996, Mr. Nevins has served as acting Chief Operating
Officer and Chief Restructuring Officer for Sun World International, a
California agricultural firm, following the filing of a petition in bankruptcy
by Sun World International. From 1995 to 1996, Mr. Nevins served as a director
of Ampex Corporation and from 1993 to 1995 he served as a director of The
Actava Group (now Metromedia International Group). From 1990 to 1992 he was a
Managing Director of Smith Barney Harris Upham & Co. Mr. Nevins received his
B.A. in Economics from the University of California, Riverside in 1972 and his
M.B.A. from Stanford Graduate School of Business in 1975. Mr. Nevin's term of
office as a director of the Company will expire in 1998.
59
<PAGE>
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of Kevco's last two fiscal years to Kevco's Chief Executive
Officer and each of Kevco's three other most highly compensated executive
officers, based on salary and bonus earned during 1995 and 1996.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------ SECURITIES
NAME AND PRINCIPAL FISCAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION(5)
<S> <C> <C> <C> <C> <C>
Jerry Kimmel, .......... 1996 $366,271 $249,600 -- $17,163(1)
Chairman of the Board, 1995 $398,479 $191,530 -- $19,643(2)
President and Chief
Executive Officer
Clyde A. Reed, Jr. ..... 1996 $188,088 $ 96,667 11,750 $29,756(3)
Executive Vice
President 1995 $179,737 $154,007 7,096 $26,440(4)
and Chief Operating
Officer
Ellis L. McKinley,
Jr. ................... 1996 $145,980 $ 29,167 14,400 $ 1,057(7)
Vice President, 1995 $ 54,527 $ 25,000 7,050 --
Chief Financial Officer
and Treasurer
C. Lee Denham,.......... 1996 $ 95,850 $222,221 9,400 $ 1,434(5)
President, Sunbelt 1995 $ 39,000 $110,000 $ 4,292(6)
Roger J. Kollat......... 1996 $ 87,737 $ 25,001 -- $ 1,057(7)
1995 $140,358 $ 81,500 3,548(8) $ 3,535(9)
</TABLE>
- ---------------------
(1) Consists of $12,546, representing personal use of a Company supplied car,
$3,560, representing payments by the Company for medical insurance
premiums and $1,057, representing the Company's contribution to such
individual's 401(k) Plan account.
(2) Consists of $12,546, representing personal use of a Company supplied car,
$3,866, representing payments by the Company for medical insurance
premiums and $3,051, representing the Company's contribution to such
individual's 401(k) Plan account.
(3) Consists of $4,518, representing personal use of a Company supplied car,
$24,181, representing expense recognized by the Company in 1996 relating
to future payments to be made under a deferred compensation agreement and
$1,057, representing the Company's contribution to such individual's
401(k) Plan account.
(4) Consists of $2,491, representing personal use of a Company supplied car,
$20,898, representing expense recognized by the Company in 1995 relating
to future payments to be made under a deferred compensation agreement and
$3,051, representing the Company's contribution to such individual's
401(k) Plan account.
(5) Consists of $377, representing personal use of a Company supplied car and
$1,057, representing the Company's contribution to such individual's
401(k) Plan account.
(6) Consists of $1,241, representing personal use of a Company supplied car
and $3,051, representing the Company's contribution to such individual's
401(k) Plan account.
(7) Represents the Company's contribution to such individual's 401(k) Plan
account.
(8) All such options were canceled upon Mr. Kollat's termination of his
employment with the Company on July 17, 1996.
(9) Consists of $484, representing personal use of a Company supplied car and
$3,051, representing the Company's contribution to such individual's
401(k) Plan account.
60
<PAGE>
OPTION GRANTS DURING 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
------------------------------------------------- ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS/ STOCK PRICE
SECURITIES SARS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION
OPTIONS/ EMPLOYEES EXERCISE OR TERM(1)
SARS IN BASE EXPIRATION ---------------
NAME GRANTED(#) FISCAL YEAR PRICE($/SH)(2) DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Jerry E. Kimmel......... -- -- -- -- -- --
Clyde A. Reed, Jr. ..... 11,750(3) 3.0 $11.17 12/31/02 $36,261 $80,128
C. Lee Denham........... 9,400(3) 2.4 $11.17 12/31/02 $29,009 $64,102
Ellis L. McKinley,
Jr. ................... 5,000(4) 1.3 $13.50 12/16/06 $37,215 $91,661
9,400(3) 2.4 $11.17 12/31/02 $29,009 $64,102
Roger J. Kollat......... -- -- -- -- -- --
</TABLE>
The following table provides information related to options granted to the
Named Executive Officers (as defined herein) during 1996.
- ---------------------
(1) The dollar amounts in these columns represent potential value that might
be realized upon exercise of the options immediately prior to the
expiration of their term, assuming that the market price of the Common
Stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by regulation, and therefor are not intended to forecast
possible future appreciation, if any, of the price of the Common Stock.
(2) The exercise price of each option was equal to the fair market value of
the Common Stock on the date of the grant.
(3) Immediately exercisable.
(4) Consists of options to acquire 5,000 shares of Common Stock vesting 10%
per year on December 16 up to and including December 16, 2006, the date
the options expire.
YEAR END OPTION VALUES
The following table presents the information regarding the value of stock
options outstanding at December 31, 1996 held by each of the Named Executive
Officers. No stock options were exercised by the Named Executive Officers in
1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END(#) AT FY-END($)(1)
-------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Jerry E. Kimmel......... -- -- -- --
Clyde A. Reed, Jr. ..... 18,846(2) -- $92,575 --
C. Lee Denham........... 9,400(3) -- $26,602 --
Ellis L. McKinley,
Jr. ................... 16,450(4) 5,000(5) $85,540 $2,500
Roger J. Kollat......... -- -- -- --
</TABLE>
- ---------------------
(1) The closing price for the Kevco's Common Stock as reported through The
Nasdaq National Market on December 31, 1996, was $14.00. Value is
calculated on the basis of the difference between the option exercise
price and $14.00 multiplied by the number of shares of Common Stock
underlying the option.
(2) Consists of options to acquire 7,096 shares of Common Stock at $5.64 per
share and options to acquire 11,750 shares of Common Stock at $11.17 per
share.
(3) Consists of options to acquire 9,400 shares of Common Stock at $11.17 per
share.
(4) Consists of options to acquire 7,050 shares of Common Stock at $5.64 per
share and options to acquire 9,400 shares of Common Stock at $11.17 per
share.
(5) Consists of options to acquire shares of Common Stock at $13.50 per share,
vesting 10% on each December 16 up to and including December 16, 2006, the
date the options expire.
61
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives a fee of $1,000 for attendance at each Board of Directors
meeting and $500 for attendance at each Board committee meeting (unless held
on the same day as a Board of Directors meeting). All directors of the Company
are reimbursed for out-of-pocket expenses incurred in attending meetings of
the Board of Directors or committees thereof, and for other out-of-pocket
expenses incurred in their capacity as directors of the Company.
EMPLOYMENT AGREEMENTS
Mr. Kimmel has entered into a five year employment agreement with the
Company providing for an annual base salary of $250,000. In addition to base
salary, beginning in 1997, Mr. Kimmel, through his employment agreement, is
eligible for an annual bonus equal to 2.4% of the Company's income before
income taxes for the year provided that income before income taxes is at least
$5.0 million. Such salary and bonus are subject to increase, but not decrease,
by the Company. Increases in Mr. Kimmel's compensation will be reviewed
annually by the Company's Compensation Committee in a manner so as to qualify
under the performance based compensation provisions of the Internal Revenue
Code. Under the agreement, Mr. Kimmel has agreed to perform services on behalf
of the Company and its subsidiaries in Fort Worth, Texas as he reasonably
determines are necessary to carry out his duties under the agreement. Mr.
Kimmel, his spouse and dependents are, until the death of the survivor of Mr.
Kimmel and his spouse, entitled to participate at the Company's expense in
health programs offered to Company employees generally or, if insurance
coverage is not available, to have their health care costs reimbursed by the
Company. Upon the death of Mr. Kimmel, the Company must continue to pay his
base salary for the remainder of the then existing agreement term. The
agreement can be terminated by the Company only for cause (as defined in such
agreement). The employment agreement, which is guaranteed by the subsidiaries
of the Company, is automatically extended for an additional year at the end of
each year's service.
Effective May 24, 1977, Mr. Reed entered into a retirement agreement with
the Company that generally provides that the Company will pay Mr. Reed or his
beneficiaries $55,000 per year for 10 years if Mr. Reed is employed with the
Company at age 65 or upon death or disability. Such agreement also provides
for a smaller lump sum payment that the Company will make upon Mr. Reed's
termination of employment prior to age 65, death or disability. Such lesser
amount equals approximately $14,000 for each year following the effective date
of the agreement, up to such termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company leases three of its warehouse locations from an affiliated
partnership (K&E Land & Leasing, a Texas general partnership of which Mr.
Kimmel is a managing partner. As of December 31, 1996, Mr. Kollat, the
Company's former President of its IDC Limited division, owned a one-third
interest in 1741 Conant Partnership, a Texas general partnership in which K&E
Land & Leasing is the managing general partner. During 1997, Mr. Kollat sold
his interest in 1741 Conant Partnership to K&E Land & Leasing. At that time,
the assets and liabilities of 1741 Conant Partnership were acquired by K&E
Land & Leasing. The Company also leases computer equipment from K&E Land &
Leasing. These leases (i) expire in November 2003, April 2005, October 2007
and October 2003, respectively, (ii) provide for total future (i.e. post 1996)
base rent payments of approximately $886,000, $762,000, $2.5 million and $1.5
million, respectively, and (iii) require payments to be made in equal monthly
amounts. As of December 31, 1996, Mr. Kimmel's indirect interest in such
leases was 38.0%, 38.0%, 25.3% and 38.0%, respectively. As of December 31,
1996, Mr. Kimmel's immediate family members (including a trust for the benefit
of one such family member) owned indirect interests in such leases of 12.0%,
12.0%, 8.0% and 12.0%, respectively. As of December 31, 1996, Mr. Kollat owned
a one-third indirect interest in the third of such leases through his
ownership of a partnership interest in 1741 Conant Partnership. Aggregate
expenditures by the Company under such leases in 1996 were approximately
$672,000, of which approximately $226,000 was indirectly attributable to Mr.
Kimmel's interests in such partnerships (excluding
62
<PAGE>
immediate family members' interests) and of which approximately $77,000 was
indirectly attributable to Mr. Kollat's interest in 1741 Conant Partnership.
It is anticipated that aggregate expenditures by the Company under such leases
for the remainder of their terms will be approximately $5.6 million, of which
approximately $1.8 million will be indirectly payable (less partnership
expenses) to Mr. Kimmel (excluding immediate family members' interests) and of
which approximately $830,000 will be indirectly payable (less partnership
expenses) to Mr. Kollat, based on their ownership interests as of December 31,
1996. With respect to the premises formerly leased from 1741 Conant
Partnership, the Company has agreed to perform the obligations of the
partnership contained in the mortgage. The Company believes that the amounts
it has paid under such leases have not been less favorable to the Company than
had the leases been negotiated on an arms-length basis. The Company has
amended the terms of such leases so that their terms are no less favorable to
the Company than had the leases been negotiated on an arms-length basis. Two
of the leased warehouses were financed through economic development and
industrial revenue bonds; one series of which was issued by Newton, Kansas in
the original principal amount of $575,000, and with respect to which the
Company is the sub-lessee of the premises and a co-guarantor, and one series
of which was issued by Elkhart, Indiana in the original principal amount of
$400,000, and with respect to which the Company is the lessee of the premises
and had agreed to perform the obligation of the lessor contained in the
mortgage.
Prior to October 26, 1993, Billy T. Everett owned 50% of the then
outstanding common stock of Kevco and served as its Chairman of the Board.
Effective October 26, 1993, Kevco repurchased 13% of Mr. Everett's Common
Stock holdings in exchange for the issuance of a promissory note in the
original principal amount of $747,500 and bearing interest at a floating rate,
which was 6% per annum on the date of the note; such note was retired in 1994.
Also effective October 26, 1993, Mr. Kimmel purchased Mr. Everett's remaining
Common Stock holdings in exchange for approximately $5.0 million cash and, in
order to facilitate such purchase, the Company loaned Mr. Kimmel $5.0 million.
The loan is payable in monthly principal installments of $62,500 plus interest
at 9% per annum as of December 31, 1995 with the final installment due in
November 1997. As of June 30, 1996, $3.1 million remained outstanding under
such loan, and effective as of such date the note evidencing this loan was
distributed to Kevco's shareholders.
Gregory G. Kimmel and James Kimmel, Jerry Kimmel's brother, earned, in the
aggregate, approximately $137,000 in compensation in 1996. Mr. Tucker,
Secretary and a director of the Company, is a partner in Jackson Walker
L.L.P., which is the Company's principal outside legal counsel.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of Common Stock as of November 20, 1997 and includes (i) all persons
known to the Company to be the beneficial owner of 5% or more of the Common
Stock, (ii) each director of the Company, (iii) the chief executive officer
and each of the Company's four other most highly compensated executive
officers whose total annual compensation for 1996 based on salary and bonus
earned during 1996 exceeded $100,000 (the "Named Executive Officers"), and
(iv) all the Company directors and executive officers as a group. This table
does not include shares of Common Stock that may be purchased pursuant to
options not exercisable within 60 days of November 20, 1997. All persons
listed have sole voting and investment power with respect to their shares
unless otherwise indicated. As of November 20, 1997, Kevco had 6,825,049
shares of Common Stock issued and outstanding.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER OR AMOUNT AND NATURE
NUMBER OF PERSONS IN GROUP OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
<S> <C> <C>
Jerry E. Kimmel(1)................ 3,759,196(2) 55.1%
Clyde A. Reed, Jr................. 30,014(3) *
Ellis L. McKinley, Jr............. 21,950(4) *
Richard S. Tucker................. 5,500(5) *
Martin C. Bowen................... 3,000(5) *
Richard Nevins.................... 7,405(5) *
C. Lee Denham..................... 9,400(6) *
Roger J. Kollat(7)................ 0 *
Gregory G. Kimmel................. 220,633(11) 3.2%
FMR Corp.(9)...................... 388,000(10) 5.7%
All directors and executive
officers as a group (9 persons).. 4,057,098(8) 58.9%
</TABLE>
- ---------------------
*Less than 1%
(1) The address of Mr. Kimmel is University Centre I, 1300 S. University
Drive, Suite 200, Fort Worth, Texas 76107.
(2) Excludes 626,386 shares of outstanding Common Stock and 15,299 shares of
Common Stock issuable upon exercise of options beneficially owned by Mr.
Kimmel's adult children and his brother. Mr. Kimmel disclaims beneficial
ownership of such shares.
(3) Includes 18,846 shares of Common Stock subject to presently exercisable
options.
(4) Includes 16,950 shares of Common Stock subject to presently exercisable
options, or options exercisable within 60 days.
(5) Includes 2,500 shares of Common Stock subject to presently exercisable
options.
(6) Consists of 9,400 shares of Common Stock subject to presently exercisable
options.
(7) Mr. Kollat is no longer an employee of the Company.
(8) Includes 65,644 shares of Common Stock subject to presently exercisable
options.
(9) The address of FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109.
(10) Based on a statement on Schedule 13G filed with the Commission dated
February 14, 1997, FMR Corp. has sole power to dispose or direct the
disposition of 388,000 shares of Common Stock. Such power to dispose or
direct such disposition is as a result of a wholly-owned subsidiary,
Fidelity Management & Research Company, acting as investment adviser to
several investment companies. One such investment company (Fidelity Low-
Priced Stock Fund, which has the same business address as FMR Corp.)
owned 336,000 shares or 4.9% of the Common Stock. Neither FMR Corp. nor
Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote
or direct the voting of such shares, which power resides in the various
funds' Board of Trustees. Mr. Johnson 3d owns 12.0%, and Abigail Johnson
owns 24.5% of the aggregate outstanding voting stock of FMR Corp.
(11) Includes 12,949 shares of Common Stock subject to presently exercisable
options.
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DESCRIPTION OF SENIOR CREDIT FACILITY
General. On December 1, 1997, Kevco entered into an amended and restated
$125 million credit facility with Nations Bank of Texas, N.A., as lender and
administrative agent, and certain other banks, consisting of $90 million in
aggregate principal amount of term loans (the "Term Loan Facility"), which
facility includes a $40 million tranche A term loan subfacility and a $50
million tranche B term loan subfacility and a $35 million revolving credit
facility (the "Revolving Credit Facility"), which facility includes a sublimit
for letters of credit. The Company has used the Term Loan Facility and a
portion of the Revolving Credit Facility to refinance indebtedness of Kevco
Delaware, Inc. to NationsBank of Texas, N.A. and the lenders under an Amended
and Restated Credit Agreement, dated February 27, 1997, as amended, and to
provide a portion of the funds necessary to consummate the Transactions. See
"Use of Proceeds." This information relating to the Senior Credit Facility is
qualified in its entirety by reference to the complete text of the Senior
Credit Facility a copy of which is filed as an exhibit to the Exchange Offer
Registration Statement of which this Prospectus is a part. The following is a
description of the general terms of the Senior Credit Facility.
Security. Indebtedness of the Company under the Senior Credit Facility is
guaranteed by each of Kevco's domestic subsidiaries (direct or indirect),
thereafter acquired, and is secured by: (i) a first priority security interest
in substantially all of the assets and properties (including, without
limitation, accounts receivable, inventory, real property, machinery,
equipment, contracts and contract rights, trademarks, copyrights, patents,
license agreements and general intangibles) of the Company and each of its
domestic subsidiaries (direct or indirect) then existing or thereafter
acquired; (ii) a first priority perfected pledge of all capital stock of each
of Kevco's domestic subsidiaries (direct or indirect) then existing or
thereafter acquired (other than SCCAC and Shelter until the merger of SCCAC
with and into Shelter); and (iii) a first priority perfected pledge of 65% of
the capital stock of foreign subsidiaries of Kevco or any of its domestic
subsidiaries.
Interest. Indebtedness under the Senior Credit Facility bears interest at a
floating rate. Indebtedness under the Term Loan Facility and the Revolving
Credit Facility initially bear interest at a rate based (at the Company's
option) upon (i) LIBOR for one, two, three or six months, plus 2.25% with
respect to the Tranche A Term Loan Facility and the Revolving Credit Facility
or plus 2.75% with respect to the Tranche B Term Loan Facility, or (ii) the
Alternate Base Rate (as defined in the Senior Credit Facility) plus 0.75% with
respect to the Tranche A Term Loan Facility and the Revolving Credit Facility
or plus 1.25% with respect to the Tranche B Term Loan Facility; provided,
however, the interest rates are subject to several quarter point reductions in
the event the Company meets certain performance targets.
Maturity. The Tranche B Term Loan Facility will mature on December 31, 2004.
The Tranche A Term Loan Facility and the Revolving Credit Facility will mature
on December 31, 2003. The Term Loan Facility is subject to repayment according
to quarterly amortization of principal based upon a schedule specified in the
Senior Credit Facility.
Prepayments. The Senior Credit Facility provides for mandatory prepayments
of the Term Loan Facility and the Revolving Credit Facility. Prepayments on
the Term Loan Facility will be applied pro rata to reduce scheduled
amortization payments as provided in the Senior Credit Facility. The mandatory
prepayments defined in the Senior Credit Facility include the lesser of (1) an
amount, if any, which would result in the leverage ratio being 3.5 to 1 after
such pre-payment and (2) each of the following as applicable, (a) 100% of the
net cash proceeds received by the Company or any subsidiary from asset sales
(including the capital stock of any subsidiary) in excess of $500,000 each
fiscal year, subject to de minimis baskets, certain exceptions, and
reinvestment provisions and net of selling expenses and taxes to the extent
such taxes are paid; (b) 75% of Excess Cash Flow pursuant to an annual cash
sweep arrangement; (c) 100% of the net cash proceeds from the issuance of debt
(excluding the Notes and certain other debt proceeds) by the Company, or any
subsidiary; and (d) 50% of the net cash proceeds from the sale or disposition
by the Company or any of its subsidiaries to any Person of any capital stock
of the Company (other than proceeds that are concurrently applied to complete
a permitted Acquisition (as defined therein)). In addition, the Company may
prepay the Senior Credit Facility in whole or in part at any time without
penalty, subject to reimbursement of certain costs of the Lenders.
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<PAGE>
Fees. The Company is required to pay to the Lenders in the aggregate a
commitment fee equal to 0.50 per annum on the committed undrawn amount of the
Revolving Credit Facility during the preceding quarter; provided that this fee
may be subject to reduction in the event the Company meets certain performance
targets. The Company also is required to pay to the Lenders participating in
the Revolving Credit Facility letter of credit fees, due quarterly in arrears,
equal to 100% of the applicable margin over LIBOR (being LIBOR for loans under
the Revolving Credit Facility) for standby letters of credit issued under the
Revolving Credit Facility or 50% of the applicable margin over LIBOR (being
LIBOR for loans under the Revolving Credit Facility) for commercial letters of
credit issued under the Revolving Credit Facility, plus a fronting fee payable
to the issuing bank equal to the greater of (a) $250 or (b) the product of
0.125% times the face amount of the letter of credit being issued. Fees to
Lenders participating in letters of credit will be calculated on the aggregate
undrawn portion of each letter of credit for the duration thereof.
Covenants. The Senior Credit Facility requires the Company to meet certain
financial tests, including a minimum fixed charge coverage ratio, maximum
leverage ratio and maintenance of a minimum net worth amount. The Senior
Credit Facility also contains covenants which include, without limitation (i)
delivery of financial statements and other reports; (ii) delivery of
compliance certificates; (iii) notices of default, material litigation and
material governmental and environmental proceedings; (iv) compliance with
laws; (v) payment of taxes; (vi) maintenance of insurance; (vii) limitation on
liens; (viii) limitations on mergers, consolidations and sales of assets; (ix)
limitations on incurrence of debt; (x) limitations on dividends and stock
redemptions and the redemption and/or prepayment of other debt; (xi)
limitations on investments; (xii) ERISA (as defined) matters; (xiii)
limitation on transactions with affiliates; (xiv) limitations on acquisitions;
(xv) limitation on sale and leasebacks; (xvi) limitation on sale or discount
of receivables; and (xvii) limitation on capital expenditures.
Default. The Senior Credit Facility provides for certain customary events of
default, including an event of default upon the occurrence of a change of
control of the Company.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on December 1, 1997 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act. As a condition to the
completion of the Old Notes Offering, the Company entered into the
Registration Rights Agreement with the Initial Purchasers pursuant to which
the Company agreed to use its reasonable best efforts to cause to be filed
with the Commission the Exchange Offer Registration Statement on the
appropriate form under the Securities Act with respect to an offer to exchange
the Old Notes for Exchange Notes. The Exchange Notes will be substantially
identical to the Old Notes, except that the Exchange Notes will bear a Series
B designation and will have been registered under the Securities Act and
therefore will not contain terms with respect to transfer restrictions (other
than those that might be imposed by state securities laws) and will not be
entitled to registration rights or other rights under the Registration Rights
Agreement.
Under existing interpretations of the staff of the Commission, the Exchange
Notes would, in general, be freely tradeable after the Exchange Offer without
further registration under the Securities Act. However, any purchaser of Old
Notes who is an "affiliate" of the Company or intends to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) will not
be able to rely on the interpretations of the staff of the Commission, (ii)
will not be able to tender its Old Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Old Notes,
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Each Holder who wishes to exchange such Old Notes for Exchange Notes in the
Exchange Offer will be required to make certain representations, including
representations that (i) it is not an affiliate of the Company, (ii) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Exchange Notes and (iii) it is acquiring the Exchange Notes in the ordinary
course of its business. In addition, broker-dealers receiving Exchange Notes
in the Exchange Offer will have a prospectus delivery requirement with respect
to resales of Exchange Notes. The Commission has taken the position that such
broker-dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of Old Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement, the
Company is required to allow such broker-dealers to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such Exchange Notes for a period of one year after the Expiration
Date (or such shorter period during which all such resales have occurred).
The Registration Rights Agreement provides that if (i) the Exchange Offer is
not permitted by applicable law or (ii) if any Holder of Old Notes shall
notify the Company within 20 Business Days following the Expiration Date that
(A) such Holder was prohibited by law or Commission policy from participating
in the Exchange Offer or (B) such Holder may not resell the Exchange Notes to
the public without delivering a prospectus and the Prospectus relating to the
Exchange Offer is not appropriate or available for such resales by such Holder
or (C) such Holder is a Broker-Dealer and holds Old Notes acquired directly
from the Company or any of its affiliates, then the Company and the Guarantors
shall: (1) cause to be filed, on or prior to 45 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer is not
permitted by applicable law and (ii) the date on which the Company receives
such notice from a Holder, a Shelf Registration Statement, relating to all Old
Notes, and (2) shall use their respective reasonable best efforts to cause
such Shelf Registration Statement to become effective on or prior to 120 days
after the date on which the obligation of the Company and the Subsidiary
Guarantors to file the Shelf Registration Statement arises.
The Company and the Subsidiary Guarantors shall use their respective
reasonable best efforts to keep any Shelf Registration Statement continuously
effective for a maximum of two years (or such shorter period in which all Old
Notes covered by such Shelf Registration Statement have been sold).
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<PAGE>
If (i) the Company fails to file any of the registration statements required
by the Registration Rights Agreement on or prior to the date specified for
such filing, (ii) any of such registration statements are not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (iii) the Company fails to
consummate the Exchange Offer on or prior to 30 days after the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement (if the
Company is required by the Registration Rights Agreement to complete the
Exchange Offer), or (iv) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or usable during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), then the Company will be required to pay Liquidated
Damages to each Holder affected by such Registration Default on each interest
payment date. Liquidated Damages shall accrue from and after the date of each
Registration Default, and shall continue to accrue thereafter until such
Registration Default has been cured or waived as set forth in the Registration
Rights Agreement, in an amount equal to, with respect to the first 90-day
period immediately following the occurrence of such Registration Default,
$0.05 per week per $1,000 principal amount of Notes held by such Holder. The
amount of the Liquidated Damages will increase by an additional $0.05 per week
per $1,000 principal amount of Notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages, if any, of $0.30 per week per $1,000 principal amount
of such Notes. All accrued Liquidated Damages, if any, will be paid by the
Company on each Damages Payment Date (as defined in the Registration Rights
Agreement) to the Global Note Holder by wire transfer of immediately available
funds or by federal funds check and to Holders of Certificated Securities by
wife transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. At such time as
all Registration Defaults have been cured, the accrual of Liquidated Damages,
if any, will cease.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which is filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, Holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York time, on
the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights generally will terminate when the Exchange
Offer is terminated. The Exchange Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $105,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer
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<PAGE>
for purposes of determining the persons to whom this Prospectus and the Letter
of Transmittal will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters rights under
the Texas Business Corporation Act or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all changes and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time, on ,
1998, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended. Notwithstanding the foregoing, the
Company will not extend the Expiration Date beyond , 1998.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
time, on the next business day after the previously scheduled expiration date.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from the most recent date to which
interest has been paid or duly provided for on the Old Note surrendered in
exchange for such Exchange Note or, if no interest has been paid or duly
provided for on such Old Note, from December 1, 1997. Interest on the Exchange
Notes is payable semi-annually on each June 1 and December 1, commencing on
June 1, 1998.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last date to which interest has been paid or duly provided for on the Old
Notes prior to the original issue date of the Exchange Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived, the right to
receive any interest on such Old Notes accrued from and after the last date to
which interest has been paid or duly provided for on the Old Notes or, if no
such interest has been paid or duly provided for, from and after December 1,
1997.
PROCEDURES FOR TENDERING
For a holder of Old Notes to tender Old Notes validly pursuant to the
Exchange Offer, a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantee, or (in the case
of a book-entry transfer), an Agent's Message in lieu of the Letter of
Transmittal, and any other required documents, must be received by the
Exchange Agent at the address set forth in the Letter of Transmittal prior to
5:00 p.m., New York time, on the Expiration Date. In addition, prior to 5:00
p.m., New York time, on the
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<PAGE>
Expiration Date, either (a) certificates for tendered Old Notes must be
received by the Exchange Agent at such address or (b) such Old Notes must be
transferred pursuant to the procedures for book-entry transfer described below
(and a confirmation of such tender received by the Exchange Agent, including
an Agent's Message if the tendering holder has not delivered a Letter of
Transmittal).
The term "Agent's Message" means a message transmitted by the Depository,
received by the Exchange Agent and forming part of the confirmation of a book-
entry transfer, which states that the Depository has received an express
acknowledgment from the participant in the Depository tendering Old Notes
which are the subject of such book-entry confirmation that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal
and that the Company may enforce such agreement against such participant. In
the case of an Agent's Message relating to guaranteed delivery, the term means
a message transmitted by the Depository and received by the Exchange Agent,
which states that the Depository has received an express acknowledgment from
the participant in the Depository tendering Old Notes that such participant
has received and agrees to be bound by the Notice of Guaranteed Delivery.
By tendering Old Notes pursuant to the procedures set forth above, each
holder will make to the Company the representations set forth above in the
third paragraph under the heading "--Purpose and Effect of the Exchange
Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holdees name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
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The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility, The Depository Trust Company
("DTC", the "Depositary" or the "Book-Entry Transfer Facility"), for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Old Notes by
causing such Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account with respect to the Old Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of the Old Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee, or, in the case of a book-entry transfer, an Agent's Message in
lieu of the Letter of Transmittal and all other required documents must in
each case be transmitted to and received or confirmed by the Exchange Agent at
its address set forth in the Letter of Transmittal on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to the Book-Entry Transfer Facility does not constitute delivery
to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange
Offer by causing DTC to transfer Old Notes to the Exchange Agent in accordance
with DTC's ATOP procedures for transfer. DTC will then send an Agent's Message
to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cure or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
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(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificates representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent upon five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth in the Letter of Transmittal prior to
5:00 p.m., New York time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number(s) and principal amount of such
Old Notes, or, in the case of Old Notes transferred by book-entry transfer,
the name and number of the account at the Book-Entry Transfer Facility to be
credited), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including, any required signature guarantees) or be accompanied by documents
of transfer sufficient to have the Trustee with respect to the Old Notes
register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Old Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn
are validly retendered. Any Old Notes that have been tendered but that are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"Procedures for Tendering" at any time prior to the Expiration Date.
EXCHANGE AGENT
United States Trust Company of New York, N.A. (the "Exchange Agent") has
been appointed as Exchange Agent for the Exchange Offer. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notice of Guaranteed Delivery
should be directed to the Exchange Agent at the address indicated in the
Letter of Transmittal. Delivery to an address other than as set forth in the
Letter of Transmittal will not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
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The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records
on the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, (iii) pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel, if the Company so requests), (iv) outside the
United States to a foreign person in a transaction meeting the requirements of
Rule 904 under the Securities Act, or (v) pursuant to an effective
registration statement under the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties
(for example, the letters of the commission to (i) Exxon Capital Holdings
Corporation, available May 13, 1988, (ii) Morgan Stanley & Co., Inc. available
June 5, 1991 and (iii) Shearman & Sterling, available July 2, 1993), the
Company believes that a holder or other person (other than a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange Notes
in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes and (iii) it is acquiring
the Exchange Notes in its ordinary course of business. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it acquired the Old Notes for its own account as the
result of market-making activities or other trading activities and must agree
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by
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delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Company believes
that Participating Broker-Dealers who acquired Old Notes for their own
accounts as a result of market-making activities or other trading activities
may fulfill their prospectus delivery requirements with respect to the
Exchange Notes received upon exchange of such Old Notes (other than Old Notes
which represent an unsold allotment from the original sale of the Old Notes)
with a prospectus meeting the requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so long as it contains a
description of the plan of distribution with respect to the resale of such
Exchange Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired by
such Participating Broker-Dealer for its own account as a result of market-
making or such other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of such
Exchange Notes for a period ending 180 days after the date on which the
Exchange Offer Registration Statement is declared effective. However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of Exchange Notes received in exchange for Old Notes pursuant
to the Exchange Offer must notify the Company, or cause the Company to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one
of the addresses set forth in the Letter of Transmittal. See "Plan of
Distribution." Any Participating Broker-Dealer who is an "affiliate" of the
Company may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
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DESCRIPTION OF THE NOTES
GENERAL
The Old Notes have been, and the Exchange Notes will be, issued pursuant to
the Indenture between the Company, the Subsidiary Guarantors and United States
Trust Company of New York, as trustee (the "Trustee"). The terms of the Notes
include those stated in the Indenture and those made a part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), as in effect on the Issue Date. The Notes are subject to all
such terms, and the Holders of the Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified
in its entirety by reference to the Indenture, including the definitions
therein of certain terms used below. A copy of the Indenture is filed as an
exhibit to the Exchange Offer Registration Statement of which this Prospectus
is a part. The definitions of certain terms used in the following summary are
set forth below under the caption "--Certain Definitions." As used in this
"Description of the Notes" section, the "Company" means Kevco, Inc. and not
any of its Subsidiaries.
The Company's obligations under the Indenture and the Notes are guaranteed
on a senior subordinated basis by all of the Company's existing Restricted
Subsidiaries and, pursuant to the terms of the Indenture, will be jointly and
severally guaranteed by all future Subsidiaries of the Company not designated
as Unrestricted Subsidiaries as described under the caption "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries." See "--
Subsidiary Guarantees." As of the Issue Date, all of the Company's
Subsidiaries were Restricted Subsidiaries. Under certain circumstances, the
Company will be able to designate one or more of its existing or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture.
The Notes are limited to $105.0 million in aggregate principal amount. The
Notes will mature on December 1, 2007. The Notes will bear interest at the
rate set forth on the front cover of this Prospectus. Interest on the Notes is
payable semi-annually in cash in arrears on June 1 and December 1 in each
year, commencing June 1, 1998, to Holders of record of Notes at the close of
business on the May 15 or November 15 immediately preceding such interest
payment date. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the Issue
Date. Interest will be computed on the basis of a 360-day year of twelve 30-
day months. The Old Notes have been, and the Exchange Notes will be, issued in
denominations of $1,000 and integral multiples thereof.
Principal of, premium, if any, interest and Liquidated Damages, if any, on
the Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office of the Paying Agent and Registrar in New
York, New York. Holders of Notes must surrender their Notes to the Paying
Agent to collect principal payments, and the Company may pay principal and
interest by check and may mail checks to a Holder's registered address;
provided that all payments with respect to Notes, the Holders of which have
given wire transfer instructions to the Company, will be required to be made
by wire transfer of immediately available funds to the accounts specified by
the Holders thereof. The Registrar may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
with certain transfers or exchanges. See "--Transfer and Exchange." The
Trustee will initially act as Paying Agent and Registrar. The Company may
change the Paying Agent or Registrar without prior notice to Holders of Notes,
and the Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
SUBORDINATION
The payment of principal of and premium, if any, interest and Liquidated
Damages, if any, on the Notes will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full in cash or Cash
Equivalents of all Senior Indebtedness, whether outstanding on the date of the
Indenture or thereafter incurred. The Indenture permits the incurrence of
additional Senior Indebtedness in the future, subject to provisions of the
covenant described below under the caption "--Certain Covenants--Limitation on
Incurrence of Indebtedness."
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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 and payments made from the trust described under the caption
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment of principal of, premium, if any,
interest or Liquidated Damages, if any, on the Notes (except in Junior
Securities or from the trust described under the caption "--Legal Defeasance
and Covenant Defeasance") 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 Trustee receives 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, 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 Trustee, unless the
maturity of any Designated Senior Indebtedness has been accelerated. No new
period of payment blockage may be commenced unless and until (i) 360 days have
elapsed since the date of receipt by the Trustee of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal of,
premium, if any, interest and Liquidated Damages, if any, 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
Trustee 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 Trustee 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).
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company, Holders of Notes may recover less ratably than creditors of the
Company and the Subsidiary Guarantors who are holders of Senior Indebtedness.
On a pro forma basis, after giving effect to the Transactions, the aggregate
principal amount of Senior Indebtedness of the Company on a consolidated basis
outstanding at September 30, 1997 was approximately $98.1 million and, subject
to compliance with certain financial ratios, the Company would have had unused
availability under the Senior Credit Facility of $31.8 million. The Indenture
and the Senior Credit Facility will limit, subject to certain financial tests,
the amount of additional Indebtedness, including Senior Indebtedness, that the
Company and its Restricted Subsidiaries can Incur. See "--Certain Covenants--
Limitation on Incurrence of Indebtedness."
SUBSIDIARY GUARANTEES
The Company's obligations under the Indenture and the Notes are jointly and
severally guaranteed on a senior subordinated basis by all of the Company's
existing Restricted Subsidiaries and all future Subsidiaries (other than
Unrestricted Subsidiaries) of the Company in accordance with the covenant
described below under
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the caption "--Certain Covenants--Future Subsidiary Guarantors" (each such
guaranteeing Subsidiary a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors"). Each Subsidiary Guarantee will be subordinated to
the prior payment in full in cash or Cash Equivalents of all Senior
Indebtedness of each Subsidiary Guarantor (including such Subsidiary
Guarantor's Obligations under the Senior Credit Facility) to the same extent
that the Notes are subordinated to Senior Indebtedness of the Company. The
obligations of any Subsidiary Guarantor under its Subsidiary Guarantee will be
limited so as not to constitute a fraudulent conveyance under applicable law.
The Indenture provides that, subject to the provisions described in the next
succeeding paragraph, no Subsidiary Guarantor may consolidate or merge with or
into (whether or not such Subsidiary Guarantor is the surviving Person), 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 Person formed by or surviving
any such consolidation or merger (if other than such Subsidiary Guarantor) or
the Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee, in form satisfactory to
the Trustee; (ii) immediately after such transaction, no Default or Event of
Default exists; (iii) the Company and its Restricted Subsidiaries would, at
the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable Reference
Period, be permitted to Incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio test set forth in the first paragraph of
the covenant described under the caption "--Certain Covenants--Limitation on
Incurrence of Indebtedness"; (iv) if required by the Trust Indenture Act, the
Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel; and (v) such Subsidiary Guarantor (if such Subsidiary
Guarantor is the surviving Person) shall have delivered a written instrument
in form satisfactory to the Trustee confirming its Subsidiary Guarantee after
giving effect to such consolidation, merger or transfer. Notwithstanding the
foregoing, any Subsidiary Guarantor may merge into, consolidate with or
transfer all or part of its properties or assets to the Company or one or more
Subsidiary Guarantors or one or more Subsidiaries which become Subsidiary
Guarantors concurrently therewith.
The Indenture provides that 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 Restricted 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 provisions of the
Indenture described under the caption "--Certain Covenants--Limitation on Sale
of Assets and Restricted Subsidiary Stock," (ii) no Default or Event of
Default exists or would exist under the Indenture after giving effect to such
transaction, (iii) all obligations of such Subsidiary Guarantor under any
other Indebtedness of the Company or any of its Restricted Subsidiaries shall
have been terminated (including, without limitation, all Guarantees of any
such Indebtedness), (iv) all Liens on assets of such Subsidiary Guarantor that
secure any other Indebtedness of the Company or any of its Restricted
Subsidiaries shall have been terminated, and (v) all obligations of the
Company and its Restricted 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.
OPTIONAL REDEMPTION
The Company does not have the right to redeem any Notes prior to December 1,
2002 (other than out of the Net Proceeds of a Public Equity Offering as
described in the next paragraph). The Notes are redeemable for cash at the
option of the Company, in whole or in part, at any time on or after December
1, 2002, upon not less than
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30 days nor more than 60 days notice to each Holder of Notes, at the following
redemption prices (expressed as percentages of the principal amount of the
Notes) if redeemed during the 12-month period commencing December 1, of the
years indicated below (subject to the right of Holders of record on a Record
Date to receive interest due on an Interest Payment Date that is on or prior
to such Redemption Date), in each case together with accrued and unpaid
interest and Liquidated Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................. 105.188%
2003.............................. 103.458%
2004.............................. 101.729%
2005 and thereafter............... 100.000%
</TABLE>
Until December 1, 2000, if the Company consummates a Public Equity Offering
of Common Stock for cash, up to 35% of the aggregate principal amount of the
Notes originally outstanding may be redeemed at the option of the Company
within 90 days of such Public Equity Offering, upon not less than 30 days nor
more than 60 days notice to each Holder of the Notes to be redeemed, using the
Net Proceeds of such Public Equity Offering, at a redemption price equal to
110.375% of the principal amount of the Notes (subject to the right of Holders
of record on a Record Date to receive interest due on an Interest Payment Date
that is on or prior to such Redemption Date), together with accrued and unpaid
interest and Liquidated Damages, if any, thereon to the Redemption Date;
provided, however, that at least 65% of the aggregate principal amount of the
Notes originally outstanding remain outstanding immediately following such
redemption.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the Holder
of each Note to be redeemed to such Holder's last address as then shown upon
the registry books of the Registrar. Any notice which relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after
the Redemption Date, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless the Company defaults in the payment
thereof.
MANDATORY REDEMPTION
Except as set forth below under the captions "--Escrow of Proceeds; Special
Redemption," "--Certain Covenants--Repurchase of Notes at the Option of the
Holder Upon a Change of Control" and "--Certain Covenants--Limitation on Sale
of Assets and Restricted Subsidiary Stock," the Company is not required to
make any mandatory redemption, repurchase or sinking fund payments with
respect to the Notes.
CERTAIN COVENANTS
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
each Holder of Notes shall have the right, pursuant to an irrevocable and
unconditional offer by the Company (the "Change of Control Offer"), to require
the Company to repurchase all or any part of such Holder's Notes (provided,
that the principal amount of such Notes must be $1,000 or an integral multiple
thereof) on a date (the "Change of Control Purchase Date") that is no later
than 45 Business Days after the occurrence of such Change of Control, at a
cash price equal to 101% of the principal amount thereof (the "Change of
Control Purchase Price"), together with accrued and unpaid interest and
Liquidated Damages, if any, to the Change of Control Purchase Date. The Change
of Control
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Offer shall be made within 20 Business Days following a Change of Control and
shall remain open for 20 Business Days following its commencement (the "Change
of Control Offer Period"). Upon expiration of the Change of Control Offer
Period, the Company promptly shall purchase all Notes properly tendered in
response to the Change of Control Offer.
The Senior Credit Facility prohibits the Company from purchasing any Notes
and also provides that certain change of control events with respect to the
Company will constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Indebtedness to which the Company becomes
a party may contain similar restrictions and provisions. The Indenture
provides that in the event a Change of Control occurs at a time when the
Company is prohibited from purchasing Notes, then prior to purchasing the
Notes in a Change of Control Offer, the Company shall either repay in full and
terminate all commitments under all Senior Indebtedness that contains such
prohibitions or obtain the requisite consents, if any, under all agreements
governing such Senior Indebtedness. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing Notes. In such case, the Company's failure to purchase all Notes
validly tendered and not withdrawn under such Change of Control would
constitute an Event of Default under the Indenture which may, in turn,
constitute a default under the Senior Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments
to the Holders of Notes. See "Risk Factors--Inability to Purchase Notes Upon a
Change of Control."
As used herein, a "Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger of consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act), except to the Existing Majority Stockholder,
(ii) the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Existing Majority Stockholder,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Voting Stock of the Company (measured by voting power
rather than number of shares) or (iv) during any period of 24 consecutive
months after the Issue Date, individuals who at the beginning of any such 24-
month period constituted the Board of Directors of the Company (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
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 Board of Directors of the Company then in office.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof being purchased by the
Company. The Paying Agent promptly will pay the Holders of Notes so accepted
an amount equal to the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any), and the Trustee promptly
will authenticate and deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted will be delivered promptly by the Company to the Holder thereof. The
Company publicly will announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Purchase Date.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company
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has occurred. In addition, the Company's ability to pay the Change of Control
Purchase Price is, and may in the future be, limited by the terms of the
Senior Credit Facility or other agreements relating to Indebtedness that
constitute Senior Indebtedness. The occurrence of certain of the events that
would constitute a Change of Control would also constitute a default under the
Senior Credit Facility. Moreover, the exercise by the Holders of their right
to require the Company to repurchase the Notes could cause a default under
Indebtedness constituting Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the
Company. Also, the Company's ability to pay cash to Holders of Notes upon a
Change of Control may be limited by the Company's then existing financial
resources. No assurances can be given that the Company will be able to acquire
Notes tendered upon the occurrence of a Change of Control.
The Company will 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 Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
LIMITATION ON INCURRENCE OF INDEBTEDNESS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except for Permitted Indebtedness;
provided, however, that the Company and its Restricted 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 2.25 to 1 if such date is on or
prior to the date which is the second anniversary of the Issue Date, or 2.50
to 1 for any date thereafter (the "Debt Incurrence Ratio").
"Permitted Indebtedness" means any and all of the following:
(i) (A) Indebtedness of the Company and its Restricted Subsidiaries
pursuant to the Senior Credit Facility (including all Guarantees thereof)
up to an amount at any time Incurred equal to the greater of (1) $35
million, less the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently repay any such Indebtedness or, in the case of any
such revolving Indebtedness, permanently reduce the commitments therefor
pursuant to the covenant under the caption "--Certain Covenants--Limitation
on Sale of Assets and Restricted Subsidiary Stock" and (2) 75% of Eligible
Receivables and (B) Indebtedness of the Company and its Restricted
Subsidiaries pursuant to the Senior Credit Facility (including all
Guarantees thereof) in an aggregate amount not to exceed $90 million
(which, in the event that and for so long as less than 100% but more than
50% (on a fully diluted basis) of the Shelter Common Stock is acquired in
the Tender Offer, shall be reduced by an amount equal to the cash
consideration necessary to purchase the amount of Shelter Common Stock not
so acquired until such Shelter Common Stock is so acquired or until the
merger is consummated with Kevco owning 100% of Shelter), less the
aggregate amount of all repayments thereof;
(ii) Indebtedness represented by the Notes, the Indenture and the
Subsidiary Guarantees;
(iii) intercompany Indebtedness between or among the Company and any of
its Restricted 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
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subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a
Restricted 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
Restricted Subsidiary of the Company, shall be deemed to constitute a new
Incurrence of such Indebtedness by the Company or such Restricted
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 the Indenture, (B) Indebtedness
referred to in clauses (i) or (ii) of the definition of the term "Permitted
Indebtedness," or (C) Existing Indebtedness (other than Existing
Indebtedness, if any, related to the Indebtedness refinanced by the Senior
Credit Facility);
(v) Indebtedness of a Restricted Subsidiary of the Company constituting a
Guarantee of Indebtedness of the Company or a Restricted Subsidiary which
Indebtedness was Incurred pursuant to this definition or the Debt
Incurrence Ratio test set forth in the first paragraph of the covenant
described under the caption "--Certain Covenants--Limitation on Incurrence
of Indebtedness;"
(vi) the Incurrence by the Company or any Restricted Subsidiary 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 the Indenture 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;
(vii) the Incurrence by the Company or any Restricted Subsidiary, if no
Default or Event of Default shall have occurred and be continuing, of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount at any time outstanding
not to exceed $25 million (which amount may, but need not, be incurred
under the Senior Credit Facility); and
(viii) Existing Indebtedness.
Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary of the Company (including upon designation of
any Unrestricted Subsidiary or other Person as a Restricted Subsidiary) or is
merged with or into or consolidated with the Company or a Restricted
Subsidiary of the Company shall be deemed to have been Incurred at the time
such Person becomes such a Restricted Subsidiary of the Company or is merged
with or into or consolidated with the Company or a Restricted Subsidiary, as
applicable.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Restricted 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 Restricted 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 Wholly Owned Restricted 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 any Restricted Subsidiary of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (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 (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 an Asset Sale Offer required
under the caption "--Certain Covenants--Limitation on Sale of Assets
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and Restricted Subsidiary Stock" 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 the Change of Control Offer 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:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) 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 the first paragraph of the covenant
described under the caption "--Certain Covenants--Limitation on Incurrence
Indebtedness"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made by the Company and its
Restricted 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, plus (4) the amount equal
to the net reduction in Restricted Investments made after the Issue Date
resulting from a sale or liquidation of a Restricted Investment for cash,
to the extent such amount is not included in the Consolidated Net Income of
the Company, not to exceed the lesser of (A) the Net Proceeds from such
sale or liquidation to the extent received by the Company or any Restricted
Subsidiary, and (B) the initial amount of such Restricted Investment, plus
(5) in the event an Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary, an amount equal to the net reduction in Restricted Investments
made in Unrestricted Subsidiaries, not to exceed the lesser of (A) the Fair
Market Value of such Unrestricted Subsidiary, and (B) the amount of
Restricted Investments which were made in such Unrestricted Subsidiary.
The foregoing provisions do not prohibit the following Restricted Payments:
(i) the payment of any dividend or other distribution within 60 days after the
date of declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture; (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); 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 (c) of the preceding paragraph (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); 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
(c) of the preceding paragraph (both for purposes of determining the aggregate
amount of Restricted Payments made and for purposes of determining the
aggregate amount of
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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 Restricted 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) 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 million. Except to the extent specifically noted above,
Restricted Payments made pursuant to this paragraph shall be included in
calculating the amount of Restricted Payments made after the Issue Date.
The amount of all Restricted Payments not made in cash shall be the Fair
Market Value (which, if it exceeds $1 million, shall be determined by, and set
forth in, a resolution of the Board of Directors of the Company and described
in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or any Restricted Subsidiary, 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 Trustee an Officers' Certificate stating that such
Restricted Payments were permitted and setting forth the basis upon which the
calculations required by the covenant described under the caption "--Certain
Covenants-- Limitation on Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted 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 Restricted Subsidiary to (i)
(a) pay dividends or make any other distributions to the Company or any of its
Restricted 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 Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries,
(iii) transfer any of its properties to the Company or any of its Restricted
Subsidiaries, (iv) grant any Liens in favor of the Holders of the Notes and
the Trustee 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 by the Company or any of its Restricted 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 the Indenture 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 Restricted Subsidiary, 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.
LIMITATIONS ON LAYERING INDEBTEDNESS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
(other than the Notes) that is subordinate in right of payment to
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any other Indebtedness of the Company or a Restricted Subsidiary unless, by
its terms, such Indebtedness is subordinate in right of payment to, or ranks
pari passu with, the Notes or the Subsidiary Guarantees, as applicable.
LIMITATION ON LIENS
The Indenture provides that the Company will not, and will not permit any of
its Restricted 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 Restricted Subsidiary, a Subsidiary Guarantee of such
Restricted Subsidiary) are equally and ratably secured.
LIMITATION ON SALE OF ASSETS AND RESTRICTED SUBSIDIARY STOCK
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in an Asset Sale, unless (i) the
Company or such Restricted 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 million, shall be determined by, and set forth
in, a resolution of the Board of Directors of the Company and described in an
Officers' Certificate of the Company delivered to the Trustee) 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 Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided, that the 75% limitation referred to above shall not
apply to any Asset Sale in which the cash portion of the consideration
received therefor, determined in accordance with the following sentence, is
equal to or greater than what the after-tax net proceeds would have been had
such transaction complied with the aforementioned 75% limitation. For purposes
of this covenant (and not for purposes of any other provision of the
Indenture), the term "cash" shall be deemed to include (a) any notes or other
obligations received by the Company or such Restricted Subsidiary as
consideration as part of such Asset Sale that are immediately converted by the
Company or such Restricted 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 Restricted Subsidiary (as shown on the most
recent balance sheet of the Company or such Restricted Subsidiary) 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).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply, directly or indirectly, such Net Proceeds (a) to repay
permanently Senior Indebtedness of the Company or Senior Indebtedness of the
Restricted Subsidiaries, or (b) to the making of a capital expenditure or the
acquisition of other long-term assets, in each case, in a Related Business.
Pending the final application of any such Net Proceeds, the Company or the
Restricted 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 the Indenture. 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 million,
the Company shall make an offer to all Holders of Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase, in
accordance with the procedures set forth in the Indenture. If the aggregate
principal amount of Notes tendered by Holders thereof is less than the amount
of
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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.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise
dispose of any Capital Stock of any Restricted Subsidiary to any Person (other
than the Company or a Wholly Owned Restricted Subsidiary of the Company),
unless (i) such transfer, conveyance, sale, lease or other disposition is of
all of the Capital Stock of such Restricted Subsidiary owned by the Company
and its Restricted Subsidiaries or is otherwise permitted under the covenant
described under the caption "--Certain Covenants--Limitations on Issuance,
Sale and Ownership of Capital Stock of Restricted Subsidiaries" and (ii) such
transaction is conducted in accordance with the covenant described in the
preceding two paragraphs.
The Company will 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 Notes using Excess Proceeds.
LIMITATION ON ISSUANCE, SALE AND OWNERSHIP OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to (i) sell, assign, transfer, convey or otherwise
dispose of, any Equity Interests of any Restricted Subsidiary, other than to
the Company or a Wholly Owned Restricted Subsidiary, (ii) permit any
Restricted Subsidiary to issue any Equity Interests (including, without
limitation, pursuant to any merger, consolidation, recapitalization or similar
transaction) other than to the Company or a Wholly Owned Restricted Subsidiary
or (iii) permit any Person other than the Company or a Wholly Owned Restricted
Subsidiary to own any Equity Interests of any Restricted Subsidiary, except
that (A) the Company or a Restricted Subsidiary may consummate a sale to a
Person of all of the Equity Interests of a Restricted Subsidiary if such sale
is made by the Company or a Restricted Subsidiary in compliance with the
covenant described under the caption "--Certain Covenants--Limitation on Sale
of Assets and Restricted Subsidiary Stock," (B) the Company may issue, and
permit the subsequent ownership by directors of, directors' qualifying shares,
(C) in the event that the Company acquires less than 100% (on a fully diluted
basis) of the Shelter Shares, the remaining Shelter Shares may be owned by
other Persons until such shares are acquired by the Company or a Wholly Owned
Restricted Subsidiary of the Company or until the merger of Shelter with the
Company or a Wholly Owned Restricted Subsidiary of the Company is consummated,
and (D) the Company may permit the Persons (other than the Company and its
Restricted Subsidiaries) who own Equity Interests in Encore Industries, Inc.
to continue to own the number of shares of such Equity Interests owned by such
other Persons as of the Issue Date.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate of the Company (other than the Company or a Restricted
Subsidiary), in one transaction or a series of transactions (each of the
foregoing an "Affiliate Transaction"), unless (i) such Affiliate Transaction
is on terms that are no less favorable to the Company or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions after the Issue Date involving aggregate consideration
in excess of $1 million, a resolution described in an Officers' Certificate,
certifying that such Affiliate Transaction complies with clause (i) above and
such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors of the Company and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions after the Issue Date involving aggregate consideration in excess
of $5 million, an opinion as to the fairness to the Company of such Affiliate
Transaction from a financial point of view issued by an independent nationally
recognized investment banking firm or appraisal firm experienced in the
appraisal or
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similar review of similar types of transactions; provided that the following
types of transactions shall not constitute Affiliate Transactions: (1) any
transaction with an officer or director of the Company or any Restricted
Subsidiary in connection with such individual's compensation (including
directors' fees), employee benefits, severance arrangements or indemnification
(to the extent consistent with applicable law and the charter and bylaws of
the Company or such Restricted Subsidiary), in each case entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business, (2) transactions between or among the Company and Restricted
Subsidiaries, (3) Restricted Payments that are permitted by the provisions of
the covenant described under the caption "--Certain Covenants--Limitation on
Restricted Payments"; (4) sales of Capital Stock of the Company made at
prevailing market rates; (5) transactions or agreements existing as of the
Issue Date, including those described under the caption "Management
Compensation--Compensation Committee Interlocks and Insider Participation" and
"Management Compensation--Certain Transactions"; and (6) loans to officers,
directors and employees of the Company and Restricted Subsidiaries made in the
ordinary course of business and in furtherance of the Company's business in an
aggregate amount not to exceed $1 million at any one time outstanding.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company and any Restricted Subsidiary may enter into a sale
and leaseback transaction if (a) the Company or such Restricted Subsidiary
could have (i) Incurred Indebtedness in an amount equal to the Attributable
Debt relating to such sale and leaseback transaction pursuant to the Debt
Incurrence Ratio test set forth in the first paragraph of the covenant
described under the caption "--Certain Covenants--Limitation on Incurrence of
Indebtedness" and (ii) incurred a Lien to secure such Indebtedness pursuant to
the covenant described under the caption "--Certain Covenants--Limitation on
Liens," (b) the gross cash proceeds of such sale and leaseback transaction are
at least equal to the Fair Market Value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (c) the transfer of assets in such sale and leaseback
transaction is permitted by, and the proceeds of such sale and leaseback
transaction are applied in compliance with, the covenant described under the
caption "--Certain Covenants--Limitation on Sales of Assets and Restricted
Subsidiary Stock."
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving entity), 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 entity, or the Person formed
by or surviving any such consolidation or merger (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 consolidation or merger (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 the Indenture pursuant
to a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after giving effect to such transaction, no Default or Event
of Default exists or would exist; (iv) except in the case of a merger of the
Company with or into a Wholly Owned Restricted Subsidiary of the Company, the
Company or the Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) will (treating
any Indebtedness not previously an obligation of the Company or any of its
Restricted Subsidiaries as a result of such transaction as having been
Incurred at the time of such transaction) have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated
Net Worth of the Company immediately preceding the transaction and (B) will,
at the time of such transaction and after giving pro forma effect thereto as
if such transaction had occurred at the beginning of the applicable Reference
Period, be
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permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio test set forth in the first paragraph of the covenant
described under the caption "--Certain Covenants--Limitation on Incurrence of
Indebtedness"; and (v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. For purposes of the foregoing, the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one
or more of the Restricted Subsidiaries of the Company, the Capital Stock of
which constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company. For restrictions on mergers,
consolidations and disposition of assets involving Restricted Subsidiaries,
see provisions under the caption "--Subsidiary Guarantees."
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if (i) such designation would not
cause a Default or Event of Default, (ii) at the time of and after giving
effect to such designation, the Company could incur $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio test set forth in the first
paragraph of the covenant under the caption "--Certain Covenants-- Limitation
on Incurrence of Indebtedness," and (iii) each of the other requirements of
the definition of the term "Unrestricted Subsidiary" are satisfied. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under clause (c) of the first paragraph of the covenant
under the caption "--Certain Covenants--Limitation on Restricted Payments."
All such outstanding Investments will be deemed to constitute Restricted
Payments in an amount equal to the greater of (i) the net book value of such
Investments at the time of such designation and (ii) the Fair Market Value of
such Investments at the time of such designation. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. Upon being so designated as an Unrestricted Subsidiary, any
Subsidiary Guarantee that was previously executed by such Unrestricted
Subsidiary shall be deemed terminated.
LIMITATION ON LINES OF BUSINESS
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries shall directly or indirectly engage in any line or lines of
business activity other than a Related Business.
PAYMENTS FOR CONSENT
The Indenture provides that the Company will not and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, pay or cause to be
paid any consideration, whether by way of interest, fee or otherwise, to any
Holder of any Notes for or as an inducement or any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes or
the Subsidiary Guarantees, unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
FUTURE SUBSIDIARY GUARANTORS
The Indenture provides that all Subsidiaries (other than Unrestricted
Subsidiaries) will, jointly and severally, Guarantee irrevocably and
unconditionally the payment of all principal of, premium, if any, interest and
Liquidated Damages on the Notes on a senior subordinated basis, and requires
the Company to cause any Person that becomes a Subsidiary (other than an
Unrestricted Subsidiary), including any Subsidiary that was previously an
Unrestricted Subsidiary and which becomes a Restricted Subsidiary, after the
Issue Date to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee the payment of
principal of, premium, if any, interest and Liquidated Damages on the Notes.
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LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits the Company and its Restricted Subsidiaries from
being required to register as an "investment company" (as that term is defined
in the Investment Company Act of 1940, as amended), or from otherwise becoming
subject to regulation under the Investment Company Act.
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and, to each Holder and to prospective purchasers
of Notes identified to the Company by an Initial Purchaser, within 15 days
after it is or would have been (if it were subject to such reporting
obligations) required to file such with the Commission, annual and quarterly
financial statements substantially equivalent to financial statements that
would have been included in reports filed with the Commission, if the Company
were subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required
in such reports to the Commission, and, in each case, together with a
management's discussion and analysis of financial condition and results of
operations which would be so required and, unless the Commission will not
accept such reports, file with the Commission the annual, quarterly and other
reports which it is or (if it were subject to such reporting obligations),
would have been required to file with the Commission.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
the subordination provisions of the Indenture), (ii) default in payment when
due of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture), (iii) failure by
the Company to comply with the provisions described under the captions "--
Certain Covenants--Repurchase of Notes at the Option of the Holder Upon a
Change of Control," "--Certain Covenants--Limitation on Sales of Assets and
Restricted Subsidiary Stock," or "--Certain Covenants--Limitation on Merger,
Sale or Consolidation," (iv) failure by the Company for 30 days after written
notice from the Trustee or Holders of 25% in principal amount of the then
outstanding Notes to comply with any other covenant or agreement (except as
provided in clause (i), (ii) and (iii) above) in the Indenture or the Notes,
(v) except as permitted by the Indenture, 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, (vi) 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 Restricted Subsidiaries (or the payment of which is Guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness or
Guarantee now exists, or is created after the Issue Date, which default (a) is
caused by a failure to pay principal when due at final stated maturity (a
"Payment Default"), or (b) 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 or the maturity of
which has been so accelerated, aggregates $10 million or more, (vii) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $10 million, which judgments are not paid, discharged
or stayed for a period of 60 days and are not covered by insurance and (viii)
certain events of bankruptcy, insolvency or reorganization in respect of the
Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing (other than an Event of
Default specified in clause (viii) above), then either the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes by
notice in writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice") may declare all outstanding Notes to be due and
payable, and the same (i) shall become immediately due and payable,
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or (ii) 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 representative 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. Notwithstanding the
foregoing, in the case of an Event of Default specified in clause (viii)
above, all outstanding Notes will be immediately due and payable without
declaration or other action or notice on the part of the Trustee or the
Holders of the Notes. Holders of the Notes may not enforce the Indenture or
the Notes, except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. 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 clause (vi) of the preceding paragraph, the
declaration of acceleration of the Notes shall be automatically annulled if
the holders of any Indebtedness described in clause (vi) have rescinded the
declaration of acceleration in respect of such Indebtedness within 30 days of
the date of such declaration and the Trustee has 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, premium, if any, or interest or Liquidated Damages on the Notes
that became due solely because of the acceleration of the Notes, have been
cured or waived. The Trustee may withhold from the Holders of the Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
December 1, 2002, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to December 1, 2002, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, interest or Liquidated Damages,
if any, on such Notes which may only be waived with the consent of each Holder
of the Notes affected.
Upon any payment or distribution of assets of the Company and its
Subsidiaries in a total or partial liquidation, dissolution, reorganization or
similar proceeding, including a Default under clause (viii) above, there may
not be sufficient assets remaining to satisfy the claims of any Holders of
Notes given the contractual subordination of the Notes and the Subsidiary
Guarantees to Senior Indebtedness of the Company and the Restricted
Subsidiaries, respectively. See "Risk Factors--Subordination."
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations and the obligations of the Subsidiary Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented, and the Indenture shall cease
to be of further effect as to all outstanding Notes and Subsidiary Guarantees,
except as to (i) rights of Holders to receive payments in respect of the
principal
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of, premium, if any, interest and Liquidated Damages on such Notes when such
payments are due from the trust funds; (ii) the Company's obligations with
respect to such Notes concerning issuing temporary Notes, registration of
Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an
office or agency for payment and money for security payments held in trust;
(iii) the rights, powers, trust, duties, and immunities of the Trustee, and
the Company's obligations in connection therewith; and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and the
Subsidiary Guarantors released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, guarantees, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, U.S. legal tender, Government Securities or a
combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date
for payment thereof or on the redemption date of such principal or installment
of principal of, premium, if any, or interest on such Notes, and the Holders
of Notes must have a valid, perfected, exclusive security interest in such
trust; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by the Internal Revenue Service, a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to such Trustee confirming
that the Holders of such Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or
constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders
of such Notes over any other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding any other creditors of the
Company or others; and (vii) the Company shall have delivered to the Trustee
an Officers' Certificate and an opinion of counsel, each stating that the
conditions precedent provided for in, in the case of the officers'
certificate, (i) through (vi) and, in the case of the opinion of counsel,
clauses (i) (with respect to the validity and perfection of the security
interest), (ii), (iii) and (v) of this paragraph have been complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
interest and Liquidated Damages on the Notes when due, then the obligations of
the Company and the Subsidiary Guarantors under the Indenture will be revived
and no such defeasance will be deemed to have occurred.
TRANSFER AND EXCHANGE
Holders of Notes may transfer or exchange their Notes in accordance with the
Indenture, but the Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents, and to
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pay any taxes and fees required by law or permitted by the Indenture, in
connection with any such transfer or exchange. Neither the Company nor the
Registrar is required to issue, register the transfer of, or exchange (i) any
Note selected for redemption or tendered pursuant to an Offer, or (ii) any
Note during the period between (a) the date the Trustee receives notice of a
redemption from the Company and the date the Notes to be redeemed are selected
by the Trustee or (b) a record date and the next succeeding interest payment
date. The registered Holder of a Note will be treated as its owner for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Notes then outstanding under such Indenture, and any existing Default or
Event of Default (other than a payment default) or compliance with any
provision may be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding under the Indenture. Without
the consent of any Holder of Notes, the Company, the Subsidiary Guarantors and
the Trustee may amend or supplement the Indenture or the Notes to, among other
things, cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption by a successor corporation of the Company's
obligations to the Holders of Notes in accordance with the covenant described
under the caption "--Certain Covenants--Limitation on Merger, Sale or
Consolidation," to add further Subsidiary Guarantees with respect to the
Notes, to release Subsidiary Guarantors when permitted by the Indenture, to
secure the Notes, to add to the covenants of the Company and any Restricted
Subsidiary of the Company for the benefit of the Holders of the Notes or to
surrender any right or power conferred upon the Company or any Restricted
Subsidiary of the Company, to comply with the Trust Indenture Act, or to make
any change that does not materially adversely affect the legal rights of any
Holder of Notes.
Without the consent of each Holder of Notes affected, the Company may not
(i) reduce the principal amount of Notes whose Holders must consent to an
amendment to the Indenture or a waiver under the Indenture; (ii) reduce the
rate of or change the interest payment time of the Notes, or alter the
provisions with respect to the redemption of the Notes (other than the
provisions relating to the covenants described above under the captions "--
Certain Covenants--Repurchase of Notes at the Option of the Holder Upon a
Change of Control" and "--Certain Covenants--Limitation on Sales of Assets and
Restricted Subsidiary Stock"); (iii) reduce the principal of or change the
fixed maturity of the Notes; (iv) make the Notes payable in money other than
as stated in the Notes; (v) make any change in the provisions concerning
waiver of Defaults or Events of Default by Holders of the Notes, or rights of
Holders of the Notes to receive payment of principal or interest; (vi) waive
any Default or Event of Default in the payment of principal of, premium, if
any, or unpaid interest on, and Liquidated Damages, if any, with respect to
the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the Notes and waiver of
the payment default that resulted from such acceleration); (vii) make any
change to the subordination provisions of the Indenture and the Notes in a
manner that materially adversely affects the legal rights of any Holder of the
Notes; (viii) waive a redemption or repurchase payment with respect to any
Note (other than a payment required by one of the covenants described above
under the captions "--Certain Covenants--Repurchase of Notes at the Option of
the Holder Upon a Change of Control" and "--Certain Covenants--Limitations on
Sales of Assets and Restricted Subsidiary Stock"); (ix) make any change in the
foregoing amendment and waiver provisions; or (x) except as provided under the
caption "--Legal Defeasance and Covenant Defeasance" or in accordance with the
terms of any Subsidiary Guarantee, release a Subsidiary Guarantor from its
obligations under its Subsidiary Guarantee or make any change in a Subsidiary
Guarantee that would adversely affect the Holders of the Notes.
Notwithstanding the foregoing, any amendment or waiver to the covenants
described above under the captions "--Certain Covenants--Repurchase of Notes
at the Option of the Holder Upon a Change of Control" and "--Certain
Covenants--Limitation on Sales of Assets and Restricted Subsidiary Stock,"
will require the consent of the Holders of at least two-thirds in aggregate
principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of Notes.
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The subordination provisions contained in the Indenture are for the benefit
of the holders from time to time of Senior Indebtedness and may not be
rescinded, canceled, amended or modified in any way other than any amendment
or modification that would not adversely affect the rights of any holder of
Senior Indebtedness or any amendment or modification that is consented to by
each holder of Senior Indebtedness that would be adversely affected thereby.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Subsidiary Guarantors or any successor entity shall have any personal
liability in respect of the obligations of the Company or the Subsidiary
Guarantors under the Indenture or the Notes by reason of his or its status as
such stockholder, employee, officer or director, except to the extent such
Person is the Company or a Subsidiary Guarantor.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Restricted Subsidiary of such specified
Person, including, without limitation, Indebtedness Incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Restricted Subsidiary of such specified Person and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"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 the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that Beneficial Ownership of 10% or more of the voting securities of
a Person shall be deemed to be control.
"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 a Restricted Subsidiary (a
"disposition"), in one transaction or a series of transactions; provided that
the disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described under the caption "--Repurchase of Notes
at the Option of the Holder Upon a Change of Control" and/or the provisions
described under the caption "--Certain Covenants--Limitation on Merger, Sale
or Consolidation" and not by the provisions of the covenant described under
the caption "--Certain Covenants--Limitation on Sales of Assets and Restricted
Subsidiary Stock," and (b) the issuance or disposition by the Company or any
of its Restricted Subsidiaries of Equity Interests of the Company's Restricted
Subsidiaries. Notwithstanding the foregoing, none of the following will be
deemed an Asset Sale: (i) a disposition of assets by the Company to a
Restricted Subsidiary or by a Restricted Subsidiary to the Company or to a
Restricted Subsidiary; (ii) an issuance of Equity Interests by a Restricted
Subsidiary to the Company or to a Restricted Subsidiary; (iii) a Restricted
Payment that is permitted by the covenant described under the caption "--
Certain Covenants--Limitation on Restricted Payments;" (iv) dispositions of
$250,000 or less; (v) dispositions of assets or rights in the ordinary course
of business consistent with past practices; (vi) a disposition of assets on or
before the second anniversary of the Issue Date which meets the requirements
of the first paragraph of the covenant described under the caption "--Certain
Covenants--Limitation on Sale of Assets and Restricted Subsidiary Stock" the
proceeds of which are used for Shelter Transition Expenditures on or before
the second anniversary of the Issue Date; (vii) the grant in the ordinary
course of business of any non-exclusive license of intellectual property
rights; (viii) any liquidation of any Cash Equivalent; (ix) any disposition of
defaulted receivables for collection; and (x) the grant of any Lien securing
Indebtedness (or any foreclosure thereon) to the extent that such Lien is
granted in compliance with the covenant set forth under the caption "--Certain
Covenants--Limitation on Liens."
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"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, with respect to 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.
"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.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the
power of the board of directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"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.
"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, partnership 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.
"Cash Equivalents" means (i) Government Securities having maturities of not
more than twelve months from the date of acquisition, (ii) certificates of
deposit and eurodollar time deposits with maturities of twelve 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 million, (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 Service, Inc. ("Moody's"), or any
successor to its rating business, or at least A-1 from Standard & Poor's
Ratings Group ("S&P"), or any successor to its rating business, and in each
case maturing within 180 days after the date of acquisition.
"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 discontinued or disposed of) for the Reference
Period to (b) the aggregate Consolidated Fixed Charges
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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, 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 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.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person 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 such
Person and (iii) Consolidated Fixed Charges, less the amount of all cash
payments made by such Person or any of its Restricted 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, with respect to any Person for any
period, the sum of (i) the consolidated interest expense of such Person and
its Restricted 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 Capital Lease Obligations, imputed interest with respect to
Attributable Debt, interest payments in respect of Indebtedness of another
Person that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
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 such Person and its Restricted 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 Restricted Subsidiaries or preferred
stock of the Company's Restricted Subsidiaries, to the extent such
Disqualified Stock or preferred stock is owned by Persons other than the
Company and its Restricted 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 such Person,
expressed as a decimal.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted 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 specified Person as to which Consolidated
Net Income is being calculated, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such Net
Income would not be permitted at the date of determination directly or
indirectly, pursuant to the terms of its charter and
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by-laws and all agreements, instruments, judgments, decrees, orders, statutes,
rules or governmental regulations applicable to such Restricted 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 Restricted 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.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common equity holders of such
Person and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred equity (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends or other
distributions, unless such dividends or other distributions may be declared and
paid only out of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by such Person upon
issuance of such preferred equity, less (x) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible assets
of a going concern business made within 12 months after the acquisition of such
business) subsequent to the date of the Indenture in the book value of any
asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (y) all investments as of such date in Persons that are not Restricted
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"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, (i) any Indebtedness outstanding
under the Senior Credit Facility and (ii) any other Senior Indebtedness
permitted under the Indenture the principal amount of which is $25 million or
more and that has been designated by the Company as "Designated Senior
Indebtedness."
"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 date on which the Notes mature.
"Eligible Receivables" means the trade receivables of the Company and its
Restricted Subsidiaries less the allowance for doubtful accounts, each of the
foregoing determined in accordance with GAAP.
"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).
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries in existence on the Issue Date after giving pro forma effect to
the Transactions.
"Existing Majority Stockholder" means (i) Jerry E. Kimmel; (ii) his
beneficiaries, estates, spouse and lineal descendants, legal representatives of
any of the foregoing and the trustee of any bona fide trust of which any of the
foregoing are the sole beneficiaries or grantors and (iii) all Affiliates
controlled by Jerry E. Kimmel (provided that, for purposes of this clause (iii)
only, the proviso set forth in the definition of the term "Affiliate" shall be
deemed modified to provide that Beneficial Ownership of 50% or more of the
voting securities of a Person shall constitute, and shall be necessary to
constitute, control).
"Fair Market Value" means, with respect to 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
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and willing buyer under no compulsion to buy; provided that if such value
exceeds $1 million, such determination shall be made in good faith by the Board
of Directors of the Company.
"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.
"Hedging Obligations" means, with respect to 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").
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness.
"Indebtedness" means, with respect to 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 Capital Lease Obligation; (iv) for or pursuant to
Disqualified Stock; (v) for or pursuant to preferred stock of any Restricted
Subsidiary of the Company (other than preferred stock held by the Company or
any of its Restricted 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.
"Investments" means, with respect to 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
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business)), advances or capital contributions (excluding commission, travel and
similar advances to directors, officers and employees made in the ordinary
course of business), purchases or other acquisitions (for consideration) of
Indebtedness, Equity Interest or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities, Inc.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Junior Securities" of any Person means securities (including Capital Stock
but excluding Disqualified Stock) issued by such Person 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 such Person, (b) by their terms or by law
are subordinated to Senior Indebtedness of such Person 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 such Person
outstanding on the date of issuance of such Junior Securities" shall include
securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction to Persons which held "Designated Senior
Indebtedness" in such reorganization proceeding.
"Lien" means, with respect to 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, and any lease in the
nature thereof).
"Net Income" means, with respect to any Person, the net income (loss) of such
Person, determined in accordance with GAAP.
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount of
cash proceeds (including any cash received by way of deferred payment pursuant
to a note receivable issued in connection with such Asset Sale, other than the
portion of such deferred payment constituting interest, and including any
amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either
case, only as and when so received) received by the Company or any of its
Restricted 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 (other than the Notes) 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 Restricted
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 Restricted
Subsidiary 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.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender, (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on
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such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity and (iii) as to which the lenders have
expressly waived any recourse which they may have, in law, equity or otherwise,
whether based on misrepresentations, control, ownership or otherwise, to the
Company or any of its Restricted Subsidiaries, including, without limitation, a
waiver of the benefits of the provisions of Section 1111(b) of the U.S.
Bankruptcy Code (Title 11, United States Code), as amended.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any of its Restricted Subsidiaries in a
Person engaged in a Related Business if, as a result of such Investment, (A)
such Person becomes a Restricted Subsidiary of the Company or (B) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted 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 million; and (vi) Investments in negotiable
instruments held for collection in the ordinary course of business and lease,
utility and similar deposits.
"Permitted Lien" 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 Restricted 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 Restricted 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 such Restricted Subsidiary; (iv) Liens securing any
Acquired Indebtedness and which exist at the time of acquisition thereof by the
Company or any of its Restricted Subsidiaries, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens arising
under the Indenture in favor of the Trustee; (vi) Liens existing on the date of
the Indenture; (vii) 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 with respect to 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 Restricted
Subsidiary 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 of 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 Restricted
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; (viii) Liens resulting from the
deposit of funds in trust for the purpose of decreasing or defeasing
Indebtedness of the Company and its Restricted Subsidiaries so long as such
deposit of funds and such decreasing or defeasing of Indebtedness are permitted
under the caption "--Limitation on Restricted Payments" covenant; and (ix) any
extension, renewal or replacement (or successive extensions, renewals or
replacements),
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in whole or in part, of any Lien referred to in the foregoing clauses (iii),
(iv) and (vi) above; provided 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 Restricted 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
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 the Restricted Subsidiary 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.
"Public Equity Offering" means an underwritten offering of Equity Interests
(other than Disqualified Stock) of the Company for cash pursuant to an
effective registration statement under the Securities Act.
"Purchase Money Indebtedness" of any Person means any Indebtedness of such
Person 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 of the Company, is
directly related to a Related Business of the Company and which is Incurred
within 180 days of such acquisition and is secured only by the assets so
financed.
"Reference Period" with regard to 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 the Notes or the
Indenture.
"Related Business" means the business conducted by the Company and its
Restricted Subsidiaries as of the Issue Date and any and all businesses that in
the good faith judgment of the Board of Directors of the Company are materially
related businesses.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"Senior Credit Facility" means the credit agreement entered into on the Issue
Date among the Company, the guarantors named therein, and NationsBank of Texas,
N.A. as agent and lender, and the other lenders party thereto, or any
refinancing or increases thereof made in accordance with the covenant described
under the caption "--Certain Covenants -- Limitation on Incurrence of
Indebtedness."
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"Senior Indebtedness" means, with respect to any Person, (i) all Indebtedness
of such Person outstanding under the Senior Credit Facility and all Hedging
Obligations with respect thereto, (ii) any other Indebtedness of such Person
permitted to be issued under the Indenture, provided, however, 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 Restricted Subsidiaries or Affiliates and (iii) all Obligations
with respect to 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 the Indenture, (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 and (ix) any Indebtedness or obligation which is subordinated in right
of payment to any other Indebtedness or obligation of such Person. "Senior
Indebtedness," when used with respect to a Subsidiary Guarantor, shall have a
meaning substantially identical to that applied to the Indebtedness of the
Person or its Subsidiaries.
"Shelter Transition Expenditures" means costs and expenses incurred by the
Company and its Restricted Subsidiaries to facilitate the consolidation of the
distribution and manufacturing businesses of the Company and the Restricted
Subsidiaries with Shelter.
"Stated Maturity" means December 1, 2007.
"Subordinated Indebtedness" means Indebtedness of the Company (or a
Restricted Subsidiary) that is expressly subordinated in right of payment to
the Notes (or a Subsidiary Guarantee, as appropriate).
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partner of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof). Unless indicated
to the contrary, "Subsidiary" refers to a direct or indirect Subsidiary of the
Company.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors of the Company, but only to the extent
that such Subsidiary and each of the Subsidiaries of such Subsidiary (i) has no
Indebtedness at the time of designation, and does not thereafter Incur any
Indebtedness, other than Non-Recourse Debt, (ii) does not own any Equity
Interests of, or own or hold any Lien on, any property of the Company or any
Restricted Subsidiary of the Company (other than any Subsidiary of the
Subsidiary to be so designated), (iii) is not party to any material agreement,
contract, rearrangement or understanding with the Company or any of its
Restricted Subsidiaries unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company, (iv) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (a) to subscribe for additional Equity Interests or (b)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results, (v) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries and (vi) has
at least one director on its board
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of directors that is not a director or executive officer of the Company or any
of its Restricted Subsidiaries and has at least one executive officer that is
not a director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors of the Company
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the resolution of the Board of Directors of the Company giving effect to
such designation and an Officers' Certificate certifying that (i) such
designation complied with the foregoing conditions, (ii) such designation was
permitted by the covenant described under the caption "--Certain Covenants--
Limitation on Restricted Payments," (iii) immediately after giving effect to
such designation, the Company could Incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio test set forth in the first
paragraph of the covenant described under the caption "--Certain Covenants--
Limitation on Incurrence of Indebtedness" and (iv) no Default or Event of
Default would be in existence immediately following such designation. If, at
any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness,
Liens or agreements of such Subsidiary shall be deemed to be Incurred or
created by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness, Liens or agreements are not permitted to be Incurred or created
as of such date under the covenants of the Indenture, the Company shall be in
default of such covenants). The Board of Directors of the Company may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary,
provided that such designation shall be deemed to be an Incurrence of
Indebtedness and a creation of Liens and agreements by a Restricted Subsidiary
of the Company of any outstanding Indebtedness, Liens or agreements of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness, Liens and agreements are permitted under the covenants of
the Indenture, and (ii) no Default or Event of Default would be in existence
immediately following such designation.
"Voting Stock" means any class or classes of Capital Stock of any Person
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect the board of directors (or Persons performing
similar functions) of such Person.
"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.
"Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests of
which are owned by the Company or one or more Wholly Owned Subsidiaries of the
Company, other than directors' qualifying shares or an immaterial amount of
shares to the extent required to be owned by other Persons pursuant to
applicable law.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will initially
be issued in the form of one or more Global Notes (the "Global Notes"). The
Global Notes will be deposited on the date of the closing of the Exchange Offer
(the "Closing Date") with, or on behalf of, the Depositary and registered in
the name of Cede & Co., as nominee for the Depositary (such nominee being
referred to herein as the "Global Note Holder").
Exchange Notes that are issued as described below under "--Certificated
Securities" will be issued in registered form (the "Certificated Securities").
Upon the transfer of Certificated Securities, such Certificated Securities may,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in a Global Note representing the
principal amount of Exchange Notes being transferred.
The Depositary has advised the Company that the Depositary is a limited-
purpose trust company which was created to hold securities for its
participating organizations (collectively, the "Participants" or the
"Depositary's
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Participants") and to facilitate the clearance and settlement of transactions
in such securities between Participants through electronic book-entry changes
in accounts of its Participants. The Depositary's Participants include
securities brokers and dealers (including the Initial Purchasers), banks and
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect Participants"
or the "Depositary's Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depositary only through the Depositary's Participants or the
Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the Depositary
(i) upon deposit of the Global Notes, the Depositary will credit the accounts
of Participants with portions of the principal amount of the Global Notes and
(ii) ownership of the Notes evidenced by the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Exchange Notes
evidenced by the Global Notes will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole owner or holder of
such Exchange Notes outstanding under the Indenture. Beneficial owners of
Exchange Notes evidenced by the Global Note will not be considered the owners
or holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. The ability of a person having a beneficial interest in Exchange
Notes represented by a Global Note to pledge such interest to persons or
entities that do not participate in the Depositary's system or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical certificate evidencing such interest.
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
Exchange Notes by the Depositary, or for maintaining, supervising or reviewing
any records of the Depositary relating to such Exchange Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of a
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of such Global Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names the Exchange
Notes, including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Exchange Notes (including principal, premium, if any, interest and
Liquidated Damages, if any).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and
the Depositary's Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practice and will
be the responsibility of the Depositary's Participants or the Depositary's
Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Definitive Notes (as
defined in the Indenture). Upon any such issuance, the Trustee is required to
register such Exchange Notes in the name of, and cause the same to be delivered
to, such person or persons. In addition, if (i) the
102
<PAGE>
Company notifies the Trustee in writing that the Depositary is no longer
willing or able to act as a depositary and the Company is unable to appoint a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Exchange Notes
in the form of Definitive Notes under the Indenture, then, upon surrender by
the relevant Global Note Holder of its Global Note, Exchange Notes in such form
will be issued to each person that the Depositary identifies as the beneficial
owner of the related Exchange Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary in identifying the beneficial owners of the related Exchange Notes
and each such person may conclusively rely on, and shall be protected in
relying on, instructions from the Depositary for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Exchange Notes to be issued).
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
considerations to holders of the Exchange Notes who are subject to U.S. net
income tax with respect to the Exchange Notes ("U.S. persons") and who will
hold the Exchange Notes as capital assets. There can be no assurance that the
U.S. Internal Revenue Service (the "IRS") will take a similar view of the
purchase, ownership or disposition of the Exchange Notes. This summary is
based upon the Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions now in effect, all of which are subject to
change. It does not include any discussion of the tax laws of any state, local
or foreign governments or any estate or gift tax considerations that may be
applicable to the Exchange Notes or holders thereof; nor does it discuss all
aspects of U.S. federal income taxation that may be relevant to a particular
investor under his particular circumstances or to investors subject to special
treatment under the U.S. federal income tax laws (for example, dealers in
securities or currencies, S corporations, life insurance companies, tax-exempt
organizations, taxpayers subject to the alternative minimum tax and non-U.S.
persons) and also does not discuss Exchange Notes held as a hedge against
currency risks or as part of a straddle with other investments or as part of a
"synthetic security" or other integrated investment (including a "conversion
transaction") comprising an Exchange Note and one or more other investments,
or situations in which the functional currency of the holders is not the U.S.
dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer should
consult their tax advisors with respect to their particular circumstances and
with respect to the effects of state, local or foreign tax laws to which they
may be subject.
EXCHANGE OF NOTES
The exchange of Old Notes for Exchange Notes should not be a taxable event
to holders for United States federal income tax purposes. The exchange of Old
Notes for the Exchange Notes pursuant to the Exchange Offer should not be
treated as an "exchange" for United States federal income tax purposes,
because the Exchange Notes should not be considered to differ materially in
kind or extent from the Old Notes. Accordingly, the Exchange Notes should have
the same issue price as the Old Notes, and a holder should have the same
adjusted basis and holding period in the Exchange Notes as it had in the Old
Notes immediately before the exchange.
INTEREST ON EXCHANGE NOTES
A holder of an Exchange Note will be required to report as ordinary interest
income for U.S. federal income tax purposes interest earned on an Exchange
Note in accordance with the holder's method of tax accounting.
DISPOSITION OF EXCHANGE NOTES
A holder's tax basis for an Exchange Note generally will be the holder's
purchase price for the Old Note. Upon the sale, exchange, redemption,
retirement or other disposition of an Exchange Note, a holder will recognize
gain or loss equal to the difference (if any) between the amount realized and
the holder's tax basis in the Exchange Note. Such gain or loss should be long-
term capital gain or loss if the Exchange Note has been held for more than
eighteen months, mid-term capital gain or loss if the Exchange Note has been
held for more than one year but not more than eighteen months and otherwise
should be short-term capital gain or loss (with certain exceptions to the
characterization as capital gain if the Exchange Note was acquired at a market
discount).
BACKUP WITHHOLDING
A holder of an Exchange Note may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Exchange Note and proceeds
from the sale, exchange, redemption or retirement of the Exchange Note, unless
such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates that fact or (b) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A holder of an Exchange Note who does not
provide the Company with his correct taxpayer identification number may be
subject to penalties imposed by the IRS.
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A holder of an Exchange Note who is not a U.S. person will generally be
exempt from backup withholding and information reporting requirements, but may
be required to comply with certification and identification procedures in
order to obtain an exemption from backup withholding and information
reporting.
Any amount paid as backup withholding will be creditable against the
holder's U.S. federal income tax liability.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by Participating Broker-Dealers during the period referred to below in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating Broker-Dealers for
their own accounts as a result of market-making activities or other trading
activities (other than a resale of an unsold allotment from the original sale
of Old Notes). The Company has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Notes for a period
ending one year after the Expiration Date (or such shorter period during which
all such resales have occurred). However, a Participating Broker-Dealer who
intends to use this Prospectus in connection with the resale of Exchange Notes
received in exchange for Old Notes pursuant to the Exchange Offer must notify
the Company, or cause the Company to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or
may be delivered to the Exchange Agent at one of the addresses set forth in
the Letter of Transmittal. See "The Exchange Offer--Resales of Exchange
Notes."
The Company will not receive any proceeds from the issuance of the Exchange
Notes offered hereby. Exchange Notes received by Participating Broker-Dealers
for their own accounts in connection with the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers
of any such Exchange Notes. Any Participating Broker-Dealer that resells
Exchange Notes that were received by it for its own account in connection with
the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act, and any profit on any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period ending 180 days from the date on which the Exchange Offer
Registration Statement is declared effective, the Company will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents in
the Letter of Transmittal.
LEGAL MATTERS
The validity of the Notes and the Subsidiary Guarantees will be passed upon
for the Company by Jackson Walker, L.L.P., Dallas, Texas. Richard S. Tucker, a
partner in Jackson Walker L.L.P., is Secretary and a director of the Company.
105
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EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995, of Kevco,
Inc. and the related consolidated statements of income, stockholders' equity
and cash flows for each of the two years in the period ended December 31,
1996, included in this Prospectus have been included herein in reliance on the
report, which includes an explanatory paragraph regarding a change in
accounting method, of Coopers & Lybrand L.L.P., independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The statements of income, stockholders' equity and cash flows of Kevco, Inc.
for the year ended December 31, 1994, included in this Prospectus have been
included herein in reliance on the report of Rylander, Clay & Opitz, L.L.P.,
independent auditors, given on the authority of that firm as experts in
accounting and auditing.
The consolidated financial statements of Shelter Components Corporation as
of December 31, 1996 and 1995 and for the two years then ended included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The consolidated statements of income, shareholders' equity and cash flows
of Shelter Components Corporation and Subsidiaries for the year ended December
31, 1994, included in this Prospectus have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated balance sheets as of December 31, 1996 and 1995 of Bowen
Supply, Inc. and Subsidiary and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended, included in this
Prospectus have been included herein in reliance on the report of Dougherty,
McKinnon & Luby, independent auditors, given on the authority of that firm as
experts in accounting and auditing.
The balance sheets as of September 29, 1996 and October 1, 1995 of
Consolidated Forest Products, L.L.C. and the related statements of income and
retained earnings and cash flows for the year ended September 29, 1996 and the
period December 1, 1994 to October 1, 1995, included in this Prospectus have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated statements of income and cash flows of Service Supply
Systems, Inc. and Subsidiary for the year ended December 31, 1994, included in
this Prospectus have been included herein in reliance on the report of Rumsey
& Huckaby, P.C., independent auditors, given on the authority of that firm as
experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
KEVCO, INC.
Report of Independent Accountants........................................ F-3
Independent Auditor's Report............................................. F-4
Consolidated Financial Statements as of December 31, 1996 and 1995 and
for the three years in the period ended December 31, 1996
Consolidated Balance Sheets............................................ F-5
Consolidated Statements of Income...................................... F-6
Consolidated Statements of Stockholders' Equity........................ F-7
Consolidated Statements of Cash Flows.................................. F-8
Notes to Consolidated Financial Statements............................. F-10
Consolidated Financial Statements as of September 30, 1997 and December
31, 1996 and for the nine month periods ended September 30, 1997 and
1996
Consolidated Balance Sheets (unaudited)................................ F-20
Consolidated Statements of Income (unaudited).......................... F-21
Consolidated Statements of Cash Flows (unaudited)...................... F-22
Notes to Consolidated Financial Statements (unaudited)................. F-23
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
Report of Independent Accountants........................................ F-28
Report of Independent Accountants........................................ F-29
Consolidated Financial Statements as of December 31, 1996 and 1995 and
for the three years in the period ended December 31, 1996
Consolidated Balance Sheets............................................ F-30
Consolidated Statements of Income...................................... F-31
Consolidated Statements of Shareholders' Equity........................ F-32
Consolidated Statements of Cash Flows.................................. F-33
Notes to Consolidated Financial Statements............................. F-34
Consolidated Financial Statements as of September 30, 1997 and December
31, 1996 and for the nine month periods ended September 30, 1997 and
1996
Consolidated Balance Sheets (unaudited)................................ F-42
Consolidated Statements of Income (Unaudited).......................... F-43
Consolidated Statements of Cash Flows (Unaudited)...................... F-44
Notes to Consolidated Financial Statements (Unaudited)................. F-45
BOWEN SUPPLY, INC., AND SUBSIDIARY
Independent Auditor's Report............................................. F-47
Consolidated Financial Statements as of December 31, 1996 and 1995 and
for the two years in the period ended December 31, 1996
Consolidated Balance Sheets............................................ F-48
Consolidated Statements of Stockholders' Equity........................ F-49
Consolidated Statements of Income...................................... F-50
Consolidated Statements of Cash Flows.................................. F-51
Notes to Consolidated Financial Statements............................. F-52
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
Report of Independent Accountants........................................ F-58
Consolidated Financial Statements as of September 29, 1996 and October 1,
1995 and for the year ended September 29, 1996 and the period December
2, 1994 to October 1, 1995
Balance Sheets......................................................... F-59
Statements of Income and Retained Earnings............................. F-60
Statements of Cash Flows............................................... F-61
Notes to Financial Statements.......................................... F-62
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
Independent Auditor's Report............................................. F-68
Consolidated Financial Statements for the year ended December 31, 1994
Consolidated Statement of Income....................................... F-69
Consolidated Statement of Cash Flows................................... F-70
Notes to Consolidated Financial Statements............................. F-71
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Kevco, Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheets of Kevco, Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the two years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kevco, Inc.
as of December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 13 to the consolidated financial statements, Kevco,
Inc. retroactively changed its method of accounting for inventory from the
last-in, first-out method to the first-in, first-out method and the
consolidated financial statements for all years presented have been restated
accordingly.
We also audited the adjustments described in Note 13 that were applied to
restate the 1994 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
February 21, 1997, except for
Note 13 as to which the date
is June 30, 1997
F-3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Kevco, Inc.
Fort Worth, Texas
We have audited the accompanying statements of income, stockholders' equity
and cash flows of Kevco, Inc. (an S-Corporation) for the year ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Kevco,
Inc. for the year ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ Rylander, Clay & Opitz, L.L.P.
Fort Worth, Texas
March 24, 1995
F-4
<PAGE>
KEVCO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 2,078 $ 977
Trade receivables (less allowance for doubtful accounts of
$100 and $160 in 1996 and 1995, respectively).............. 9,458 14,769
Inventories................................................. 23,722 19,201
Prepaid expenses and other.................................. 338 343
------- -------
Total current assets...................................... 35,596 35,290
Property and equipment, net................................... 10,208 9,758
Intangible assets, net........................................ 9,495 10,162
Other assets.................................................. 440 459
------- -------
Total assets.............................................. $55,739 $55,669
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable...................................... $ 6,666 $11,258
Accrued liabilities......................................... 3,107 3,231
Income taxes payable........................................ 762 --
Current portion of long-term debt........................... 367 1,057
Current deferred income taxes............................... 168 --
------- -------
Total current liabilities................................. 11,070 15,546
Long-term debt, less current portion.......................... 9,464 30,206
Deferred compensation obligation.............................. 383 361
Deferred income taxes......................................... 629 --
------- -------
Total liabilities......................................... $21,546 $46,113
------- -------
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock, $.01 par value; 100,000 shares authorized;
6,809 and 4,700 shares issued in 1996 and 1995,
respectively............................................... 68 47
Additional paid-in capital.................................. 32,854 3,034
Loan to stockholder......................................... -- (3,437)
Retained earnings........................................... 1,271 10,660
Treasury stock, 306 shares at cost.......................... -- (748)
------- -------
Total stockholders' equity................................ $34,193 $ 9,556
------- -------
Total liabilities and stockholders' equity................ $55,739 $55,669
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
<S> <C> <C> <C>
Net sales.......................................... $267,344 $182,519 $99,279
Cost of sales...................................... 226,653 155,641 83,356
-------- -------- -------
Gross profit..................................... 40,691 26,878 15,923
Commission income.................................. 5,497 2,610 1,066
-------- -------- -------
46,188 29,488 16,989
Selling, general and administrative expenses....... 29,723 20,889 11,941
-------- -------- -------
Operating income................................. 16,465 8,599 5,048
Interest income.................................... 151 355 346
Interest expense................................... (2,209) (1,692) (627)
Other income....................................... -- -- 800
-------- -------- -------
Income before income tax provision............... 14,407 7,262 5,567
Income tax provision............................... 1,695 45 51
-------- -------- -------
Net income....................................... $ 12,712 $ 7,217 $ 5,516
======== ======== =======
Pro forma information (unaudited) (Note 1):
Historical income before income taxes............ $ 14,407 $ 7,262 $ 5,567
Income tax expense adjustments................... 5,475 2,832 2,171
-------- -------- -------
Pro forma net income............................. $ 8,932 $ 4,430 $ 3,396
======== ======== =======
Pro forma earnings per share..................... $ 1.61 $ 0.90 $ 0.69
======== ======== =======
Weighted average shares outstanding.............. 5,531 4,946 4,946
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TREASURY
COMMON STOCK STOCK ADDITIONAL
-------------- ------------- PAID-IN LOAN TO RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDER EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 4,700 $47 306 $(748) $ 2,837 $(4,937) $ 6,651 $ 3,850
Net income............ -- -- -- -- -- -- 5,516 5,516
Distribution to
stockholders......... -- -- -- -- -- -- (4,022) (4,022)
Collections from
stockholder.......... -- -- -- -- -- 750 -- 750
----- --- ---- ----- ------- ------- -------- --------
Balance at December 31,
1994................... 4,700 47 306 (748) 2,837 (4,187) 8,145 6,094
Net income............ -- -- -- -- -- -- 7,217 7,217
Distribution to
stockholders......... -- -- -- -- -- -- (4,702) (4,702)
Collections from
stockholder.......... -- -- -- -- -- 750 -- 750
Contributed capital... -- -- -- -- 197 -- -- 197
----- --- ---- ----- ------- ------- -------- --------
Balance at December 31,
1995................... 4,700 47 306 (748) 3,034 (3,437) 10,660 9,556
Net income............ -- -- -- -- -- -- 12,712 12,712
Distribution to
stockholders......... -- -- -- -- -- -- (14,407) (14,407)
Collections from
stockholder.......... -- -- -- -- -- 375 -- 375
Distribution of loan
to stockholders...... -- -- -- -- -- 3,062 (3,062) --
Contributed capital... -- -- -- -- 86 -- -- 86
Retirement of treasury
stock................ (306) (3) (306) 748 (745) -- -- --
Contribution of S
corporation retained
earnings with change
to C corporation
status............... -- -- -- -- 4,632 -- (4,632) --
Issuance of stock..... 2,415 24 -- -- 25,847 -- -- 25,871
----- --- ---- ----- ------- ------- -------- --------
Balance at December 31,
1996................... 6,809 $68 -- $ -- $32,854 $ -- $ 1,271 $ 34,193
===== === ==== ===== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 12,712 $ 7,217 $ 5,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 1,792 1,041 399
Gain on sale of assets....................... (10) (16) (11)
Deferred compensation obligation............. 22 28 (7)
Deferred income taxes........................ 797 -- --
Changes in assets and liabilities, net of effects
from purchase of Service Supply Systems, Inc.:
Trade receivables, net......................... 5,311 (2,014) (835)
Inventories.................................... (4,521) (1,363) (1,604)
Prepaid expenses and other..................... 5 71 (9)
Trade accounts payable......................... (4,592) 3,650 (591)
Accrued liabilties............................. (124) (166) 218
Income taxes payable........................... 762 -- --
-------- -------- -------
Net cash provided by operating activities.... 12,154 8,448 3,076
-------- -------- -------
Cash flows from investing activities:
Purchase of equipment.......................... (1,586) (2,844) (432)
Proceeds from sale of assets................... 21 594 11
Decrease in other assets....................... 19 180 (47)
Purchase of Service Supply Systems, Inc., net
of cash acquired.............................. -- (17,449) --
Loan origination fees.......................... -- (913) --
-------- -------- -------
Net cash used by investing activities........ (1,546) (20,432) (468)
-------- -------- -------
Cash flows from financing activities:
Net proceeds from initial public offering...... 25,871 -- --
(Payment) proceeds from line of credit......... (6,500) (4,587) 2,400
Payments of long-term debt..................... (14,932) (1,900) (1,578)
Proceeds from long-term debt................... -- 30,700 --
Payment of acquired debt....................... -- (8,124) --
Distributions paid............................. (14,407) (4,702) (4,022)
Capital contributions.......................... 86 197 --
Collections on loan to stockholder............. 375 750 750
-------- -------- -------
Net cash (used) provided by financing
activities.................................. (9,507) 12,334 (2,450)
-------- -------- -------
Net increase in cash and cash equivalents........ 1,101 350 158
Beginning cash and cash equivalents.............. 977 627 469
-------- -------- -------
Ending cash and cash equivalents................. $ 2,078 $ 977 $ 627
======== ======== =======
Supplemental cash flow information:
Cash paid during the period for:
Interest..................................... $ 2,162 $ 1,471 $ 604
======== ======== =======
Income taxes................................. $ 456 $ 45 $ 51
======== ======== =======
</TABLE>
F-8
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
Supplemental schedule of noncash investing and financing activities:
The Company distributed the loan to stockholder of $3,062 to the Company's
stockholders effective June 30, 1996.
During 1995, the Company purchased all of the capital stock of Service
Supply Systems, Inc. for $17,700. In conjunction with the acquisition,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired........................................ $32,400
Cash paid for the capital stock...................................... 17,700
-------
Liabilities assumed................................................ $14,700
=======
</TABLE>
Of the $14,700 in liabilities assumed, $8,100 was immediately paid off with
the proceeds from long-term debt.
Noncompete obligations of $544 were incurred when the Company purchased
Service Supply Systems, Inc. and entered into two noncompete agreements which
are being amortized over the life of the agreements.
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF OPERATIONS
Kevco, Inc. manufactures and distributes products and materials for use by
the manufactured housing and recreational vehicle industries.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Kevco, Inc. and its wholly-owned subsidiaries (the "Company"). All significant
intercompany transactions and accounts have been eliminated.
Separate financial statements of the Company's subsidiaries are not included
because (a) all of the Company's direct and indirect subsidiaries have
guaranteed the Company's obligations under the Indenture, dated as of December
1, 1997 (the "Indenture"), among the Company, such subsidiaries (in such
capacity, the "Guarantors"), and the United States Trust Company of New York,
N.A., as trustee, (b) the Guarantors have fully and unconditionally guaranteed
the 10 3/8% Senior Subordinated Notes issued under the Indenture on a joint
and several basis, (c) the Company is a holding company with no independent
assets or operations other than its investments in the Guarantors and (d) the
separate financial statements and other disclosures concerning the Guarantors
are not presented because management has determined that they would not be
material.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, deposits with banks and all highly liquid investments with original
maturities of three months or less. The carrying value of cash and cash
equivalents approximates fair value as of December 31, 1996 and 1995.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventories purchased
for resale and manufacturing inventories are valued using the first-in, first-
out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Additions to and major improvements of property and equipment are capitalized.
Maintenance and repair costs are expensed as incurred. When assets are retired
or otherwise disposed of, their costs and related accumulated depreciation are
removed from the accounts and any resulting gains or losses are included in
the operations for the period.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings.................................................. 40 years
Furniture and equipment.................................... 5 to 10 years
Transportation equipment................................... 4 to 10 years
Leasehold improvements..................................... 10 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets are comprised of noncompete agreements, loan origination
fees and goodwill. Noncompete agreements are amortized on a straight-line
basis over the terms of the related agreements (24 to 30 months). Loan
origination fees associated with the acquisition of the Company's term debt
and revolving credit facility have been capitalized and are being amortized on
a straight-line basis over five years. The excess of acquisition cost of
acquired businesses over the fair value of net assets acquired ("goodwill") is
amortized, using the
F-10
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
straight-line method, over 40 years. The Company reviews goodwill to assess
recoverability periodically. At each balance sheet date, management assesses
whether there has been a permanent impairment in the value of goodwill by
considering factors such as expected future operating income, current operating
results, and other economic factors. Management believes no impairment has
occurred.
DEFERRED COMPENSATION OBLIGATION
The Company has entered into deferred compensation agreements with certain
employees, whereby payments will be made upon death or retirement for a ten
year period and such liability has been recorded at the present value of the
anticipated future payments.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment or the time
of receipt in the case of direct shipments from vendors to customers.
Commissions are recognized as earned.
INCOME TAXES
Income taxes are provided based on earnings reported for tax return purposes
in addition to a provision for deferred income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes. The provision for income taxes includes
deferred taxes determined by the change in the deferred tax liability (or
asset) which is computed based on the differences between the financial
statement and income tax bases of assets and liabilities, all of which are
measured by applying enacted tax laws and rates. Deferred tax expense is the
result of changes in the deferred tax liability or asset.
INTEREST RATE HEDGE
The Company entered into an interest rate hedge agreement in conjunction with
its primary credit facility to alter interest rate exposure on both the
revolver and the term debt. Amounts expected to be paid or received on the
interest rate hedge are recognized as adjustments to interest expense. Any gain
or loss from the termination of this hedge agreement will be recognized at that
time.
CONCENTRATION OF CREDIT RISK
The Company's sales are primarily to the manufactured housing and
recreational vehicle industries across a wide geographical area and generally
require no advance payment from customers. The Company had sales to two
customers representing approximately 16% and 14% of net sales in 1996.
The Company estimates future credit losses based on continual evaluation of
customers' financial condition, historical loss experience and current economic
conditions. The estimated future credit losses are expensed through an
allowance for doubtful accounts and actual credit losses are charged to the
allowance when incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses in the reporting periods. Actual
results could differ from those estimates.
STOCK SPLIT
On August 29, 1996, the Company effected a .47-for-1 reverse stock split of
its common stock. All share and per share amounts included in the accompanying
financial statements and notes have been restated to reflect the stock split.
F-11
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED PRO FORMA NET INCOME
Pro forma net income represents the results of operations adjusted to
reflect a provision for income tax on historical income before income taxes,
which gives effect to the change in the Company's income tax status to a C
corporation prior to the consummation of the Company's initial public
offering. The difference between the pro forma income tax rates utilized and
the federal statutory rate of 35% relates primarily to state income taxes (5%,
less effect of federal tax benefit).
UNAUDITED PRO FORMA EARNINGS PER SHARE
Historical net income per common share is not presented because it is not
indicative of the ongoing entity. Pro forma earnings per share have been
computed by dividing pro forma net income by the weighted average number of
shares of common stock outstanding during the period. Pro forma earnings per
share data has been presented to reflect the effect of the assumed issuance of
that number of shares of common stock that would generate sufficient cash to
pay an S corporation distribution in an amount equal to previously taxed but
undistributed earnings.
2. ACQUISITION:
The Company purchased all of the capital stock of Service Supply Systems,
Inc. ("Service Supply") on June 30, 1995 for approximately $17,700,000 and at
that date merged Service Supply with and into the Company. The acquisition was
accounted for as a purchase and, accordingly, the operating results of Service
Supply have been included in the operating results of the Company since June
30, 1995. The acquisition cost in excess of the fair value of net assets of
Service Supply of $7,087,000 has been accounted for as goodwill and will be
amortized over its useful life of 40 years.
3. INVENTORIES:
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
<S> <C> <C>
Raw materials.............................................. $ 4,385 $ 2,314
Work-in-process............................................ 332 303
Finished goods............................................. 1,324 828
Goods held for resale...................................... 17,681 15,756
------- -------
$23,722 $19,201
======= =======
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
<S> <C> <C>
Land....................................................... $ 242 $ 242
Buildings.................................................. 5,195 4,774
Furniture and equipment.................................... 6,181 5,213
Transportation equipment................................... 3,277 3,232
Leasehold improvements..................................... 564 503
------- -------
15,459 13,964
Less accumulated depreciation.............................. (5,251) (4,206)
------- -------
Property and equipment, net.............................. $10,208 $ 9,758
======= =======
</TABLE>
F-12
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment under capital leases consists of buildings of
$2,231,000 and furniture and equipment of $640,000 for the years ended
December 31, 1996 and 1995, and accumulated depreciation of $1,982,000 and
$1,846,000 for the years ended December 31, 1996 and 1995, respectively.
5. INTANGIBLE ASSETS:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
<S> <C> <C>
Goodwill................................................... $ 9,113 $ 9,113
Loan origination fees...................................... 913 913
Noncompete agreements...................................... 544 544
------- -------
10,570 10,570
Less accumulated amortization.............................. (1,075) (408)
------- -------
Intangible assets, net................................... $ 9,495 $10,162
======= =======
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consists or the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility payable to a bank, due June 30,
1998, with interest payable monthly. Interest is paid at
the bank's prime rate or LIBOR rates based on pricing
options elected by the Company plus a margin determined
by operating statistics of the Company (8.25% and 7.93%
at December 31, 1996 and 1995, respectively),
$11,611 net of an outstanding letter of credit in the
amount of $389, was available under the credit facility
at December 31, 1996.................................... $8,000 $14,500
Term debt payable to a bank with interest payable monthly
and quarterly principal payments of $625 commencing on
October 1, 1996 until maturity at June 30, 2001.
Interest is paid at LIBOR rates based on pricing options
selected by the Company plus a margin determined by
operating statistics of the Company (7.54% at
December 31, 1995)...................................... -- 14,500
Capital lease obligations to a related party,
collateralized by equipment, maturing through 2007, with
interest rates from 13.9% to 26.8%...................... 1,548 1,681
Obligations payable under noncompete and consulting
agreements, due in 24 to 48 months with payments ranging
from $3,000 to $10,833 per month, maturing through 1999,
interest imputed at 8.50%............................... 283 582
------ -------
Totals................................................... 9,831 31,263
Less current portion..................................... (367) (1,057)
------ -------
$9,464 $30,206
====== =======
</TABLE>
The term debt and revolving credit facility are collateralized by
substantially all of the assets of the Company and its subsidiaries, including
a pledge of all outstanding capital stock of such subsidiaries. The related
credit agreement contains certain restrictions and conditions which include
cash flow requirements, limitations on acquisitions of property and equipment,
and restrictions on distributions to stockholders.
F-13
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following are scheduled maturities of debt (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
<S> <C>
1997............................................................. $ 367
1998............................................................. 8,131
1999............................................................. 127
2000............................................................. 114
2001............................................................. 111
Thereafter........................................................ 981
------
$9,831
======
</TABLE>
In addition, in order to reduce interest rate risk on the credit facility,
the Company has entered into an interest rate hedge agreement in the notional
amount of $15.0 million, whereby the Company will receive interest payments
should LIBOR increase above 9.00% and, conversely, will make interest payments
should LIBOR decrease below 5.25%, the effect of which limits the Company's
interest expense within the range of 9.00% to 5.25% LIBOR on $15.0 million of
debt. Management intends to hold the interest rate hedge until maturity on
August 28, 1998. The Company has incurred no gain or loss related to this
interest rate hedge for the year ended December 31, 1996. The fair value of
the interest rate hedge agreement is not considered to be material.
The fair value of long-term debt was $10.6 and $32.0 million as of December
31, 1996 and 1995, respectively. The fair value of the Company's long-term
debt was calculated by discounting future cash flows using an estimated fair
market value interest rate.
In February 1997, the Company and its lender amended the credit agreement in
order to fund the acquisitions discussed in Note 13. The term debt was
increased to $30.0 million and the revolving credit facility increased to
$35.0 million, each maturing in 2001. The term debt will be payable $0 in
1997; $2 million in 1998; $8 million in 1999; $10 million in 2000; and $10
million in 2001. The interest rate structure, restrictions and conditions are
similar to the credit agreement prior to amendment.
7. INCOME TAXES:
Prior to November 6, 1996, the Company was treated for federal and state
income tax purposes as an S corporation under Subchapter S of the Internal
Revenue Code. As a result, the Company's earnings for such period were taxed
at the stockholder level. Effective November 6, 1996, the Company terminated
its S corporation status and restructured to create an operating company with
a subsidiary. From November 6, 1996, the Company's earnings have been taxed as
a C corporation and provisions for income taxes have been reflected in the
consolidated financial statements. The Company recorded a nonrecurring net
deferred tax provision of approximately $353,000 associated with the
recognition of a related deferred tax liability due to the termination of the
Company's S corporation status.
F-14
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes for the years ended December 31, 1996, 1995
and 1994 consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995 1994
<S> <C> <C> <C>
Federal:
Current................................................... $ 559 $-- $--
Deferred.................................................. 692 -- --
State:
Current................................................... 339 45 51
Deferred.................................................. 105 -- --
------ ---- ----
$1,695 $ 45 $ 51
====== ==== ====
</TABLE>
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the treatment of certain items
for financial statement purposes and the treatment of those items for
corporation tax purposes. The deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or
settled.
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Accrued liabilities.............................................. $ 214
Allowance for doubtful accounts.................................. 40
Inventory capitalization......................................... 196
Deferred compensation............................................ 153
Capital leases................................................... 264
Noncompete agreements............................................ 127
Inventory reserve................................................ 217
-------
Total gross deferred tax assets................................ 1,211
-------
Deferred tax liabilities:
Depreciation..................................................... (1,173)
IRC Section 481 inventory adjustment............................. (835)
-------
Total gross deferred tax liabilities........................... (2,008)
-------
Net deferred tax liabilities................................. $ (797)
=======
Current deferred income tax liability.............................. $ (168)
Noncurrent deferred income tax liability........................... (629)
-------
Net deferred tax liabilities................................. $ (797)
=======
</TABLE>
F-15
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The differences between the consolidated provision for income taxes and
income taxes computed using income before income taxes and the U.S. federal
income tax rate for the years ended December 31, 1996, 1995 and 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
<S> <C> <C> <C>
Amount computed using statutory rate (35%)...... $ 5,042 $ 2,542 $ 1,948
Increase (decrease) in taxes resulting from:
Recognition of deferred tax liability in
connection with S corporation termination.... 353 -- --
Tax effect of change in method of valuing
inventory.................................... 388
State income taxes............................ 225 45 51
Tax effect of income not subject to federal
tax due to corporation S status.............. (4,329) (2,542) (1,948)
Other, net.................................... 16 -- --
------- ------- -------
$ 1,695 $ 45 $ 51
======= ======= =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases various equipment and buildings under capital and
noncancelable operating leases with an initial term in excess of one year. As
of December 31, 1996, future minimum rental payments required under these
capital and operating leases are summarized as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1997.................................................... $ 432 $2,175
1998.................................................... 363 1,926
1999.................................................... 340 1,375
2000.................................................... 340 995
2001.................................................... 304 759
Thereafter.............................................. 1,573 690
------- ------
Total................................................... 3,352 $7,920
======
Less amount representing interest....................... (1,804)
-------
Present value of minimum lease payments................. $ 1,548
=======
</TABLE>
Rental expense for operating leases was $3,839,000, $2,640,000 and
$1,574,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with its majority
stockholder for a five-year term renewable annually and has entered into a
consulting agreement with a former stockholder through October 1998.
LITIGATION
There are claims and pending actions incident to the business operations of
the Company. Management does not expect resolution of these matters to have a
material adverse effect on the Company's financial position or future results
of operations or cash flows.
F-16
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RETIREMENT PLAN:
The Company has a defined contribution retirement plan which covers
substantially all full-time employees and is qualified under Section 401(k) of
the Internal Revenue Code. Under the plan, employees may voluntarily
contribute a percentage of their compensation to the plan and the Company may
make discretionary contributions. The Company's contributions to the plan for
the years ended December 31, 1996, 1995 and 1994 were $100,000, $225,000 and
$150,000, respectively.
10. RELATED PARTY TRANSACTIONS:
The Company leases certain buildings and data processing equipment under
capital leases from partnerships partially owned by the majority stockholder
of the Company. Two of the leased warehouses were financed through economic
development and industrial revenue bonds; one series of which was issued by
Newton, Kansas in the original principal amount of $575,000, and with respect
to which, the Company is the sub-lessee of the premises and a co-guarantor,
and one series of which was issued by Elkhart, Indiana in the original
principal amount of $400,000, and with respect to which, the Company is the
lessee of the premises and has agreed to perform the obligations of the lessor
contained in the mortgage. Lease payments for the facilities and equipment
were approximately $672,000 in each of the years ended 1996, 1995 and 1994.
The Company loaned its majority stockholder $5.0 million in 1993, payable in
monthly principal installments of $62,500 plus interest at 9% at December 31,
1995, due November 1997. The Company distributed the loan to stockholder to
the Company's stockholders effective June 30, 1996.
11. OTHER INCOME:
The Company received $800,000 in 1994 from a disability insurance policy on
a former stockholder who was determined disabled and used the proceeds to
retire a note payable to the former stockholder.
12. STOCK-BASED COMPENSATION PLANS:
The Company sponsors the Kevco, Inc. 1995 Stock Option Plan and the Kevco,
Inc. 1996 Stock Option Plan (the "Plans"), which are stock-based incentive
compensation plans. The Company applies APB Opinion 25 and related standards
in accounting for the Plans. In 1995, the FASB issued FASB Statement No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"). Adoption of the cost
recognition provisions of SFAS 123 is optional and the Company has decided not
to elect these provisions of SFAS 123. However, disclosures as if the Company
adopted the cost recognition provisions of SFAS 123 in 1995 are required by
SFAS 123 and are presented below.
Under the Plans, the Company is authorized to issue up to 702,735 shares of
common stock pursuant to "Awards" granted in the form of incentive stock
options (intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended) and nonqualified stock options. Awards may be granted to
selected employees and directors of the Company. During 1995 and 1996, the
Company granted only nonqualified stock options under the Plans.
NONQUALIFIED STOCK OPTIONS
The Plans provide that the exercise price of any stock option will be
determined by the Board of Directors on the date of grant. The stock options
granted in 1995 or 1996 vest over periods of 10 years and 7 years,
respectively. All options vested in November 1996, at the time of the initial
public offering. In accordance with APB 25, the Company has not recognized any
compensation cost for these stock options granted during 1995 and 1996.
F-17
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's stock options as of December 31,
1995 and 1996, and the changes during the year ended on those dates is
presented below:
<TABLE>
<CAPTION>
NONQUALIFIED STOCK OPTIONS
---------------------------------------
1996 1995
------------------- -------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED
SHARES OF AVERAGE SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES
<S> <C> <C> <C> <C>
Outstanding at beginning of year...... 47,854 $ 5.64 -- N/A
Granted............................... 393,450 $11.17 47,854 $5.64
Exercised............................. -- N/A -- N/A
Forfeited............................. 26,108 $10.42 -- N/A
Expired............................... -- N/A -- N/A
Outstanding at end of year............ 415,196 $10.58 47,854 $5.64
Exercisable at end of year............ 415,196 $10.58 -- N/A
Weighted-average fair value of options
granted during the year.............. $ 1.84 -- $ 1.39 --
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the minimum value method of option pricing with the following
weighted-average assumptions for grants in 1995 and 1996, respectively:
dividend yield of zero percent for both years; risk-free interest rates are
different for each grant and range from 5.77% to 6.19%; and the expected lives
of 5 and 3.5 years, respectively, for the 1995 and 1996 options. In
determining the "minimum value," SFAS 123 does not require the volatility of
the Company's common stock underlying the options to be calculated or
considered because the Company was not publicly-traded when the options were
granted.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ------------------------
NUMBER NUMBER
OUTSTANDING WEIGHTED WEIGHTED EXERCISABLE WEIGHTED
AT AVERAGE AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
PRICES 1996 LIFE PRICE 1996 PRICE
-------- ------------ --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 5.64 44,306 7.85 $ 5.64 44,306 $ 5.64
11.17 370,890 5.66 11.17 370,890 11.17
------- ---- ------ ------- ------
415,196 5.90 $10.58 415,196 $10.58
======= ==== ====== ======= ======
</TABLE>
NET INCOME AND NET INCOME PER COMMON SHARE
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's net income and net
income per common share for 1995 and 1996 would approximate the pro forma
amounts below (in thousands):
<TABLE>
<CAPTION>
SFAS 123 PRO SFAS 123 PRO
AS REPORTED FORMA AS REPORTED FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1995 1995
<S> <C> <C> <C> <C>
SFAS 123 charge........... -- $ 711 -- $ 34
Pro forma net income...... $8,932 $8,491 $4,430 $4,409
Pro forma net income per
common share............. $ 1.61 $ 1.54 $ .90 $ 0.89
</TABLE>
F-18
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and the Company anticipates making awards in the future under its stock-based
compensation plans.
13. CHANGE IN ACCOUNTING PRINCIPLE:
During the second quarter of 1997, the Company adopted the FIFO method to
value inventories for which the LIFO method has previously been utilized for
determining cost. The FIFO method will better measure the current value of
such inventories, provide a more appropriate matching of revenues and
expenses, and conform all inventories of the Company to the same accounting
method. Additionally, the change will enhance the comparability of the
Company's financial statements by changing to the predominant method utilized
in its industry.
As required by generally accepted accounting principles, the Company applied
this change retroactively, which resulted in a decrease in net income of
approximately $276,000 for the year ended December 31, 1996 and an increase in
net income of approximately $236,000 and $269,000 for the years ended December
31, 1995 and 1994, respectively. The cumulative effect of this restatement on
retained earnings at January 1, 1994 was an increase of $313,000. Pro forma
net income (see Note 1) increased approximately $69,000, $144,000 and $164,000
for the years ended December 31, 1996, 1995 and 1994, respectively and pro
forma earnings per share (see Note 1) increased by $0.01, $0.03, and $0.04 for
the years ended December 31, 1996, 1995, and 1994, respectively, as a result
of applying the change retroactively.
14. SUBSEQUENT EVENTS:
In February 1997, the Company acquired certain assets and liabilities of
Consolidated Forest Products, L.L.C. for approximately $13,870,000.
Consolidated Forest Products, L.L.C. is a privately held manufacturer of wood
products based in Haleyville, Alabama.
In February 1997, the Company acquired the common stock of Bowen Supply,
Inc. for approximately $19,500,000. Bowen Supply, Inc. is a privately held
distributor of building products to the manufactured housing and recreational
vehicle industries based in Americus, Georgia.
The Company will account for these transactions under the purchase method.
F-19
<PAGE>
KEVCO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................... $ 77 $ 2,078
Trade accounts receivable, less allowance for
doubtful accounts of $132
and $100 in 1997 and 1996, respectively........... 25,190 9,458
Inventories........................................ 34,988 23,722
Prepaid expenses and other current assets.......... 1,447 338
-------- -------
Total current assets.............................. 61,702 35,596
Property and equipment, net......................... 18,563 10,208
Intangible assets, net.............................. 33,600 9,495
Other assets........................................ 713 440
-------- -------
Total assets...................................... $114,578 $55,739
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable............................. $ 22,245 $ 6,666
Accrued liabilities................................ 4,050 3,107
Income taxes payable............................... 118 762
Current portion of long-term debt.................. 112 367
Current deferred income taxes...................... 50 168
-------- -------
Total current liabilities......................... 26,575 11,070
Long-term debt, less current portion................ 45,737 9,464
Deferred income taxes............................... 629 629
Deferred compensation obligation.................... 1,240 383
-------- -------
Total liabilities................................. 74,181 21,546
-------- -------
Stockholders' equity:
Common stock, $.01 par value; 100,000 shares autho-
rized; 6,825 shares issued and outstanding........ 68 68
Additional paid-in capital......................... 32,974 32,854
Retained earnings.................................. 7,355 1,271
-------- -------
Total stockholders' equity........................ 40,397 34,193
-------- -------
Total liabilities and stockholders' equity........ $114,578 $55,739
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................. $271,957 $205,048
Cost of sales......................................... 235,138 174,055
-------- --------
Gross profit......................................... 36,819 30,993
Commission income..................................... 4,413 4,100
-------- --------
41,232 35,093
Selling, general and administrative expenses.......... 28,738 22,590
-------- --------
Operating income..................................... 12,494 12,503
Interest expense...................................... 2,354 1,626
-------- --------
Income before income taxes........................... 10,140 10,877
Income taxes.......................................... 4,056 30
-------- --------
Net income........................................... $ 6,084 $ 10,847
======== ========
Earnings per share.................................... $ 0.88
========
Weighted average shares outstanding................... 6,916
========
Pro forma information (Note 5)
Historical income before income taxes................ $ 10,877
Income tax expense adjustments....................... 4,133
--------
Pro forma net income................................. $ 6,744
========
Pro forma earnings per share......................... $ 1.32
========
Weighted average shares outstanding.................. 5,098
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
KEVCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30
----------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows form operating activities:
Net income.................................................. $ 6,084 $10,847
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 2,172 1,318
Gain on sale of assets..................................... (3) (4)
Deferred compensation obligation........................... 375 24
Changes in assets and liabilities.......................... (2,390) (474)
------- -------
Net cash provided by operating activities.................. 6,238 11,711
Cash flows from investing activities:
Purchase of Consolidated.................................... (13,420) --
Purchase of Bowen........................................... (19,115) --
Purchase of equipment....................................... (2,000) (1,086)
Proceeds from sale of assets................................ 806 4
Increase in other assets.................................... (509) (314)
------- -------
Net cash used by investing activities...................... (34,238) (1,396)
Cash flows from financing activities:
Proceeds (payments) on line of credit, net.................. 4,600 (5,500)
Proceeds from long-term debt................................ 30,000 --
Distributions paid.......................................... -- (5,915)
Payments of long-term debt.................................. (8,721) (99)
Capital contributions....................................... -- 86
Collections on loan to stockholder.......................... -- 375
Stock options exercised..................................... 120 --
------- -------
Net cash provided (used) by financing activities........... 25,999 (11,053)
------- -------
Net decrease in cash and cash equivalents.................... (2,001) (738)
Beginning cash and cash equivalents.......................... 2,078 977
------- -------
Ending cash and cash equivalents............................. $ 77 $ 239
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The Annual Report on Form 10-K for the year ended December 31, 1996, for
Kevco, Inc. includes a summary of significant accounting policies and should
be read in conjunction with this Form 10-Q. Prior to the effective date of the
initial public offering (see Note 3), Kevco, Inc. restructured and created an
operating company subsidiary with a subsidiary. As a result, the financial
statements are referred to as consolidated financial statements. The
accompanying consolidated financial statements of Kevco, Inc. and its wholly-
owned subsidiaries (the "Company") have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles ("GAAP") for complete financial
statements. All significant intercompany transactions and accounts have been
eliminated.
In the opinion of management, the consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair statement of the balance sheets as of September 30, 1997
and December 31, 1996, the statements of income for the nine-month period
ended September 30, 1997 and 1996 and the statements of cash flows for the
nine-month period ended September 30, 1997 and 1996. The results of operations
for the nine-month period ended September 30, 1997 are not necessarily
indicative of the results of operations for the entire fiscal year ending
December 31, 1997.
On August 29, 1996, the Company effected a 0.47-for-1 reverse stock split of
its common stock and retired its treasury shares. All share and per share
amounts included in the accompanying financial statements and footnotes have
been restated to reflect the reverse stock split.
2.ACQUISITIONS
On February 27, 1997, the Company acquired substantially all of the assets,
and assumed certain liabilities, of Consolidated Forest Products, L.L.C.
("Consolidated") (the "Consolidated Acquisition") for approximately $14.0
million. The acquisition was accounted for as a purchase and, accordingly, the
operating results of Consolidated have been included in the operating results
of the Company since February 27, 1997. The acquisition cost in excess of the
fair value of net assets of Consolidated of approximately $9.6 million has
been accounted for as goodwill and will be amortized over its estimated useful
life of 40 years.
On February 28, 1997, the Company purchased all of the capital stock of
Bowen Supply, Inc. ("Bowen") (the "Bowen Acquisition") for approximately $19.5
million. The acquisition was accounted for as a purchase and, accordingly, the
operating results of Bowen have been included in the operating results of the
Company since February 28, 1997. The acquisition cost in excess of the fair
value of net assets of Bowen of approximately $14.9 million has been accounted
for as goodwill and will be amortized over its estimated useful life of 40
years.
The following pro forma financial information combines the historical
results of the Company as if the Consolidated Acquisition, the Bowen
Acquisition and the initial public offering had occurred as of the beginning
of each period presented:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net sales............................................... $294,253 $305,379
Net income.............................................. $ 6,467 $ 10,001
Earnings per share...................................... $ 0.93 $ 1.45
</TABLE>
F-23
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3.INITIAL PUBLIC OFFERING
In November 1996, the Company completed an initial public offering of
2,415,000 shares of the Company's common stock (including an over-allotment
option of 315,000 shares exercised in December 1996) for $12.00 per share,
netting proceeds to the Company after underwriting discounts and expenses of
approximately $26.0 million. Proceeds to the Company were used to repay all of
the outstanding balance of the Company's $20.0 million revolving credit
facility of $9.0 million and a permanent reduction of all of the outstanding
balance of the Company's term loan of $13.9 million. Proceeds were also used
to make an S corporation distribution of approximately $3.7 million
representing previously taxed but undistributed earnings through June 30, 1996
(see Note 7 and 8).
4.INVENTORIES
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials........................................ $ 7,922 $ 4,385
Work-in process...................................... 636 332
Finished goods....................................... 1,938 1,324
Goods held for resale................................ 24,492 17,681
------- -------
$34,988 $23,722
======= =======
</TABLE>
During the second quarter of 1997, the Company adopted the FIFO method to
value inventories for which the LIFO method had previously been utilized for
determining cost. The FIFO method will better measure the current value of
such inventories, provide a more appropriate matching of revenues and
expenses, and conform all inventories of the Company to the same accounting
method. Additionally, the change will enhance the comparability of the
Company's financial statements by changing to the predominant method utilized
in its industry.
The Company applied this change retroactively, which resulted in an increase
in retained earnings of approximately $542,000 and $818,000 at January 1, 1997
and 1996, respectively. There was no material impact on net income or earnings
per share for the three and nine months ended September 30, 1996.
5.PRO FORMA INFORMATION
Pro forma net income for 1996 represents the results of operations adjusted
to reflect a provision for income taxes on historical income before income
taxes, which gives effect to the change in the Company's income tax status to
a C corporation concurrently with the consummation of the Company's initial
public offering. The difference between the pro forma income tax rates
utilized and the federal statutory rate of 34% relates primarily to state
income taxes.
Pro forma earnings per share for 1996 has been computed by dividing pro
forma net income by the weighted average number of shares of common stock
outstanding during the period.
In accordance with a regulation of the Securities and Exchange Commission,
pro forma earnings per share data for 1996 have been presented to reflect the
effect of the assumed issuance of that number of shares of common stock that
would generate sufficient cash to pay an S corporation distribution in an
amount equal to previously taxed but undistributed earnings.
Historical earnings per share for 1996 is not presented because it is not
indicative of the ongoing entity.
F-24
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6.INCOME TAXES
Prior to November 6, 1996, the Company's stockholders had elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code. As a
result, there was no provision for federal income taxes in the historical
financial statements for the nine-month period ended September 30, 1996, as
such taxes were the responsibility of the individual stockholders. Effective
November 6, 1996, the Company converted to a C corporation and became subject
to federal income taxes on an ongoing basis.
7.STOCKHOLDERS' EQUITY
In conjunction with its initial public offering, the Company terminated its
S corporation status and distributed to its stockholders approximately $3.7
million, representing previously taxed but undistributed earnings at June 30,
1996. On December 31, 1996, the Company repaid notes in the approximate
aggregate amount of $5.2 million that were issued immediately prior to the
consummation of the offering, which notes were the final S corporation
distribution and represented earnings from July 1, 1996 to the consummation of
the offering.
8.CREDIT AGREEMENT
In February 1997, the Company and its lender amended the credit agreement in
order to fund the Consolidated Acquisition and the Bowen Acquisition (see Note
2). The term debt was increased to $30.0 million and the revolving credit
facility was increased to $35.0 million, each maturing in 2001. The Company's
term debt and revolver are collateralized by inventory, accounts receivable
and property and equipment and the common stock of the Company's subsidiaries
(see Note 1). The related credit agreement contains certain restrictions and
conditions that include cash flow and various financial ratio requirements,
and limitations on incurrence on debt or liens, acquisitions of property and
equipment, distributions to shareholders and certain events constituting a
Change of Control (as defined in such agreement).
9.RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128 simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, Earnings Per Share
("Opinion 15"), and makes them comparable to international EPS standards. SFAS
128 replaces the presentation of primary EPS with a presentation of basic EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15. SFAS 128 also requires
dual presentation of basic and diluted EPS on the face of the income statement
for entities with complex capital structures and a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. SFAS 128
requires restatement of all prior-period EPS data presented. The Company is
currently evaluating SFAS 128. However, management does not believe that it
will have a material impact on the consolidated financial statements of the
Company.
F-25
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In February 1997, The FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure" ("SFAS
No. 129"). SFAS No. 129 establishes standards for disclosing information about
an entity's capital structure and applies to all entities. This statement
continues the previous requirements to disclose certain information about an
entity's capital structure found in APB Opinions No. 10, Omnibus Opinion -
1966, and No. 15, Earnings per Share, and FASB Statement No. 47, Disclosure of
Long-Term Obligations, for entities that were subject to the requirements of
those standards. This statement supersedes specific disclosure requirements of
Opinions 10 and 15 and Statement 47 and consolidates them in this statement
for ease of retrieval and for greater visibility to non-public entities. This
statement is effective for financial statements for periods ending after
December 15, 1997. It is not expected that the Company will experience any
material revision in its disclosures when SFAS No. 129 is adopted.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. It does not require a
specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in
that financial statement. This statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. This
statement has no impact on the financial condition or results of operations of
the Company, but may require changes to the Company's disclosure requirements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement supersedes FASB Statement No. 14, Financial Reporting for Segments
of a Business Enterprise, but retains the requirement to report information
about major customers. It amends FASB Statement No. 94, Consolidation of All
Majority-Owned Subsidiaries, to remove the special disclosure requirements for
previously unconsolidated subsidiaries. This statement is effective for fiscal
years beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This statement
need not be applied to interim financial statements in the initial year of
application, but comparative information for interim periods in the initial
year of application is to be reported in financial statements for interim
periods in the second year of application. This statement has no impact on the
financial condition or results of operations of the Company, but may require
changes in the Company's disclosure requirements.
10.SUBSEQUENT EVENT
On October 21, 1997, Kevco signed a definitive merger agreement with Shelter
Components Corporation ("Shelter") for Kevco to acquire all the outstanding
shares of Shelter. Pursuant to the agreement, Kevco will pay $17.50 per share
for each share of common stock of Shelter which currently has approximately
7.8 million shares of common stock outstanding. The transaction will be a cash
tender offer followed by a cash merger to acquire any shares not previously
tendered. As a result of the transaction, Shelter will become a wholly-owned
subsidiary of Kevco.
F-26
<PAGE>
KEVCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In connection with the acquisition of Shelter, Kevco has entered into an
arrangement to amend its credit agreement with a bank at closing of the
acquisition to allow for aggregate senior borrowings of up to $125 million.
The aggregate amount will be comprised of a revolving credit facility of $35
million and a term loan facility of up to $90 million. The revolving credit
facility will mature six years from date of closing and assuming a term loan
facility of $90 million, the term loan scheduled repayments will be $0.5
million in 1998, $5.5 million in 1999, $8.0 million in 2000, $8.0 million in
2001, $10.5 million in 2002, $10.5 million in 2003 and $47.0 million in 2004.
Borrowings under the revolving credit facility require monthly, bi-monthly or
quarterly interest payments (depending on whether interest accrues based on
the prime rate or LIBOR) calculated as a blend of the bank's prime rate and
LIBOR based on pricing options selected by the Company plus a margin
determined by operating statistics of the Company. Borrowings under the term
loan facility require monthly, bi-monthly or quarterly interest payments
(depending on whether interest accrues based on the prime rate or LIBOR) based
on a blend of the bank's prime rate and LIBOR based on pricing options
selected by the Company plus a margin determined by operating statistics of
the Company. The term loan and revolving credit facility is collateralized by
substantially all of the assets of the Company and its subsidiaries as well as
the capital stock of such subsidiaries. The related credit agreement contains
certain restrictions and conditions that include cash flow and various
financial ratio requirements, and limitations on incurrence of debt or liens,
acquisitions of property and equipment, distributions to stockholders and
certain events constituting a Change of Control (as defined in the agreement).
In addition to the funds available under the amended credit facility, the
Company will issue senior subordinated notes in the aggregate principal amount
of $105 million to complete the acquisition of the outstanding shares of
Shelter.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Shelter Components Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Shelter
Components Corporation and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Indianapolis, Indiana
February 18, 1997
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Shelter Components Corporation:
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Shelter Components Corporation and
subsidiaries for the year ended December 31, 1994. These financial statements
are the responsibility of the Corporation's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, and the consolidated results of operations and cash
flows of Shelter Components Corporation and subsidiaries for the year ended
December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Southbend, Indiana
February 7, 1995
F-29
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................. $ 21,096 $ 24
Trade receivables, less allowance for doubtful receivables,
1996 and 1995--$500....................................... 22,827 25,452
Inventories................................................ 41,475 50,049
Deferred income taxes...................................... 2,128 1,412
Prepaid expenses and other................................. 595 457
Real estate held for sale.................................. 2,576 --
-------- --------
Total current assets..................................... 90,697 77,394
Property, plant and equipment, net........................... 19,381 17,587
Cost in excess of net assets acquired, net of accumulated am-
ortization, 1996--$1,482 and 1995--$1,125................... 10,312 11,554
Other assets................................................. 520 879
-------- --------
Total assets............................................. $120,910 $107,414
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt............................................ $ 6,000 $ 4,723
Current maturities of long-term debt....................... 1,904 2,009
Accounts payable, trade.................................... 23,067 23,159
Income taxes payable....................................... 2,381 43
Accrued liabilities:
Salaries and wages........................................ 2,142 2,015
Accrued expenses related to sale of business.............. 1,703 --
Other..................................................... 3,416 3,716
-------- --------
Total current liabilities................................ 40,613 35,665
-------- --------
Long-term debt............................................... 16,639 19,596
-------- --------
Deferred income taxes........................................ 745 944
-------- --------
Other deferred liabilities................................... 133 41
-------- --------
Commitments (Note 8)
Shareholders' equity
Preferred stock, $.01 par value; authorized and unissued
1,000,000 shares
Common stock, $.01 par value; authorized 10,000,000 shares,
issued 1996--7,680,623 shares and 1995--6,098,969 shares.. 76 61
Additional paid-in capital................................. 11,914 11,613
Retained earnings.......................................... 50,827 39,545
-------- --------
62,817 51,219
Less, Treasury stock, at cost, 1996--24,482 shares and
1995--26,767 shares..................................... 37 51
-------- --------
Total shareholders' equity............................. 62,780 51,168
-------- --------
Total liabilities and shareholders' equity............. $120,910 $107,414
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales....................................... $521,022 $462,323 $333,104
Cost of sales................................... 447,701 393,775 281,808
-------- -------- --------
Gross profit.................................. 73,321 68,548 51,296
Commission income............................... 2,459 3,005 3,111
-------- -------- --------
75,780 71,553 54,407
Selling, general and administrative expenses.... 60,194 52,709 39,136
-------- -------- --------
Operating income.............................. 15,586 18,844 15,271
Gain on sale of carpet business................. (5,919) -- --
Interest income................................. (177) (142) (38)
Interest expense................................ 1,831 2,472 1,035
-------- -------- --------
Income before income taxes.................... 19,851 16,514 14,274
Income taxes.................................... 8,153 6,476 5,577
-------- -------- --------
Net income.................................... $ 11,698 $ 10,038 $ 8,697
======== ======== ========
Net income per share............................ $ 1.51 $ 1.31 $ 1.19
======== ======== ========
Weighted average common and common equivalent
shares outstanding............................. 7,738 7,680 7,300
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994........ $ 58 $ 8,395 $21,522 $(246) $29,729
Exercise of stock options....... -- 4 -- 38 42
Cash dividends ($.05 per
share)......................... -- -- (346) -- (346)
Cash paid in lieu of fractional
shares......................... -- -- (6) -- (6)
Net income...................... -- -- 8,697 -- 8,697
---- ------- ------- ----- -------
Balance at December 31, 1994...... 58 8,399 29,867 (208) 38,116
Exercise of stock options....... -- 171 -- 157 328
Cash dividends ($.05 per
share)......................... -- -- (360) -- (360)
Issuance of common shares in
connection with a business
acquisition (Note 9)........... 3 2,923 -- -- 2,926
Tax benefit from early sale of
stock acquired with options.... -- 120 -- -- 120
Net income...................... -- -- 10,038 -- 10,038
---- ------- ------- ----- -------
Balance at December 31, 1995...... 61 11,613 39,545 (51) 51,168
Exercise of stock options....... -- 246 -- 14 260
Cash dividends ($.05 per
share)......................... -- -- (413) -- (413)
Cash paid in lieu of fractional
shares......................... -- -- (3) -- (3)
Five-for-four stock split....... 15 (15) -- -- --
Tax benefit from early sale of
stock acquired with options.... -- 70 -- -- 70
Net income...................... -- -- 11,698 -- 11,698
---- ------- ------- ----- -------
Balance at December 31, 1996...... $ 76 $11,914 $50,827 $ (37) $62,780
==== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 11,698 $ 10,038 $ 8,697
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation.................................. 2,337 1,930 1,508
Amortization.................................. 1,013 967 524
Loss (gain) on sales of property, plant and
equipment.................................... 29 11 (53)
Deferred income taxes......................... (915) (38) (130)
Gain on sale of carpet business............... (5,919) -- --
Changes in certain assets and liabilities,
excluding effects from acquisitions and
dispositions:
Trade receivables............................. 2,760 (1,346) (6,327)
Inventories................................... (738) 1,481 (17,484)
Prepaid expenses and other.................... (138) (154) 167
Accounts payable, trade....................... 2,687 (1,159) 6,479
Other current liabilities..................... 2,174 172 (183)
-------- --------- --------
Net cash provided by (used in) operating
activities................................. 14,988 11,902 (6,802)
-------- --------- --------
Cash flows from investing activities:
Proceeds from sales of property, plant and
equipment.................................... 61 51 120
Acquisitions of property, plant and
equipment.................................... (8,368) (2,790) (2,136)
Acquisitions of businesses, net of cash
acquired..................................... (145) (732) (732)
Proceeds from sale of carpet business, net of
$1,921 costs and expenses paid............... 16,367 -- --
Other, net.................................... 110 180 132
-------- --------- --------
Net cash provided by (used in) investing
activities................................. 8,025 (3,291) (2,616)
-------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of debt................ 83,837 171,697 100,382
Repayment of debt............................. (85,622) (180,271) (90,652)
Proceeds from exercise of stock options....... 260 328 42
Cash dividends paid........................... (413) (360) (346)
Other, net.................................... (3) -- (6)
-------- --------- --------
Net cash (used in) provided by financing
activities................................. (1,941) (8,606) 9,420
-------- --------- --------
Increase in cash............................ 21,072 5 2
Cash, beginning of year......................... 24 19 17
-------- --------- --------
Cash, end of year............................... $ 21,096 $ 24 $ 19
======== ========= ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.................................... $ 1,894 $ 2,516 $ 979
Income taxes................................ 6,660 6,894 5,940
Non-cash investing and financing activities:
Reclassification of short-term borrowings to
reflect debt refinancing..................... -- -- 8,000
Obligations assumed in business acquisitions.. -- 9,438 897
Short-term debt issued in business
acquisition.................................. -- 1,500 --
Long-term debt issued in business
acquisition.................................. -- 5,522 --
Common stock issued in business acquisition... -- 2,926 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business--Shelter Components Corporation and subsidiaries
(individually and collectively referred to as the "Corporation") manufacture
and distribute products and materials primarily for use by the Manufactured
Housing, Modular Housing and Recreational Vehicle industries.
SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation--The consolidated financial statements include
the accounts of the Corporation and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Inventories--Inventories are stated at the lower of cost or market, with
cost determined by the first-in, first-out method.
Property, Plant and Equipment--Property, plant and equipment are carried at
cost less accumulated depreciation. Depreciation is computed primarily by the
straightline method over the estimated useful lives of the assets. Upon sale
or retirement of property, plant and equipment, the asset cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is included in income.
Intangibles--Non-compete agreements are amortized on a straight-line basis
over the terms of the related agreements (3 to 5 years). The excess of
acquisition cost of acquired businesses over the fair value of net assets
acquired ("goodwill") is amortized, using the straight-line method, over
periods ranging from 10 to 40 years. The Corporation periodically reviews the
carrying value of goodwill to assess that recoverability and impairments are
recognized in operating results when a permanent diminution in value has
occurred.
Income Taxes--Deferred income taxes are determined using the liability
method in accordance with Statement of Financial Accounting Standards (SFAS)
No. 109 "Accounting for Income Taxes".
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments--The fair value of all financial
instruments where the face value differs from the fair value are estimated
based upon quoted amounts or the use of current rates available for similar
financial instruments. If fair value accounting had been used at December 31,
1996 and 1995, instead of the historic basis of accounting used in the
financial statements, long-term debt would exceed the reported level by
approximately $1.5 million in each year.
Product Warranty Expense--Provisions are made currently for the estimated
future costs that will be incurred under product warranties presently in
force.
Revenue Recognition and Concentration of Credit Risk--Revenue from product
sales is recognized at the time of shipment and commissions are recognized as
earned on an accrual basis. Although the Corporation has a concentration of
credit risk in the Manufactured Housing and Recreational Vehicle industries,
there is no geographical concentration of credit risk. Sales to one customer
were approximately 11%, 12% and 10% of the Corporation's consolidated net
sales in 1996, 1995 and 1994, respectively. Two of the Corporation's customers
merged during 1996 resulting in combined sales approximating 13% of the 1996
consolidated net sales. The Corporation performs an ongoing credit evaluation
of its customers' financial condition, and credit is extended to customers on
an unsecured basis. Future credit losses are provided for currently through
the allowance for doubtful receivables. Actual credit losses are charged to
the allowance when incurred. The amounts provided for
F-34
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
such losses are determined based on the Corporation's historical loss
experience considering current economic conditions.
Earnings Per Common Share--Primary and fully diluted earnings per common
share computations are based on the weighted average number of shares of
common stock and the dilutive effect of common stock equivalents (see Note 6)
outstanding during each year, adjusted for all stock splits declared during
the periods presented.
NOTE 2: INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Raw materials................................................ $ 5,466 $ 8,272
Work-in-process.............................................. 382 4,986
Finished goods............................................... 814 6,866
Goods held for resale........................................ 34,813 29,925
------- -------
Total...................................................... $41,475 $50,049
======= =======
</TABLE>
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,984 $ 1,435
Buildings................................................... 12,915 10,569
Leasehold improvements...................................... 278 1,217
Machinery and equipment..................................... 6,276 9,739
Office equipment............................................ 2,584 2,569
Transportation equipment.................................... 2,206 2,184
------- -------
26,243 27,713
Less, Accumulated depreciation.............................. 6,862 10,126
------- -------
Property, plant and equipment, net.......................... $19,381 $17,587
======= =======
</TABLE>
NOTE 4: DEBT
The Corporation has a $25 million, unsecured, revolving bank line of credit
(the "Revolver"). The Revolver requires monthly interest payments based on
market interest rates (6.47% at December 31, 1996) and an annual commitment
fee of 1/8% based on the unused portion of the Revolver. Outstanding
borrowings under the Revolver at December 31, 1996 were $6 million which were
repaid in January 1997. There were no outstanding borrowings under the
revolving line of credit at December 31, 1995.
F-35
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
9.24% senior notes.......................................... $15,000 $15,000
6.4% senior notes........................................... 1,500 3,000
Term loan, payable in monthly installments including
interest at 6.75% with a final maturity of February 1999,
collateralized by a real estate mortgage................... 1,279 1,420
Unsecured note, payable in quarterly installments of $50
including interest imputed at 9.24% with a final maturity
of January 2000............................................ 556 697
Other....................................................... 208 1,488
------- -------
Total long-term debt...................................... 18,543 21,605
Less, Current maturities.................................... 1,904 2,009
------- -------
Long-term debt, net of current maturities................. $16,639 $19,596
======= =======
</TABLE>
In February 1995, the Corporation issued $15 million, 9.24%, unsecured
senior notes under a note agreement where interest is payable quarterly and
principal is payable in eight annual installments of $1,875,000 commencing
March 1998.
The unsecured $1.5 million, 6.4% senior note outstanding at December 31,
1996 was paid in full on February 15, 1997.
Aggregate annual maturities of long-term debt for each of the next five
years ending December 31 are as follows: 1997-$1,904,000; 1998-$2,285,000;
1999-$3,055,000; 2000-$1,924,000 and 2001-$1,875,000.
The revolver and senior note agreements contain, among other provisions,
certain covenants including: maintenance of minimum net worth and certain
financial ratios; limitations on indebtedness, liens and leases; and
limitations on the payment of cash dividends. Under the senior note agreements
and revolver, retained earnings of $39.2 million at December 31, 1996 is
restricted, as to cash dividends and purchases or redemptions of shares of
common stock.
NOTE 5: RETIREMENT PLAN
The Corporation has a defined contribution plan which covers substantially
all fulltime employees of the Corporation and is qualified under Section
401(k) of the Internal Revenue Code. Under the plan, employees may voluntarily
contribute a percentage of their compensation and the plan allows the
Corporation to make discretionary matching contributions. Retirement plan
expense, including administrative expenses, aggregated $271,000; $259,000 and
$198,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 6: SHAREHOLDERS' EQUITY
The Corporation is authorized to issue 1,000,000 shares of special
(preferred) shares (par value $.01), of which none have been issued. The
special shares have no voting rights or powers, except the Corporation's Board
of Directors is vested with authority to determine and state the designations
and relative preferences, limitations, voting rights, if any, and other rights
of the special shares.
On May 30, 1996, the Board of Directors declared a five-for-four stock split
of the Corporation's common stock, paid on July 8, 1996 to shareholders of
record on June 24, 1996. On February 8, 1994, the Board of Directors declared
a three-for-two stock split of the Corporation's common stock, paid on March
8, 1994 to shareholders of record on February 22, 1994. All historical share
and per share data has been restated for all periods presented herein to
reflect these stock splits.
F-36
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1996, the Board of Directors approved the Shelter Components Employee
Stock Purchase Plan which allows all full-time employees to purchase shares of
the Corporation's common stock through payroll deduction at market prices. As
of December 31, 1996, 4,422 shares of common stock had been purchased by
employees participating in the plan. The Corporation pays the expenses of
administering the plan.
The Corporation has a stock incentive plan authorizing the grant of
incentive stock options and nonqualified stock options to purchase up to
937,500 shares of the Corporation's common stock. Under the plan, the
incentive stock option price may not be less than the fair market value of the
Corporation's common stock at the date of grant. Generally, the options become
exercisable over staggered periods and expire five years from the date of
grant.
The transactions for shares under options for each of the three years in the
period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SHARES
UNDER PER SHARE
OPTION OPTION PRICE
<S> <C> <C>
Outstanding, January 1, 1994.......................... 322,144 $1.54-$6.94
Exercised........................................... (24,884) 1.54- 2.02
--------
Outstanding, December 31, 1994........................ 297,260 1.54- 6.94
Exercised........................................... (104,235) 1.54- 6.94
Granted............................................. 241,250 9.20
--------
Outstanding, December 31, 1995........................ 434,275 1.54- 9.20
Exercised........................................... (65,823) 1.54- 9.20
Cancelled........................................... (19,687) 6.94- 9.20
--------
Outstanding, December 31, 1996........................ 348,765 6.94- 9.20
========
Exercisable, December 31, 1996........................ 136,401 $6.94-$9.20
========
</TABLE>
As of December 31, 1996, 331,095 shares were reserved for the granting of
future stock options under this plan, compared with 106,330 shares at December
31, 1995.
In 1996, the Board of Directors implemented a non-qualified stock option
plan for the purpose of granting stock options to the Corporation's non-
employee directors. The plan provides for annual grants of 2,500 options to
each non-employee director at the fair market value of the Corporation's
common stock at the date of the grant. The options are immediately exercisable
upon grant. In May 1996, a total of 20,000 options were granted to the non-
employee directors of the Corporation at an exercise price of $10.90 per
share, all of which were outstanding and exercisable at December 31, 1996. As
of December 31, 1996, 180,000 shares were reserved for the granting of future
stock options to non-employee directors under this plan.
F-37
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Corporation has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The Corporation applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plan.
Accordingly, no compensation cost has been recognized for its fixed stock
option plan. Had compensation cost for the 1995 grant been determined based on
the fair value method as defined in SFAS No. 123, the Corporation's net income
and income per share would have been reduced to the proforma amounts indicated
below.
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
REPORTED PROFORMA REPORTED PROFORMA
<S> <C> <C> <C> <C>
Net income............................... $11,698 $11,548 $10,038 $9,888
Net income per share..................... 1.51 1.49 1.31 1.29
</TABLE>
The fair value of the option grant is estimated on the date of grant with
the following assumptions: expected volatility 32%; risk-free interest rate of
6.04%; and expected life of 3 years.
NOTE 7: INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current............................................ $7,724 $5,414 $4,728
Deferred........................................... (784) (33) (110)
------ ------ ------
6,940 5,381 4,618
------ ------ ------
State:
Current............................................ 1,344 1,100 979
Deferred........................................... (131) (5) (20)
------ ------ ------
1,213 1,095 959
------ ------ ------
Total.............................................. $8,153 $6,476 $5,577
====== ====== ======
</TABLE>
The components of the net deferred tax asset and the net deferred tax
liability as of December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Current deferred tax asset:
Allowance for doubtful receivables...................... $ 196 $ 196
Inventories............................................. 895 601
Accrued liabilities and other........................... 1,037 615
------- -------
Deferred tax asset.................................... $ 2,128 $ 1,412
======= =======
Noncurrent deferred tax asset (liability):
Depreciation............................................ $ (643) $ (743)
Acquired companies...................................... (210) (214)
Other................................................... 108 13
------- -------
Deferred tax liability................................ $ (745) $ (944)
======= =======
</TABLE>
F-38
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of income taxes computed at the statutory
federal income tax rate to the reported provision:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Computed income taxes at federal statutory rate...... $6,948 $5,782 $4,996
State income taxes, net of federal benefit........... 789 711 630
Writedown of non-deductible goodwill................. 280 -- --
Other................................................ 136 (17) (49)
------ ------ ------
Total.............................................. $8,153 $6,476 $5,577
====== ====== ======
</TABLE>
NOTE 8: COMMITMENTS, CONTINGENCIES AND RELATED PARTIES
LEASE COMMITMENTS
The Corporation leases certain facilities under noncancellable agreements
which expire at various dates through September 2000. The lease agreements
require the Corporation to pay property taxes, utilities, insurance, and
repairs and maintenance on the properties. In addition, certain of the
building leases are with entities which are principally owned by certain
directors and officers of the Corporation. During 1996, the Corporation
exercised its option to purchase certain real estate totalling $3.6 million
from ELJO Investments, a partnership principally owned by certain directors
and officers of the Corporation. The aggregate purchase price was below the
fair market value of the properties at the date of purchase. During 1996, the
Corporation also purchased a facility from Stults Realty, Inc. which is owned
by Mr. Stults, the Corporation's President pursuant to a provision in the
January 1995 agreement to purchase the assets of BABSCO, Inc. The purchase
price was approximately $600,000, which reflected the fair market value of the
property.
The Corporation also leases certain transportation, manufacturing,
distribution and office equipment under lease agreements with expiring terms
through May 2004. The transportation leases require weekly rentals plus
additional amounts based upon actual mileage.
The above described leases are accounted for as operating leases. Total
rental expense in the consolidated statements of income for the years ended
December 31, 1996, 1995 and 1994 aggregated $3,759,000, $3,474,000 and
$2,901,000 respectively, including payments to related parties of $266,000 in
1996, $711,000 in 1995, and $531,000 in 1994. Future minimum annual lease
payments under these operating leases, excluding mileage payments that may be
required under transportation vehicle leases, are as follows:
<TABLE>
<CAPTION>
YEAR (IN THOUSANDS)
<S> <C>
1997...................... $2,053
1998...................... 1,724
1999...................... 1,254
2000...................... 711
2001...................... 219
Thereafter................ 168
------
$6,129
======
</TABLE>
SELF INSURANCE
The Corporation is self-insured for certain employee health benefits
($100,000 per individual with an annual aggregate of approximately $1.4
million) and workers' compensation ($500,000 per occurrence with an annual
F-39
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
aggregate of approximately $1.1 million). The Corporation accrues for the
estimated losses occurring from both asserted and unasserted claims. The
estimate of the liability for unasserted claims arising from incurred but not
reported claims is based on an analysis of historical claims data.
OTHER RELATED PARTY TRANSACTIONS
The Corporation made purchases from an electrical wire products supplier in
which the Corporation's President has a 16% ownership interest. Total
purchases for 1996 and 1995 were approximately $3 million per year. The
Corporation believes the purchases were at a price and terms which approximate
general market prices and terms for similar products.
OTHER
Certain claims are pending against the Corporation with respect to matters
arising out of the ordinary conduct of the business. In the opinion of
management, based upon presently available information, either adequate
provision for anticipated costs has been made by insurance, accruals or
otherwise, or the ultimate anticipated costs resulting will not materially
affect the Corporation's consolidated financial position or results of
operations.
During 1996, the Corporation committed to the expansion of its corporate
offices. At December 31, 1996, the outstanding contractual obligation amounted
to $1.1 million.
NOTE 9: BUSINESS ACQUISITIONS
The following acquisitions have been accounted for using the purchase method
of accounting, with the operating results of the acquired businesses being
included in the Corporation's consolidated financial statements from the date
of acquisition.
In January 1995, the Corporation acquired the business operations and
operating assets of BABSCO, Inc. ("BABSCO"), located in Elkhart, Indiana, and
having additional operations in Plymouth and Warsaw, Indiana and Mt. Joy,
Pennsylvania. BABSCO is a wholesale distributor of a full line of electrical
products to the Recreational Vehicle, Manufactured Housing and Modular Housing
industries, and to electrical contractors in the Northern Indiana and Southern
Michigan region. The total purchase price was $18.2 million, consisting of
three promissory notes totalling $7.0 million, 336,323 restricted shares of
common stock with a market value of $2.9 million, and $8.3 million of assumed
liabilities as of the closing date. The promissory notes included a $1.5
million demand note, an $800,000 note payable in quarterly installments over
five years and a $4.7 million note paid in January 1996. The $7.5 million
excess of the purchase price over the fair value of acquired assets
("goodwill") is being amortized over a 20-year period.
The following represents unaudited proforma financial information as if the
acquisition of BABSCO had occurred at the beginning of 1994 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1994
<S> <C>
Net sales....................... $380,022
Net income...................... 9,400
Net income per common share..... 1.23
</TABLE>
On May 2, 1994 the Corporation acquired the business operations and
operating assets of TATCO, Inc. ("TATCO") located in Lancaster, Pennsylvania.
TATCO is a wholesale distributor of building and component products to the
Manufactured and Modular Housing industries. The purchase price, including
liabilities assumed
F-40
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and amounts due under non-compete, employment, and earnout agreements totalled
$2.1 million. The $700,000 excess of the purchase price over the fair value of
acquired assets ("goodwill") is being amortized over a ten-year period.
Proforma financial information had TATCO been acquired as of the beginning of
1994 has not been presented as it is not materially different from historical
results of the Corporation.
NOTE 10: DISPOSAL OF CARPET BUSINESS
On December 31, 1996, the Corporation sold the carpet manufacturing and yarn
processing operations and certain assets and transferred certain liabilities
of its wholly-owned subsidiary, Danube Carpet Mills, Inc., for $18.3 million
in cash. The transaction resulted in a pre-tax gain of $5.9 million which
amounts to a net gain of $.41 per share after income taxes. The gain is net of
$4.5 million of expenses incurred in connection with the sale of the business,
including an $800,000 non-deductible charge for goodwill related to the carpet
and yarn operations. Condensed income statement information and a listing of
the assets and liabilities retained at December 31, 1996 relating to these
operations after eliminating intercompany transactions and allocations are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
<S> <C> <C> <C>
Sales.............................................. $74,851 $68,210 $64,573
Cost of sales...................................... 63,403 55,385 52,228
------- ------- -------
Gross profit..................................... 11,448 12,825 12,345
Selling, general and administrative expenses....... 10,547 8,709 7,658
Interest expense................................... 4 3 15
Gain on sale of business........................... (5,919) -- --
------- ------- -------
Income before income taxes......................... $ 6,816 $ 4,113 $ 4,672
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
Accounts receivable........................................ $3,594
Receivable due from buyer.................................. 135
Real estate held for sale to buyer......................... 1,648
Accounts payable and accrued expenses...................... (2,444)
Income taxes payable....................................... (2,963)
------
Net liabilities retained in excess of assets............. $ (30)
======
</TABLE>
F-41
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash.......................................................... $ 13,139 $ 21,096
Trade receivables, net........................................ 33,010 22,827
Inventories................................................... 43,001 41,475
Deferred income taxes......................................... 2,128 2,128
Prepaid expenses and other.................................... 440 595
Real estate held for sale..................................... 759 2,576
-------- --------
Total current assets........................................ 92,477 90,697
PROPERTY, PLANT AND EQUIPMENT, NET.............................. 25,929 19,381
COST IN EXCESS OF NET ASSETS ACQUIRED, net of accumulated
amortization................................................... 13,126 10,312
OTHER ASSETS.................................................... 1,322 520
-------- --------
Total assets................................................ $132,854 $120,910
======== ========
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Short-term debt............................................... $ -- $ 6,000
Current maturities of long-term debt.......................... 3,007 1,904
Accounts payable, trade....................................... 33,079 23,067
Accrued expenses and income taxes payable..................... 8,302 9,642
-------- --------
Total current liabilities................................... 44,388 40,613
-------- --------
LONG-TERM DEBT.................................................. 17,208 16,639
-------- --------
DEFERRED INCOME TAXES........................................... 745 745
-------- --------
OTHER DEFERRED LIABILITIES...................................... 223 133
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value............................... -- --
Common stock, $.01 par value.................................. 77 76
Additional paid-in capital.................................... 12,759 11,914
Retained earnings............................................. 57,491 50,827
-------- --------
70,327 62,817
Less, Treasury stock.......................................... 37 37
-------- --------
Total shareholders' equity.................................. 70,290 62,780
-------- --------
Total liabilities and shareholders' equity.................. $132,854 $120,910
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales................................................. $357,879 $397,065
Cost of sales............................................. 307,906 339,549
-------- --------
Gross profit............................................ 49,973 57,516
Commission income......................................... 2,074 1,827
-------- --------
52,047 59,343
Operating expenses........................................ 40,810 44,291
-------- --------
Operating income........................................ 11,237 15,052
Gains on sales of real estate............................. 447 --
Interest income........................................... 755 102
Interest expense.......................................... (1,219) (1,398)
-------- --------
Income before income taxes.............................. 11,220 13,756
Income taxes.............................................. 4,320 5,365
-------- --------
Net income.............................................. $ 6,900 $ 8,391
======== ========
Earnings per common and common equivalent share........... $ .89 $ 1.08
======== ========
Weighted average common and common equivalent shares
outstanding.............................................. 7,797 7,749
======== ========
Cash dividends per share.................................. $ .03 $ .02
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 7,419 $ 11,693
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment............. (6,210) (6,057)
Acquisition of business, net of cash acquired............. (866) --
Proceeds from sale of property, plant and equipment....... 1,822 --
Other, net................................................ (1,056) 8
-------- --------
Net cash used in investing activities................... (6,310) (6,049)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt............................ 4,658 73,146
Repayment of debt......................................... (14,412) (78,823)
Other, net................................................ 688 34
-------- --------
Net cash used in financing activities................... (9,066) (5,643)
-------- --------
Increase (decrease) in cash............................. (7,957) 1
Cash, beginning of period................................... 21,096 24
-------- --------
Cash, end of period......................................... $ 13,139 $ 25
======== ========
SUPPLEMENTAL INFORMATION:
Non cash investing and financing activities:
Acquisition of a business:
Obligations assumed..................................... $ 2,372 --
Long-term debt issued................................... 3,500 --
-------- --------
$ 5,872 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
NOTE A--BASIS OF PRESENTATION
The financial statements have been prepared from the unaudited financial
records of the Corporation. In the opinion of management, the financial
statements include all adjustments consisting only of normal recurring
adjustments, necessary for a fair statement of the results of operations and
financial position for the interim periods. The results of operations for the
nine months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1997.
The Consolidated Balance Sheet at December 31, 1996 has been derived from
the Audited Consolidated Financial Statements at that date, but does not
include all disclosures required by generally accepted accounting principles.
The Consolidated Statements of Income and Cash Flows for the nine months
ended September 30, 1996 include the results of operations and cash flows of
Danube Carpet Mills, Inc. ("Danube"), the business operations and certain
assets of which were sold on December 31, 1996. (See also Note E.)
NOTE B--INVENTORIES
Inventories at September 30, 1997 and December 31, 1996 consisted of the
following components (in thousands):
<TABLE>
<CAPTION>
9/30/97 12/31/96
------- --------
<S> <C> <C>
Raw materials............................................. $ 7,557 $ 5,466
Work in process........................................... 566 382
Finished goods............................................ 797 814
Goods held for resale..................................... 34,081 34,813
------- -------
$43,001 $41,475
======= =======
</TABLE>
NOTE C--DEBT
In January 1997, the Corporation repaid the $6 million revolving line of
credit balance using funds available from the December 31, 1996 sale of
Danube's operations. There were no outstanding borrowings under the $25
million bank revolver at September 30, 1997.
In February 1997, the Corporation paid the final $1.5 million principal
installment on a 6.4% institutional investor note.
In June 1997, the Corporation issued convertible 7% notes payable totaling
$3.5 million in connection with the acquisition of the operations and net
assets of Plastic Solutions, Inc. ("PSI") (See Note D). Principal and interest
payments are due annually with final installments due February 2001. The notes
also provide an option for the noteholders to elect to receive payments in
cash or in shares of the Corporation's common stock or a combination thereof
at each payment date. The conversion price is $13.50 per share.
NOTE D--BUSINESS ACQUISITION
On June 27, 1997, the Corporation acquired the net assets and operations of
Plastic Solutions, Inc. ("PSI"), a South Bend, Indiana manufacturer of
injection molded plastic parts with annual sales of approximately $9 million.
The total purchase price of $6.7 million consisted of cash of approximately
$.9 million, $3.5 million in convertible long-term notes payable to the
sellers, and $2.3 million of liabilities assumed. The purchase
F-45
<PAGE>
SHELTER COMPONENTS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
SEPTEMBER 30, 1997
agreement also provides for additional consideration payable to the sellers
contingent upon the future results of PSI through the year 2000. The excess of
the purchase price over the fair value of the acquired assets ("goodwill") was
approximately $3.2 million.
The results of operations for all periods presented would not have been
materially different than reported if PSI had been acquired on January 1,
1996.
NOTE E--DISPOSAL OF CARPET BUSINESS
On December 31, 1996, the Corporation sold the operations and certain assets
of its carpet and yarn manufacturing subsidiary, Danube Carpet Mills, Inc. The
following reflects Danube's 1996 results of operations for the nine month
period ended September 30, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C>
Net sales............................................ $ 57,945
============
Net income........................................... $ 2,073
============
Net income per share................................. $ .27
============
</TABLE>
NOTE F--SUBSEQUENT EVENTS--SALE OF REAL ESTATE
On October 3, 1997, the Corporation sold the remaining real estate held in
connection with the December 1996 sale of the operations and net assets of
Danube Carpet Mills, Inc. The proceeds from the sale were $1.7 million and
resulted in a net after-tax gain of approximately $.4 million or $.05 per
share to be recorded in the fourth quarter of 1997.
NOTE G--SUBSEQUENT EVENTS--MERGER AGREEMENT
On October 21, 1997, the Corporation signed a definitive merger agreement
with Kevco, Inc. for Kevco to acquire all the outstanding shares of the
Corporation at $17.50 per share through a cash tender offer. As a result of
the transaction, and if the tender offer is successful, the Corporation will
become a wholly-owned subsidiary of Kevco.
The transaction has been recommended by the Board of Directors of each
company. The cash tender offer is subject to Kevco receiving at least a
majority of the outstanding shares of Shelter (on a fully-diluted basis) as
well as the receipt of the required regulatory approvals and completion of
anticipated financing, and is expected to be completed on or before December
31, 1997. On October 28, 1997, the Corporation filed its
Solicitation/Recommendation Statement on Schedule 14D-9 relative to the cash
tender offer by Kevco.
Kevco, headquartered in Fort Worth, Texas, is a leading wholesale
distributor and manufacturer of building products to the manufactured housing
and recreational vehicle industries and reported net sales of $267 million and
pro forma net income of $8.9 million, or $1.60 per share for the year ended
December 31, 1996.
F-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors Bowen Supply, Inc. Americus, Georgia
We have audited the consolidated balance sheets of Bowen Supply, Inc., and
Subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Bowen Supply, Inc., and Subsidiary as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ Dougherty McKinnon & Luby
Columbus, Georgia
February 14, 1997, except
for Note K which is
February 28, 1997
F-47
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. $ 39,195 $ 112,131
Trade accounts receivable--Note D...................... 2,283,195 1,783,262
Other receivables...................................... 151,840 97,835
Inventories--Notes C and D............................. 4,040,910 3,699,942
Deferred taxes--Note I................................. 142,537 65,649
Other current assets................................... 616,479 274,891
----------- ----------
TOTAL CURRENT ASSETS................................... 7,274,156 6,033,710
OTHER ASSETS
Goodwill, net of accumulated amortization of $540,504
and $518,081 for 1996 and 1995, respectively.......... 356,442 378,865
Cash surrender value of life insurance--Notes G and H.. 352,210 356,793
Rental property, net of allowances for depreciation of
$291,294 and $265,144 for 1996 and 1995,
respectively.......................................... 435,704 460,430
Deferred taxes, net--Note I............................ 0 20,231
Other.................................................. 5,450 13,029
----------- ----------
1,149,806 1,229,348
PROPERTY AND EQUIPMENT--Notes D, E and F
Land and land improvements............................. 333,863 92,120
Buildings and improvements............................. 1,732,608 580,154
Leasehold improvements................................. 51,431 42,295
Machinery and equipment................................ 1,249,703 598,753
Furniture and fixtures................................. 580,627 431,779
Construction in progress............................... 0 155,345
----------- ----------
3,948,232 1,900,446
Less allowances for depreciation....................... 1,010,218 777,767
----------- ----------
2,938,014 1,122,679
----------- ----------
$11,361,976 $8,385,737
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank--Note D........................... $ 855,866 $1,857,090
Note payable to stockholder............................ 700,000 0
Trade accounts payable................................. 1,565,624 974,882
Other accrued expenses--Note H......................... 278,732 82,994
Income taxes payable................................... 125,840 153,494
Current portion of long-term debt and capitalized lease
obligations........................................... 289,163 90,672
----------- ----------
TOTAL CURRENT LIABILITIES.............................. 3,815,225 3,159,132
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS, less
portion classified as a current liability--
Notes D and E.......................................... 1,802,421 516,733
NOTE PAYABLE TO STOCKHOLDER--Note F..................... 0 700,000
DEFERRED COMPENSATION--Note G........................... 196,039 212,272
MINORITY INTEREST....................................... 6,640 12,122
STOCKHOLDERS' EQUITY--Note J
Common Stock, par value $.10 per share; authorized
3,000,000 shares...................................... 75,000 75,000
Additional paid-in capital............................. 1,420,000 1,420,000
Retained earnings...................................... 4,806,881 3,050,708
----------- ----------
6,301,881 4,545,708
Less Treasury Stock, at cost........................... 760,230 760,230
----------- ----------
5,541,651 3,785,478
----------- ----------
COMMITMENTS--NOTE E
$11,361,976 $8,385,737
=========== ==========
</TABLE>
See notes to consolidated financial statements
F-48
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
--------------- PAID-IN RETAINED -----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1995
Balances at January 1,
1995.................. 750,000 $75,000 $1,420,000 $1,861,924 125,000 $(760,230) $2,596,694
Net income for the
year.................. 0 0 0 1,188,784 0 0 1,188,784
------- ------- ---------- ---------- ------- --------- ----------
Balances at December
31, 1995............. 750,000 75,000 1,420,000 3,050,708 125,000 (760,230) 3,785,478
Year ended December 31,
1996
Net income for the
year.................. 0 0 0 1,756,173 0 0 1,756,173
------- ------- ---------- ---------- ------- --------- ----------
Balances at December
31, 1996............. 750,000 $75,000 $1,420,000 $4,806,881 125,000 $(760,230) $5,541,651
======= ======= ========== ========== ======= ========= ==========
</TABLE>
- ---------------------
( ) denotes deduction
See notes to consolidated financial statements
F-49
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995
<S> <C> <C>
OPERATING REVENUES AND COSTS
Net sales........................................... $41,301,322 $30,296,011
Less cost of goods sold--Note C..................... 33,269,930 24,026,234
----------- -----------
GROSS PROFIT...................................... 8,031,392 6,269,777
OTHER OPERATING REVENUES.............................. 1,403,328 918,595
----------- -----------
9,434,720 7,188,372
OPERATING EXPENSES--Note H
Selling, warehouse and delivery..................... 4,424,647 3,616,386
General and administrative.......................... 1,755,821 1,406,924
----------- -----------
6,180,468 5,023,310
----------- -----------
INCOME FROM OPERATIONS............................ 3,254,252 2,165,062
NONOPERATING REVENUES AND EXPENSES
Rental income, net--Note E.......................... 1,475 14,801
Gain on sale of assets.............................. 14,100 94,419
Interest income..................................... 5,069 6,218
Minority interest (deduction)....................... (518) 4,891
Interest expense (deduction)--Note H................ (369,143) (333,386)
----------- -----------
(349,017) (213,057)
----------- -----------
INCOME BEFORE INCOME TAXES........................ 2,905,235 1,952,005
INCOME TAX EXPENSE--Note I............................ 1,149,062 763,221
----------- -----------
NET INCOME........................................ $ 1,756,173 $ 1,188,784
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-50
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers...................... $ 42,165,191 $ 30,933,192
Cash paid to suppliers and employees.............. (39,066,689) (29,940,882)
Income taxes paid................................. (1,233,371) (953,110)
Interest received................................. 5,069 6,218
Interest paid..................................... (362,618) (347,754)
------------ ------------
NET CASH PROVIDED FROM (USED IN) OPERATING
ACTIVITIES..................................... 1,507,582 (302,336)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment and
rental property.................................. 27,801 144,110
Purchases of property and equipment............... (1,429,218) (130,644)
Proceeds from cash surrender value of life
insurance........................................ 67,532 0
Purchase of minority interest in subsidiary....... (6,000) 0
Increase in cash surrender value of life
insurance........................................ (62,949) (50,567)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES........... (1,402,834) (37,101)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving credit
agreement........................................ (1,001,224) 387,678
Additional borrowings under long-term debt and
capitalized lease obligations.................... 1,024,216 0
Principal payments on long-term debt and
capitalized lease obligations.................... (200,676) (92,598)
------------ ------------
NET CASH PROVIDED FROM (USED IN) FINANCING
ACTIVITIES..................................... (177,684) 295,080
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS....... 72,936 44,357
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... 112,131 156,488
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR........ $ 39,195 $ 112,131
============ ============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
FROM (USED IN) OPERATING ACTIVITIES
Net income........................................ $ 1,756,173 $ 1,188,784
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Amortization...................................... 22,448 22,536
Depreciation...................................... 285,547 216,668
Deferred compensation............................. 29,807 32,133
Deferred income taxes............................. (56,657) (3,200)
Gain on sale of assets............................ (14,100) (94,419)
Minority interest in net income (loss) of
consolidated subsidiary.......................... 518 (4,891)
Changes in account balances:
Receivables...................................... (540,934) (296,215)
Inventories...................................... (340,968) (789,616)
Other current assets............................. (341,588) (170,243)
Other assets..................................... (5,450) 0
Trade accounts payable........................... 590,742 (174,638)
Other accrued expenses........................... 189,213 (28,178)
Income taxes payable............................. (27,654) (186,689)
Accrued interest payable......................... 6,525 (14,368)
Deferred compensation paid....................... (46,040) 0
------------ ------------
NET CASH PROVIDED FROM (USED IN) OPERATING
ACTIVITIES..................................... $ 1,507,582 $ (302,336)
============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During 1996 and 1995 the Company acquired certain assets in exchange for
directly related debt totaling $660,639 and $150,000, respectively.
- ---------------------
( ) denotes deduction
See notes to consolidated financial statements
F-51
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts and transactions of the Company and its 90% owned (80% owned in
1995) subsidiary, Encore Industries, Inc. All significant intercompany
accounts and transactions have been eliminated in the consolidated financial
statements.
Description of Business: The Company is primarily engaged in the wholesale
distribution of building products to the manufactured housing industry. The
Company operates out of eleven warehouse locations located throughout the
continental United States.
Concentration of Credit Risks: The Company extends unsecured credit to
customers located throughout the continental United States.
The Company maintains its cash in bank deposit accounts at high credit
quality financial institutions. The balances, at times, may exceed federally
insured limits.
The Company had net sales to two customers representing 20% and 12% of net
sales in 1996.
Inventories: Inventories are valued at the lower of cost or market value.
The last-in, first-out (LIFO) method is used to determine the cost of the
Company's inventory.
Property and Equipment and Rental Property: Property and equipment and
rental property are recorded at cost. Major renewals and betterments are
charged to the property accounts while replacements, maintenance and repairs
which do not extend the life of the respective assets are expensed currently.
The Company provides for depreciation of property and equipment and rental
property by charging against operations amounts sufficient to amortize the
cost of properties over their estimated useful lives: buildings 15-40 years;
machinery and equipment 3-10 years; furniture and fixtures 3-8 years.
Depreciation is computed using the straight-line method for financial
reporting purposes and on accelerated methods for income tax purposes.
When properties are disposed of, the related costs and accumulated
depreciation are removed from the respective accounts and any profit or loss
on disposition is credited or charged to operations.
Goodwill: Goodwill represents the excess of purchase price over net tangible
assets acquired. This amount is being amortized on the straight-line method
over a period of 40 years. The Company reviews goodwill to assess
recoverability periodically. At each balance sheet date, management assesses
whether there has been a permanent impairment in the value of goodwill by
considering factors such as expected future operating income, current
operating results and other economic factors. Management believes no
impairment has occurred.
Income Taxes: Income taxes are provided based on earnings reported for tax
return purposes in addition to a provision for deferred income taxes in
accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. The Company provides for deferred income taxes
(see Note I) arising from the use of different methods of reporting
depreciation expense for financial reporting purposes and income tax purposes
and from differences in the timing of recording deferred compensation expense,
bad debt expense, salary expense and certain inventory costs for financial
reporting purposes and income tax purposes.
Retirement Plan: The Company adopted a Defined Contribution 401(k) Plan
effective January 1, 1996, in which substantially all full-time employees are
eligible to participate. Participating employees can defer up to 15% of
eligible compensation and the Company matches the employee contributions at
the rate of 25% of the first 4% of employee deferral. The Company's matching
contribution amounted to $20,452 for 1996.
F-52
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents: For purposes of the Consolidated Statements of
Cash Flows, the Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents.
Revenue Recognition: Revenue from product sales is recognized at the time of
shipment or the time of receipt in the case of direct shipments from vendors
to customers. Commissions are recognized as earned.
Financial Instruments: The carrying amount reported in the consolidated
balance sheets for cash and cash equivalents, accounts receivable, and
accounts payable approximates fair value because of the immediate or short-
term maturity of these financial instruments. The carrying amounts reported
for the revolving line of credit and long-term debt approximate fair value
because the underlying instruments are either at variable interest rates which
reprice frequently or at stated rates of interest which approximate market.
NOTE B--ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE C--INVENTORIES
Inventory cost is determined using the last-in, first-out (LIFO) method of
inventory accounting. The Company utilizes this method because it believes
this method results in a better matching of revenues and expenses. If the
Company had used the first-in, first-out (FIFO) method of inventory
accounting, inventories would have been $196,188 and $216,123 higher than
reported at December 31, 1996 and 1995, respectively.
NOTE D--NOTE PAYABLE AND LONG-TERM DEBT
The Company has a line of credit agreement under which the Company can
borrow up to $3,500,000. Interest is payable at the LIBOR rate plus two
percent and the line of credit is collateralized by inventories, accounts
receivable, machinery and equipment and furniture and fixtures. This agreement
contains certain covenants restricting the payment of dividends and the
maintenance of minimum debt/worth ratios, debt service coverage ratios and
tangible net worth. The amount borrowed under this agreement was $855,866 at
December 31, 1996 (see Note K). The Company had a similar agreement with
another lender in 1995. The amount borrowed under that agreement was
$1,857,090 at December 31, 1995. The weighted average interest rate for
borrowings under the line of credit was 8.3% and 9.9% during 1996 and 1995,
respectively.
F-53
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1995
<S> <C> <C>
Capitalized lease obligations (see Note E).............. $1,164,115 $ 44,259
9.9% note payable to Small Business Administration, due
in monthly installments of $2,279, including interest,
in 1996 and decreasing to $2,229, including interest,
in 2008; collateralized by a second mortgage on real
estate with a cost of $507,591 (see Note K)............ 179,812 187,715
7.0% notes payable to bank, due in monthly installments
totaling $1,117, including interest, through November,
1996; collateralized by trucks with a cost of $42,500.. 0 10,885
8.0% note payable to bank, due in monthly installments
of $1,594, including interest, through June, 1998, with
balance then due; collateralized by real estate with a
cost of $501,662 (see Note K).......................... 98,099 107,904
7.0% note payable to bank, due in monthly installments
of $3,860, including interest, through June, 1998;
collateralized by real estate with a cost of $507,591
(see Note K)........................................... 67,040 106,642
Construction loan payable to bank; due on February 23,
1996; refinanced with 9.0% note below.................. 0 150,000
9.0% note payable to bank, due in monthly installments
of $1,679, including interest, through March, 2001;
with balance then due; collateralized by a second
mortgage on real estate with a cost of $501,662 (see
Note K)................................................ 161,868 0
8.80% note payable to bank, due in monthly installments
of $5,338, including interest, through September, 2006;
collateralized by real estate with a cost of $531,345
(see Note K)........................................... 420,650 0
---------- --------
2,091,584 607,405
Less current portion.................................... 289,163 90,672
---------- --------
$1,802,421 $516,733
========== ========
</TABLE>
Annual maturities on long-term debt and capitalized lease obligations
outlined above at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
1997............................................. $ 289,163
1998............................................. 367,217
1999............................................. 255,092
2000............................................. 211,078
2001............................................. 223,848
Thereafter....................................... 745,186
----------
$2,091,584
==========
</TABLE>
NOTE E--LEASES
The Company has acquired certain assets under capital leases at rates
ranging from 4.90% to 12.46%. The cost and accumulated amortization of assets
under capital leases was $1,456,985 and $102,703, respectively, at December
31, 1996, and $147,095 and $56,528, respectively, at December 31, 1995.
Amortization of these assets is included in depreciation expense in the
accompanying consolidated financial statements.
F-54
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The capitalized lease obligations are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1996 1995
<S> <C> <C>
Construction loan to be refinanced by an Industrial
Revenue bond on April 1, 1997; payable in 120 monthly
installments beginning May 1, 1997, with interest
fixed at the prime rate plus 3/8% as of April 1, 1997;
collateralized by real estate and machinery and
equipment costing $727,482 (see below)................ $ 583,800 $ 0
Capitalized lease obligations with interest rates
ranging from 4.90% to 12.46%; monthly payments ranging
from $16,935 in 1997 to $6,267 in 2001, year of final
payment; collateralized by automobiles, trucks and
equipment costing $729,503............................ 580,315 44,259
---------- -------
$1,164,115 $44,259
========== =======
</TABLE>
The construction loan is to be refinanced from the proceeds of an Industrial
Revenue Bond issued by the Douglas-Coffee County Industrial Authority. The
Company will enter into a lease agreement with the Authority whereby the lease
payments pursuant to the lease will equal the debt service requirements of the
Bonds. The Bond issue will be for an amount not to exceed $616,250. Through
December 31, 1996, the Company had incurred $727,482 in costs relating to this
project.
In addition, certain warehouses and automobiles are leased (see Note H)
under noncancelable operating leases with original terms of three to ten years
and renewal options of similar lengths of time. The warehouse leases generally
provide for the payment of taxes and insurance by the lessor and utilities and
minor repairs by the Company. The total rental expense for all operating
leases amounted to $692,173 and $744,283 for 1996 and 1995, respectively.
Future minimum payments, by year and in the aggregate, under the capital
leases and operating leases with initial terms of one year or more consisted
of the following at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1997.................................................. $ 274,152 $ 415,335
1998.................................................. 289,204 365,284
1999.................................................. 260,062 330,130
2000.................................................. 192,481 312,000
2001.................................................. 98,058 312,000
Thereafter............................................ 465,852 0
---------- ----------
Total minimum lease payments.......................... 1,579,809 $1,734,749
==========
Less amounts representing interest.................... 415,694
----------
Included in Note D.................................... $1,164,115
==========
</TABLE>
In computing the operating lease commitments shown above, it has been
assumed that leases with related parties will be renewed at their expiration
dates at annual rentals in effect at the end of the lease term.
The Company has rental property which it leases to unaffiliated companies
under leases ranging in original terms of one to twelve months. These leases
provide that the Company will pay real estate taxes and insurance on the
leased property.
The Company received rental income totaling $7,987 and $20,635 from these
and other short-term leases in 1996 and 1995, respectively.
F-55
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--NOTE PAYABLE TO STOCKHOLDER
Note payable to stockholder consists of a note with interest payable monthly
at 10% through April 1, 1997, with the principal then due. The note is
collateralized by substantially all machinery and equipment and furniture and
fixtures. The note is subordinated to the line of credit described in Note D.
NOTE G--DEFERRED COMPENSATION
The Company has employment contracts with various employees which provide
for the payment of retirement benefits upon retirement at age 65. The
agreements provide for payments to be made to the employees or their legal
representatives over a ten year period commencing with the month following the
employee's retirement.
The Company has recorded a liability which represents the net present value
of benefits vested under these agreements using an interest rate of 8%. This
liability amounted to $196,039 and $212,272 at December 31, 1996 and 1995,
respectively.
The agreements also provide for death benefits to be paid to the employee's
legal representatives in the event of their death prior to retirement in lieu
of the retirement benefits described above. These benefits and the payment
terms thereof are equal to those described above and are funded by life
insurance policies.
NOTE H--RELATED PARTY TRANSACTIONS
Transactions with related parties not disclosed elsewhere are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1996 1995
<S> <C> <C>
Rental expense on automobiles and trucks........... $ 1,082 $ 12,990
Rental expense on warehouses....................... 276,000 276,000
Interest expense on note payable to stockholder.... 70,192 70,000
Equity in split-dollar life insurance policy on
stockholder/officer............................... 86,878 66,979
Advances to majority stockholder (repaid prior to
year end)......................................... 907,613 0
Entertainment expenses paid to majority stockholder
for use of certain assets......................... 11,900 5,100
</TABLE>
The rental expense is paid under operating leases to the Company's majority
stockholder or President (see Note E).
Other accrued expenses in the accompanying consolidated balance sheets
include interest payable on the note payable to stockholder of $5,945 at
December 31, 1996 and 1995.
NOTE I--INCOME TAXES
The net deferred taxes recorded in the accompanying consolidated balance
sheets include the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1996 1995
----------------- ----------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
<S> <C> <C> <C> <C>
Deferred tax liabilities.............. $ 0 $(77,392) $ 0 $(63,570)
Deferred tax assets................... 142,537 77,392 65,649 83,801
-------- -------- ------- --------
NET DEFERRED TAXES.................. $142,537 $ 0 $65,649 $ 20,231
======== ======== ======= ========
</TABLE>
F-56
<PAGE>
BOWEN SUPPLY, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense in the accompanying Consolidated Statements of Income is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995
<S> <C> <C>
Federal
Current income tax expense........................ $ 999,017 $ 604,087
Deferred income tax benefit (deduction)........... (44,746) (2,883)
----------- ----------
954,271 601,204
----------- ----------
State
Current income tax expense........................ 206,702 162,334
Deferred income tax benefit (deduction)........... (11,911) (317)
----------- ----------
194,791 162,017
INCOME TAX EXPENSE.............................. $ 1,149,062 $ 763,221
=========== ==========
</TABLE>
A reconciliation of income tax expense in the accompanying Consolidated
Statements of Income to the statutory rate is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995
<S> <C> <C>
Income tax expense at 34% statutory rate............ $ 987,780 $ 663,681
Add (deduct):
State income taxes, net of federal benefit........ 128,562 106,931
Income tax effect of nondeductible expenses....... 33,124 19,275
Other............................................... (404) (26,666)
----------- ----------
161,282 99,540
----------- ----------
INCOME TAX EXPENSE.............................. $ 1,149,062 $ 763,221
=========== ==========
</TABLE>
NOTE J--STOCK OPTIONS
The Company has a Qualified Stock Option Plan which reserves 50,000 shares
of the Company's $.10 par value Common Stock for granting to key personnel.
The options allow these personnel to purchase the Company's stock at no less
than $5 per share or 100% of the fair market value, whichever is higher, on
the dates the options are granted. At December 31, 1996, no options had been
granted under this plan.
NOTE K--SUBSEQUENT EVENT
The stockholders of the Company executed an agreement on February 28, 1997,
with Kevco, Inc., whereby Kevco, Inc. will acquire all of the outstanding
stock of the Company. All of the Company's long-term debt (including the
revolver described in Note D) is anticipated to be paid in full in conjunction
with this transaction.
F-57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Consolidated Forest Products, L.L.C.
We have audited the accompanying balance sheets of Consolidated Forest
Products, L.L.C. (the Company) as of September 29, 1996 and October 1, 1995,
and the related statements of income and retained earnings and cash flows for
the year ended September 29, 1996 and the period December 2, 1994 to October
1, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Consolidated Forest
Products, L.L.C. as of September 29, 1996 and October 1, 1995, and the results
of its operations and its cash flows for the year ended September 29, 1996 and
the period December 2, 1994 to October 1, 1995, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
November 8, 1996, except for Note 9 as
to which the date is February 27, 1997
F-58
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
BALANCE SHEETS
SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
<TABLE>
<CAPTION>
SEPTEMBER 29, OCTOBER 1,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 6,254 $ 6,053
Trade accounts receivable, net of allowance of
doubtful accounts of $73,800 and $150,486 in 1996
and 1995, respectively............................ 3,928,686 3,786,127
Advances to owner and employees.................... 17,546 12,757
Inventory.......................................... 4,496,745 4,022,491
Prepaid expenses and other......................... 287,313 252,259
----------- -----------
Total current assets............................. 8,736,544 8,079,687
Property, plant, and equipment, net................ 4,099,814 4,086,385
Organization and financing cost, net of accumulated
amortization of $353,175 and $152,115 in 1996 and
1995, respectively................................ 282,825 483,885
Goodwill, net of accumulated amortization of
$470,130 and $213,690 in 1996 and 1995,
respectively...................................... 3,376,279 3,632,719
Noncompete agreement, net of accumulated
amortization of $27,500 in 1996................... 122,500 0
----------- -----------
$16,617,962 $16,282,676
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Current maturities of long-term debt............... $ 1,798,077 $ 1,586,967
Cash overdraft..................................... 2,552,927 1,718,697
Accounts payable................................... 2,059,859 1,465,965
Accrued liabilities................................ 724,408 652,059
----------- -----------
Total current liabilities........................ 7,135,271 5,423,688
----------- -----------
Long-term debt, less current portion above........... 4,178,829 5,851,307
Borrowings under line of credit...................... 2,956,194 4,253,853
----------- -----------
Total liabilities................................ 14,270,294 15,528,848
----------- -----------
Commitments and contingencies (Note 7)
Members' equity:
Capital contributions.............................. 700,000 700,000
Retained earnings.................................. 1,647,668 53,828
----------- -----------
Total members' equity............................ 2,347,668 753,828
----------- -----------
$16,617,962 $16,282,676
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED SEPTEMBER 29, 1996 AND THE PERIOD
DECEMBER 2, 1994 TO OCTOBER 1, 1995
<TABLE>
<CAPTION>
DECEMBER 2,
1994 TO
SEPTEMBER 29, OCTOBER 1,
1996 1995
<S> <C> <C>
Net sales............................................ $92,474,171 $62,872,613
Cost of sales........................................ 81,745,729 56,642,646
----------- -----------
Gross profit..................................... 10,728,442 6,229,967
Selling, general, and administrative expenses........ 7,597,871 4,978,089
----------- -----------
Income from operations............................... 3,130,571 1,251,878
----------- -----------
Other income and expense:
Other income....................................... 46,213 2,545
Interest expense................................... (1,229,984) (1,053,477)
----------- -----------
Total other expense, net......................... (1,183,771) (1,050,932)
----------- -----------
Net income....................................... 1,946,800 200,946
Retained earnings, beginning of period............... 53,828 0
Tax dividends paid to members........................ (352,960) (147,118)
----------- -----------
Retained earnings, end of period..................... $ 1,647,668 $ 53,828
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 29, 1996 AND THE PERIOD
DECEMBER 2, 1994 TO OCTOBER 1, 1995
<TABLE>
<CAPTION>
DECEMBER 2,
1994 TO
SEPTEMBER 29, OCTOBER 1,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 1,946,800 $ 200,946
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 576,154 392,999
Amortization................................... 485,000 365,805
Loss (gain) on sale of equipment............... 1,487 (1,548)
Other, net..................................... 0 (235,503)
Changes in:
Accounts receivable, net..................... (142,559) (360,511)
Advances to owner and employees.............. (4,789) (21,052)
Inventory.................................... (474,254) (178,918)
Prepaid expenses and other................... (35,054) (111,770)
Accounts payable............................. 593,894 330,574
Accrued liabilities.......................... 72,349 278,509
----------- ------------
Net cash provided by operating activities.. 3,019,028 659,531
----------- ------------
Cash flows from investing activities:
Cash paid in connection with acquisition of net
assets of business.............................. 0 (11,940,730)
Cash paid for organization costs................. 0 (82,624)
Cash paid for noncompete agreement............... (150,000) 0
Capital expenditures............................. (646,070) (1,395,651)
Proceeds from sale of equipment.................. 55,000 62,814
----------- ------------
Net cash used in investing activities...... (741,070) (13,356,191)
=========== ============
Cash flows from financing activities:
Cash paid for financing costs.................... 0 (153,376)
Net (payments) proceeds on line of credit........ (1,297,659) 4,253,853
Proceeds from long-term debt..................... 150,000 6,780,156
Payments on long-term debt....................... (1,611,368) (1,018,379)
Proceeds from capital contributions.............. 0 2,200,000
Change in cash overdraft......................... 834,230 787,577
Tax dividends paid to members.................... (352,960) (147,118)
----------- ------------
Net cash (used in) provided by financing
activities................................ (2,277,757) 12,702,713
----------- ------------
Net increase in cash and cash equivalents.. 201 6,053
Cash and cash equivalents, beginning of period..... 6,053 0
----------- ------------
Cash and cash equivalents, end of period........... $ 6,254 $ 6,053
=========== ============
Supplemental cash flow information:
Cash paid for interest during the period......... $ 1,256,911 $ 944,070
=========== ============
</TABLE>
As described in Note 1, the note payable to member at October 1, 1995 of
$1,264,497 represented a noncash financing activity.
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
On December 2, 1994, Consolidated Forest Products, L.L.C. (the Company)
purchased the net assets of Consolidated Forest Products, Inc. (Predecessor)
for $7,260,104. The financial information of the Company reflects purchase
accounting in which the purchase price of $7,260,104 is allocated to the
underlying assets and liabilities of the Predecessor based on their respective
estimated fair values. In connection with the acquisition, payments in the
amount of $5,995,607 were made to shareholders of the Predecessor who are also
members of the Company. Amounts paid to these members in excess of Predecessor
basis have been recorded as a reduction of members' equity of $1,500,000. A
note payable to the principal member of the Predecessor was recorded for the
unpaid portion of the purchase price. Goodwill, the excess of the purchase
price over the fair value of the net assets acquired, amounted to
approximately $3,846,000 and is being amortized on a straight-line basis over
15 years.
The acquisition of the net assets of the Predecessor was financed with
contributed capital of $2,200,000 and the following borrowings from Barclays
Business Credit, Inc. (which was subsequently acquired by Fleet Capital
Corporation): a term note payable of $5,500,000 and advances under a
$6,500,000 revolving line of credit facility. Following the acquisition,
certain existing indebtedness of the Predecessor was repaid using financing
proceeds.
The Company is engaged in the business of fabricating and distributing
lumber and plywood, at wholesale, as well as manufacturing wood rafters for
mobile home manufacturers. The Company operates and sells to customers
primarily in the Southeastern United States. During the year ended September
29, 1996 and the period December 2, 1994 to October 1, 1995, sales to seven
customers represented approximately 69% and 62% of total sales, respectively,
and outstanding balances related to these customers represented approximately
59% and 63% of accounts receivable as of September 29, 1996 and October 1,
1995, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies used by the Company is set
forth below.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid debt
instruments with an original maturity of three months or less at the time of
purchase to be cash equivalents. Primarily all of the Company's cash and cash
equivalents are held in one major banking institution.
FINANCIAL INSTRUMENTS--The carrying amount reported in the balance sheet for
cash and cash equivalents, accounts receivable, and accounts payable
approximates fair value because of the immediate or short-term maturity of
these financial instruments. The carrying amounts reported for the revolving
line of credit and long-term debt approximate fair value because the
underlying instruments are either at variable interest rates which reprice
frequently or at stated rates of interest which approximate market.
INVENTORY--Inventory is valued at the lower of cost or market. The first-in,
first-out (FIFO) method is used to determine the cost of the Company's
inventory.
INTANGIBLE ASSETS--Intangible assets are stated at cost and are being
amortized on a straight-line basis over lives as follows:
<TABLE>
<CAPTION>
LIFE
<S> <C>
Goodwill.......................................... 15 years
Organization and financing costs.................. 5-7 years
Noncompete agreement.............................. 5 years
</TABLE>
F-62
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company reviews goodwill to assess recoverability periodically. At each
balance sheet date, management assesses whether there has been a permanent
impairment in the value of goodwill by considering factors such as expected
future operating income, current operating results and other economic factors.
Management believes no impairment has occurred.
PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment is stated at
cost and depreciated using the straight-line method over the estimated useful
lives of the assets. Expenditures for repairs and maintenance are charged to
expense as incurred; betterments which materially prolong the lives of the
assets are capitalized. The cost of assets retired or otherwise disposed of
and the related accumulated depreciation are removed from the accounts and the
gain or loss on such disposition is included in income.
LONG-LIVED ASSETS--During the year ended September 29, 1996, the Company
implemented Financial Accounting Standards Board (FASB) Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of. In accordance with FASB 121, the Company will recognize
impairment losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the asset's carrying amount. If
undiscounted future cash flows are less than the asset's carrying amount, an
impairment loss would be recorded using discounted future cash flows. There
were no such losses recognized at September 29, 1996.
INCOME TAXES--As a limited liability company, the Company is not subject to
income taxes. The liability or benefit is passed on to the members of the
Company. Thus, no provision for income taxes has been provided for in the
accompanying financial statements.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVENTORY
Inventory consists of the following at September 29, 1996 and October 1,
1995:
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996 OCTOBER 1, 1995
<S> <C> <C>
Raw materials............................. $3,498,929 $3,299,664
Work-in-process........................... 304,978 187,595
Finished goods............................ 692,838 535,232
---------- ----------
$4,496,745 $4,022,491
========== ==========
</TABLE>
F-63
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT, AND EQUIPMENT
Balances of property, plant, and equipment consist of the following at
September 29, 1996 and October 1, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996 OCTOBER 1, 1995
<S> <C> <C>
Land...................................... $ 393,822 $ 380,792
Buildings................................. 1,091,329 961,767
Machinery and equipment................... 2,159,840 1,784,971
Furniture and office equipment............ 93,099 80,874
Automotive equipment...................... 1,293,355 1,263,902
---------- ----------
5,031,445 4,472,306
Less accumulated depreciation............. 931,631 385,921
---------- ----------
$4,099,814 $4,086,385
========== ==========
</TABLE>
F-64
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
At September 29, 1996 and October 1, 1995, long-term debt consists of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 29, OCTOBER 1,
1996 1995
<S> <C> <C>
Senior note payable to Fleet Capital Corporation,
variable interest (9.75% and 10.25% at September
29, 1996 and October 1, 1995, respectively)
payable monthly along with $114,583 in principal
until January 6, 1998, at which time remaining
principal balance becomes due.................... $3,145,520 $4,520,520
Senior note payable to Fleet Capital Corporation,
variable interest (9.75% and 10.25% at Sepember
29, 1996 and October 1, 1995, respectively)
payable monthly along with $10,833 in principal
until January 6, 1998, at which time remaining
principal balance becomes due.................... 487,505 617,501
Note payable to member, subordinate to the debt
payable to Fleet Capital Corporation, with
interest payable annually at 8%.................. 1,190,681 1,264,497
Subordinated note payable to member, variable
interest (9.25% and 10% at September 29, 1996 and
October 1, 1995, respectively) payable monthly,
principal due January 6, 1999.................... 450,000 300,000
Subordinated note payable to member, variable
interest (9.25% and 10% at September 29, 1996 and
October 1, 1995, respectively) payable monthly,
principal due January 6, 1999.................... 300,000 300,000
Deferred loan origination fee payable to Fleet
Capital Corporation, due January 6, 1998......... 400,000 400,000
Note payable to AmSouth Bank, payable monthly
including interest at 7 3/4%..................... 0 30,156
Note payable to City of Haleyville Water & Sewer
Department, no interest, principal payable $200
monthly.......................................... 3,200 5,600
---------- ----------
5,976,906 7,438,274
Less current maturities........................... 1,798,077 1,586,967
---------- ----------
Long-term portion................................. $4,178,829 $5,851,307
========== ==========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 29:
<S> <C>
1997......................................... $1,798,077
1998......................................... 2,828,829
1999......................................... 1,050,000
2000......................................... 300,000
----------
$5,976,906
==========
</TABLE>
The Company operates under a revolving line of credit agreement with Fleet
Capital Corporation (the Bank), a commercial bank, which provides borrowings
based upon certain inventory and accounts receivable
F-65
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
levels up to a maximum amount of $7,608,000. Advances bear interest at 1.5% in
excess of the prime rate. The interest rate was 9.75% at September 29, 1996.
At September 29, 1996, the outstanding borrowings under this line of credit
totaled $2,956,194 and the total unused availability under this agreement was
approximately $1,540,000. Total outstanding borrowings under this line of
credit become due January 6, 1998.
The revolving line of credit agreement, as well as the senior notes payable
to the Bank, places certain restrictive covenants upon the Company, such as
maintaining specified equity levels, meeting certain financial ratios, and
achieving certain net income and cash flow levels. At September 29, 1996 and
for the year then ended, the Company was in compliance with or had received
appropriate waivers of these covenants. Substantially all of the assets of the
Company are pledged as collateral for the line-of-credit and long-term debt.
The note payable to member of $1,190,681 at September 29, 1996 represents
the unpaid portion of the purchase price as described in Note 1. Principal
payments on the note are subordinate to the debt owed to the Bank; however,
the Bank did allow payment of the first installment on the note in January of
1996 of approximately $65,000. Further, absent any defaults under the bank
agreements, the Company is allowed to make annual interest payments on this
note as well. During the period ended October 1, 1995, the Company obtained
working capital loans of $300,000 each from two of its members to fund working
capital needs of the Company. An additional $150,000 was borrowed from one of
its members during the year ended September 29, 1996. Each of these loans are
subordinated to the Company's bank debt with only interest payments required
until the January 6, 1999 maturity of the notes.
6. RETIREMENT PLAN
The Company has made available to all eligible employees a defined
contribution retirement plan (the Plan). Employees are eligible to participate
after completing six months of service and attaining the age of eighteen. The
Plan provides that employees may elect to defer up to 15% of compensation, as
defined in the plan agreement. The Company will match 50% of employee
deferrals up to 6% of compensation. The Company made contributions of
approximately $40,500 and $26,000 for the year ended September 29, 1996 and
the period December 2, 1994 to October 1, 1995, respectively.
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office and warehouse space under various operating
leases. The leases generally are for terms of three to five years and do not
contain purchase options. Rent expense was approximately $184,000 and $115,000
for the year ended September 29, 1996 and the period December 2, 1994 to
October 1, 1995, respectively.
The future minimum lease payments required under noncancelable operating
leases with initial or remaining terms of one or more years at September 29,
1996 were approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEARS:
<S> <C>
1997.............................................. $182,000
1998.............................................. 178,500
1999.............................................. 177,000
2000.............................................. 64,500
2001.............................................. 2,250
--------
$604,250
========
</TABLE>
F-66
<PAGE>
CONSOLIDATED FOREST PRODUCTS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
LITIGATION
There are claims and pending actions incident to the business operations of
the Company. Management does not expect resolution of these matters to have a
material adverse effect on the Company's financial position or future results
of operations or cash flows.
8. RELATED PARTIES
On January 3, 1995, the Company entered into a sales agreement with Caney
Creek, Inc. (Caney Creek), a sales company owned by individuals with a
minority membership position in the Company. Under this agreement, Caney Creek
has exclusive rights to sell products manufactured by the Company to all but
one of the Company's customers. The initial term of this agreement was for the
three-year period ending December 31, 1997. After the initial term, this
agreement shall automatically renew for successive one-year terms unless
otherwise canceled by either party. Upon termination of the sales agreement,
the Company is obligated to pay Caney Creek an amount equal to one-half of the
sales commissions paid to them during the previous twelve-month period in
exchange for a one-year covenant not to compete from Caney Creek and its
employees. This amount will be paid in twelve monthly installments beginning
the month after the agreement is effectively terminated. Sales commissions
paid to Caney Creek totaled approximately $2,886,000 and $2,000,000 for the
year ended September 29, 1996 and the period December 2, 1994 to October 1,
1995, respectively.
9. SUBSEQUENT EVENT
On February 27, 1997, Kevco, Inc., through a wholly-owned subsidiary,
acquired substantially all of the assets and assumed certain liabilities of
the Company pursuant to the terms of a certain asset purchase agreement, dated
as of January 31, 1997.
F-67
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of Service Supply Systems, Inc.
We have audited the accompanying consolidated statements of income and cash
flows of Service Supply Systems, Inc. and Subsidiary for the year ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of Service Supply Systems, Inc. and Subsidiary for
the year ended December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ Rumsey & Huckaby, P.C.
Cordele, Georgia
February 28, 1995
F-68
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Net sales.......................................................... $100,910
Cost of sales...................................................... 88,029
--------
Gross profit..................................................... 12,881
Commission income.................................................. 1,953
--------
14,834
Selling, general and administrative expenses....................... 11,899
--------
Operating income................................................. 2,935
Other income....................................................... 33
Interest income.................................................... --
Interest expense................................................... (582)
--------
Income before income taxes....................................... 2,386
Provision for income taxes......................................... 871
--------
Net income....................................................... $ 1,515
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-69
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Cash flows from operating activities:
Net income...................................................... $1,515
Adjustments to reconcile net income to net cash used by operat-
ing activities:
Depreciation and amortization................................. 515
Gain on disposal of assets.................................... (33)
Increase in deferred tax asset................................ (266)
Changes in assets and liabilities:
Accounts receivable, net.................................... (2,279)
Inventories................................................. (2,346)
Other receivables........................................... (206)
Prepaid expenses............................................ (250)
Accounts payable............................................ 590
Accrued expenses............................................ 1,239
------
Net cash used by operating activities..................... (1,521)
------
Cash flows from investing activities:
Purchase of property and equipment.............................. (3,850)
Proceeds from sale of assets.................................... 77
Other assets.................................................... (25)
Cash surrender value of insurance policies...................... (34)
------
Net cash used by investing activities..................... (3,832)
------
Cash flows from financing activities:
Proceeds from new borrowings.................................... 8,290
Payments of long-term debt...................................... (3,113)
Dividends paid.................................................. (123)
Collections on loan to stockholders............................. 153
Stock subscriptions receivable.................................. 149
------
Net cash provided by financing activities................. 5,356
------
Net increase in cash and cash equivalents......................... 3
Beginning cash and cash equivalents............................... 25
------
Ending cash and cash equivalents.................................. $ 28
======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-70
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Service Supply Systems, Inc. (the "Company") is in the business of
procuring, producing, transporting, storing and wholesaling plumbing and
building parts to the housing industry. It also acts as warehousing and sales
agent for certain manufacturers of housing components. The Company has
operations in Georgia, Florida, Alabama, North Carolina and Texas. The Company
extends credit to its customers in these states during the normal course of
business.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The Company uses the straight-
line and declining-balance methods to recognize depreciation over the
estimated useful lives of the related assets. Estimated useful lives range
from three to thirty-nine years.
PRINCIPLES OF CONSOLIDATION
The financial statements are a presentation of Service Supply Systems, Inc.
consolidated with its wholly-owned subsidiary, Sunbelt Wood Components, Inc.
All intercompany accounts and transactions are eliminated in consolidation.
INVENTORIES
Inventories are valued at the lower of cost or market. Market is replacement
cost or net realizable value. Inventories purchased for resale are valued
using the last-in, first-out (LIFO) method. Manufactured inventories are
valued using the first-in, first-out (FIFO) method. For the year ended
December 31, 1994, the percentage of inventory valued at LIFO was 79%. The
LIFO reserve at December 31, 1994 was $565,150.
INCOME TAXES
Income taxes are provided on pre-tax earnings reported in the financial
statements. Deferred income taxes have been provided on the future tax effects
of differences between the financial statement and tax values of assets and
liabilities.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Dividends on shares held by the ESOP are charged to retained earnings.
2. INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1994
<S> <C>
Federal income taxes............................................... $993,793
State income taxes................................................. 142,222
Deferred income taxes on temporary differences..................... (265,015)
--------
Provision for income taxes......................................... $871,000
========
</TABLE>
F-71
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the taxes due on pre-tax income using the effective
Federal and State tax rates and the provision for income taxes is as follows:
<TABLE>
<S> <C>
Tax at effective rates............................................. $905,000
Permanent differences and other adjusting items.................... (34,000)
--------
$871,000
========
</TABLE>
At December 31, 1994, a deferred tax asset of $300,000 is included in
prepaid expenses. This represents the estimated future tax effects
attributable to temporary differences in tax and financial accounting for
accounts receivable, inventory and accrued liabilities.
3. LEASES AND RELATED PARTIES
The Company leases land, buildings, autos, trucks, trailers and equipment
under operating leases. Rental expense for the year ended December 31, 1994
amounted to $1,136,784.
Some of these leases were paid to partnerships which are comprised of
stockholders and officers of the Company. Rental expenses paid to these
partnerships for the year ended December 31, 1994 amounted to $136,000.
As of December 31, 1994, future minimum lease payments under noncancelable
terms were as follows for the five succeeding years:
<TABLE>
<S> <C>
1995.................................................. $ 866,567
1996.................................................. 808,925
1997.................................................. 795,325
1998.................................................. 739,571
1999.................................................. 319,944
----------
Total............................................... $3,530,332
==========
</TABLE>
4. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan covering all of its
employees. It provides for discretionary contributions by the Company as
determined annually by the Board of Directors, up to the maximum amount
permitted under the Internal Revenue Code. The plan is a qualified profit
sharing plan required to invest primarily in Company stock. Contributions are
allocated to participants on a nondiscriminatory formula basis.
The Company contributed $732,286 to the plan in 1994. The plan purchased
6,200 shares of stock in 1994 for $148,800.
The plan owned 234,140 shares at December 31, 1994. These shares were
subject to a repurchase obligation by the Company at $40.00 per share at
December 31, 1994.
5.SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
F-72
<PAGE>
SERVICE SUPPLY SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash paid for interest and income taxes for period was as follows:
<TABLE>
<CAPTION>
1994
<S> <C>
Interest.......................................................... $ 582,000
==========
Income Taxes...................................................... $1,615,000
==========
</TABLE>
6.COMMITMENTS AND CONTINGENCIES
The Company is party to a shareholders' agreement giving the Company an
option to purchase all or part of the stock proposed for sale by any
shareholder and requiring the Company to purchase all of those shares upon
death of a shareholder. Terminating employees must offer all of their stock
for purchase by the Company. The purchase price is the fair market value as of
the most recent Annual Valuation Date as determined by independent appraisal
required by the Employee Stock Ownership Plan.
F-73
<PAGE>
INDEX TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Kevco, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet and Notes thereto as
of
September 30, 1997...................................................... P-3
Unaudited Pro Forma Condensed Combined Statement of Income and Notes
thereto
for the Last Twelve Months Ended September 30, 1997..................... P-5
Unaudited Pro Forma Condensed Combined Statement of Income and Notes
thereto
for the Nine Months Ended September 30, 1997............................ P-11
Unaudited Pro Forma Condensed Combined Statement of Income and Notes
thereto
for the Year Ended December 31, 1996.................................... P-17
</TABLE>
P-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The unaudited pro forma condensed combined financial data is based on the
consolidated financial statements of Kevco, Inc. ("Kevco"), the consolidated
financial statements of Bowen Supply, Inc. ("Bowen"), the consolidated
financial statements of Consolidated Forest Products, L.L.C. ("Consolidated
Forest") and the consolidated financial statements of Shelter Components
Corporation ("Shelter") included elsewhere in this Prospectus. The unaudited
pro forma financial data gives effect to (i) the effect on weighted average
shares and earnings per share of the sale of 2,415,000 shares of common stock
of Kevco and the tax impact of Kevco's conversion from an S corporation to a C
corporation in November 1996 (including an over-allotment option of 315,000
shares exercised in December 1996) ("Public Offering"), (ii) the acquisition
by Kevco of Bowen ("Bowen Acquisition") and Consolidated Forest ("Consolidated
Forest Acquisition" and, collectively with the Bowen Acquisition, the "Kevco
Acquisitions"), (iii) Shelter's sale of the operations and certain assets of
Danube Carpet Mills, Inc. ("Danube") by Shelter and the acquisition by Shelter
of PSI ("PSI Acquisition"), (iv) the acquisition by Kevco of Shelter ("Shelter
Acquisition"), (v) the Senior Credit Facility and (vi) the Old Notes Offering
(collectively, the "Pro Forma Transactions") as if these transactions had
occurred on January 1, 1996.
The unaudited pro forma condensed combined balance sheet at September 30,
1997 is based on the consolidated financial statements of Kevco adjusted to
give effect to the Shelter Acquisition and the Old Notes Offering as if such
transactions had occurred on September 30, 1997. The unaudited pro forma
condensed combined statements of income for the year ended December 31, 1996,
the nine month-period ended September 30, 1997 and the last twelve months
ended September 30, 1997, are based on the consolidated financial statements
of Kevco and adjusted to give effect to the Pro Forma Transactions as if such
transactions had occurred on January 1, 1996. The acquisition adjustments and
offering adjustments are based upon historical financial information of Kevco,
Bowen, Consolidated Forest, PSI and Shelter and certain assumptions that
management of Kevco believes are reasonable. The Kevco Acquisitions, the PSI
Acquisition and the Shelter Acquisition are accounted for under the purchase
method of accounting. Under this method of accounting, the purchase price has
been allocated to the assets and liabilities acquired based on preliminary
estimates of fair value. The actual fair value is determined as of the
consummation of each of the acquisitions. The unaudited pro forma financial
data does not necessarily reflect the results of operations or the financial
position of Kevco that actually would have resulted had the Pro Forma
Transactions occurred at the date indicated, or project the results of
operations or financial position of Kevco for any future date or period.
The unaudited pro forma condensed combined financial data should be read in
conjunction with the consolidated financial statements of Kevco, Bowen,
Consolidated Forest and Shelter and the notes thereto included elsewhere in
this Prospectus.
P-2
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHELTER PRO
KEVCO SHELTER ACQUISITION FORMA
HISTORICAL HISTORICAL ADJUSTMENTS(1) TOTAL
ASSETS ---------- ---------- -------------- --------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents.............. $ 77 $ 13,139 $(13,139)(2) $ 77
Trade accounts receivable,
net ..................... 25,190 33,010 -- 58,200
Inventories............... 34,988 43,001 -- 77,989
Other current assets ..... 1,447 3,327 -- 4,774
-------- -------- -------- --------
Total current assets.... 61,702 92,477 (13,139) 141,040
Property and equipment,
net........................ 18,563 25,929 -- 44,492
Intangible assets, net ..... 33,600 13,126 (13,126)(3) 127,549
88,024 (3)
5,925 (4)
Other assets................ 713 1,322 -- 2,035
-------- -------- -------- --------
Total assets............ $114,578 $132,854 $ 67,684 $315,116
======== ======== ======== ========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Trade accounts payable.... $ 22,245 $ 33,079 $ -- $ 55,324
Accrued liabilities....... 4,050 7,279 -- 11,329
Current portion of long-
term debt................ 112 3,007 (2,271)(5) 848
Other liabilities......... 168 1,023 935 (6) 2,126
-------- -------- -------- --------
Total current
liabilities............ 26,575 44,388 (1,336) 69,627
Long-term debt, less current
portion.................... 45,737 17,208 (14,444)(7) 202,255
153,754 (7)
Other liabilities........... 1,869 968 -- 2,837
-------- -------- -------- --------
Total liabilities....... 74,181 62,564 137,974 274,719
Total stockholders'
equity................. 40,397 70,290 (70,290)(8) 40,397
-------- -------- -------- --------
Total liabilities and
stockholders' equity... $114,578 $132,854 $ 67,684 $315,116
======== ======== ======== ========
</TABLE>
P-3
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) The Shelter Acquisition was accounted for using the purchase method of
accounting. The aggregate purchase price was determined as follows:
<TABLE>
<S> <C>
Shares outstanding at September 30, 1997................... 7,765
Options outstanding at September 30, 1997.................. 376
---------
Total.................................................... 8,141
Purchase price per share................................... $ 17.50
---------
$ 142,468
Exercise of options outstanding (a)........................ (3,625)
---------
Purchase price............................................. $ 138,843
Acquisition costs (b)...................................... 5,410
---------
Total purchase price..................................... $ 144,253
=========
</TABLE>
(a) Represents cash to be received by Kevco in settlement of stock options
outstanding as of September 30, 1997 (376,000 options outstanding at an
average price of $9.64 per share).
(b) Represents fees and costs directly associated with the Shelter
Acquisition consisting of investment banking, legal and other
professional costs.
(2) Reflects the utilization of existing cash to finance a portion of the
Shelter Acquisition.
(3) Goodwill was adjusted to reflect: (i) the elimination of existing goodwill
of Shelter and (ii) the excess of purchase cost over the fair value of net
assets acquired which amount will be amortized on a straight line basis
over an estimated life of 40 years.
(4) Intangibles were adjusted to reflect the capitalization of financing costs
that will be amortized over the life of the Senior Credit Facility and the
Notes.
(5) Current portion of long-term debt was adjusted to reflect the retirement
of a portion of long-term debt. See note (7).
(6) The adjustment reflects accrued severance costs related to the involuntary
termination of employees resulting from the Shelter Acquisition.
(7) Long-term debt was adjusted to reflect gross proceeds of $105,000 from the
issuance of the Notes and additional borrowings of $48,754 from the Senior
Credit Facility, net of $14,444 of long-term debt of Shelter that was
retired.
(8) The adjustment reflects the elimination of the stockholders' equity of
Shelter.
P-4
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
LAST TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE OLD
KEVCO PRO SHELTER PRO SHELTER NOTES KEVCO
FORMA FORMA ACQUISITION OFFERING COMBINED
TOTALS(A) TOTALS(B) ADJUSTMENTS ADJUSTMENTS PRO FORMA
--------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $384,269 $470,907 $ -- $ -- $855,176
Cost of sales........... 330,583 404,977 -- -- 735,560
-------- -------- ------ -------- --------
Gross profit.......... 53,686 65,930 -- -- 119,616
Commission income....... 6,224 2,706 -- -- 8,930
-------- -------- ------ -------- --------
59,910 68,636 -- -- 128,546
Selling, general and ad-
ministrative expenses.. 41,035 54,356 (5,346)(1) 91,014
(1,232)(2)
2,201 (3)
-------- -------- ------ -------- --------
Operating income...... 18,875 14,280 4,377 -- 37,532
Interest expense........ (4,068) (1,039) (18,580)(4) (19,536)
4,862 (4)
(711)(4)
Other income (expense).. 174 447 -- -- 621
-------- -------- ------ -------- --------
Income before income
taxes.................. 14,981 13,688 4,377 (14,429) 18,617
Income taxes............ 5,992 5,267 1,751 (5) (4,632)(5) 8,378
-------- -------- ------ -------- --------
Net income............ $ 8,989 $ 8,421 $2,626 $ (9,797) $ 10,239
======== ======== ====== ======== ========
Earnings per share...... $ 1.30 $ 1.48
======== ========
Weighted average shares
outstanding............ 6,916 6,916
======== ========
Other Data:
Operating income...... $ 18,875 $ 14,280 $4,377 $ -- $ 37,532
Depreciation and
amortization......... 3,346 3,839 969 -- 8,154
-------- -------- ------ -------- --------
EBITDA (6)............ $ 22,221 $ 18,119 $5,346 $ -- $ 45,686
======== ======== ====== ======== ========
</TABLE>
- ---------------------
(A) Includes the pro forma effect of the Public Offering and the Kevco
Acquisitions.
(B) Includes the pro forma effect of the sale of the operations and certain
assets of Danube and the PSI Acquisition.
P-5
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
LAST TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(1) Pursuant to EITF 95-3, Kevco has accrued liabilities for the involuntary
termination of certain employees which are included in the financial
statements along with the pro forma effect of the elimination of duplicate
costs. Costs include only direct costs and benefits of these employees.
Kevco believes that the elimination of duplicate employees will have no
material effect on the other reported amounts within the unaudited pro
forma condensed combined financial statements.
(2) To eliminate the historical amortization of goodwill of Shelter.
(3) Represents the amortization of excess purchase price over fair value of
net assets acquired related to the Shelter Acquisition over a period of 40
years.
(4) Interest expense was adjusted to reflect: (i) $18,580 resulting from the
effective interest rate of the Senior Credit Facility at 8.25% and the
Notes at 10 3/8%; (ii) the elimination of interest on existing debt of
$4,862 to be repaid from the proceeds of the Senior Credit Facility and
(iii) the amortization of financing costs of $711 over the life of the
indebtedness.
(5) Income tax expense was adjusted to reflect an effective tax rate of 45%,
which is the expected effective tax rate of the Company after giving
effect to the Shelter Acquisition. The effective rate is higher than the
statutory rate of approximately 40% because of the nondeductibility of
goodwill resulting from the Shelter Acquisition.
(6) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income reflected
in the determination of net income.
P-6
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
LAST TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(A)KEVCO PRO FORMA
<TABLE>
<CAPTION>
PUBLIC CONSOLIDATED KEVCO
KEVCO OFFERING BOWEN SUPPLY FOREST ACQUISITION PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL(3) HISTORICAL(4) ADJUSTMENTS TOTALS
---------- ----------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $334,253 $ -- $17,666 $32,350 $ -- $384,269
Cost of sales........... 287,790 -- 13,915 28,960 (82)(5) 330,583
-------- ---- ------- ------- ------ --------
Gross profit.......... 46,463 -- 3,751 3,390 82 53,686
Commission income....... 5,810 -- 414 -- -- 6,224
-------- ---- ------- ------- ------ --------
52,273 -- 4,165 3,390 82 59,910
Selling, general and
administrative
expenses............... 35,870 -- 2,869 2,811 (213)(6) 41,035
(622)(7)
303(8)
17(9)
-------- ---- ------- ------- ------ --------
Operating income...... 16,403 -- 1,296 579 597 18,875
Interest expense........ (2,786) 108 (1) (149) (381) (1,100)(10) (4,068)
254 (11)
(14)(9)
Other income (expense).. -- -- 227 (53) -- 174
-------- ---- ------- ------- ------ --------
Income before income
taxes................. 13,617 108 1,374 145 (263) 14,981
Income taxes............ 5,377 43 (2) 551 -- 21 (12) 5,992
-------- ---- ------- ------- ------ --------
Net income............ $ 8,240 $ 65 $ 823 $ 145 $ (284) $ 8,989
======== ==== ======= ======= ====== ========
Earnings per share...... $ 1.19 $ 1.30
======== ========
Weighted average shares
outstanding............ 6,916 6,916
======== ========
Other Data:
Operating income...... $ 16,403 $ -- $ 1,296 $ 579 $ 597 $ 18,875
Depreciation and
amortization......... 2,641 -- 138 460 107 3,346
-------- ---- ------- ------- ------ --------
EBITDA(13)............ $ 19,044 $ -- $ 1,434 $ 1,039 $ 704 $ 22,221
======== ==== ======= ======= ====== ========
</TABLE>
P-7
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
LAST TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(A)KEVCO PRO FORMA
(1) To reflect a decrease in interest expense for the month ended October 31,
1996, as if debt of $16.9 million, at an average interest rate of 7.65%,
had been repaid on October 1, 1996 from the net proceeds of the Public
Offering consummated on November 1, 1996. Indebtedness repaid reflects the
portion of net proceeds that were available to repay debt after making
final S corporation distributions of $9.1 million in 1996.
(2) To reflect a provision for income taxes at an effective rate of 40%
associated with the Kevco's conversion to a C corporation offset by the
tax effect of the decrease in interest expense referred to in (1).
(3) The Bowen Acquisition was consummated on February 28, 1997. Historical
results represent unaudited results of operations of Bowen for the five
months ended February 28, 1997.
(4) The Consolidated Forest Acquisition was consummated on February 27, 1997.
Historical results represent unaudited results of operations of
Consolidated Forest for the five months ended February 27, 1997.
(5) To reflect the amortization of the fair value adjustment to inventory of
$82 related to the Bowen Acquisition.
(6) To eliminate amortization of historical goodwill of $10 and $203 related
to Bowen and Consolidated Forest, respectively.
(7) To eliminate expense of $196 related to an executive of Bowen who was
retired in connection with the Bowen Acquisition, to eliminate historical
management fees of Consolidated Forest of $69 and to reflect a reduction
in commission expense of $357 resulting from the amendment of a contract
with a third party in connection with the Consolidated Forest Acquisition.
(8) To reflect the amortization of the fair value adjustments to property and
equipment of $25 related to the Consolidated Forest Acquisition, and to
reflect the amortization of loan origination fees of $18 and $18 and
goodwill of $155 and $87 related to the Bowen Acquisition and Consolidated
Forest Acquisition, respectively.
(9) To reflect the amortization and interest expense related to the non-
compete agreements entered into in connection with the Consolidated Forest
Acquisition.
(10) To reflect interest expense on borrowings to fund the Kevco Acquisitions
at an assumed interest rate of 7.6% totalling $648 and $452 related to
the Bowen Acquisition and Consolidated Forest Acquisition, respectively.
(11) To eliminate historical interest expense related to long-term debt not
assumed by Kevco in the Consolidated Forest Acquisition.
(12) Income tax expense was adjusted to reflect an effective tax rate of 40%,
which is the expected effective tax rate of Kevco.
(13) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income
reflected in the determination of net income.
P-8
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
LAST TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
(B)SHELTER PRO FORMA
<TABLE>
<CAPTION>
SHELTER
SHELTER SALE OF PSI ACQUISITION PRO FORMA
HISTORICAL DANUBE(1) HISTORICAL(2) ADJUSTMENTS TOTALS
---------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $481,836 $(16,836) $5,907 $ -- $470,907
Cost of sales........... 416,058 (16,022) 5,246 (305)(3) 404,977
-------- -------- ------ ---- --------
Gross profit.......... 65,778 (814) 661 305 65,930
Commission income....... 2,706 -- -- -- 2,706
-------- -------- ------ ---- --------
68,484 (814) 661 305 68,636
Selling, general and
administrative expenses
....................... 56,713 (3,000) 576 67 (4) 54,356
-------- -------- ------ ---- --------
Operating income...... 11,771 2,186 85 238 14,280
Interest expense........ (822) 4 (151) (70)(5) (1,039)
Other income (expense).. 6,366 (5,919) -- -- 447
-------- -------- ------ ---- --------
Income before income
taxes................ 17,315 (3,729) (66) 168 13,688
Income taxes............ 7,107 (1,880) -- 40 (6) 5,267
-------- -------- ------ ---- --------
Net income............ $ 10,208 $ (1,849) $ (66) $128 $ 8,421
======== ======== ====== ==== ========
Other Data:
Operating income...... $ 11,771 $ 2,186 $ 85 $238 $ 14,280
Depreciation and
amortization......... 3,359 (140) 327 293 3,839
-------- -------- ------ ---- --------
EBITDA (7)............ $ 15,130 $ 2,046 $ 412 $531 $ 18,119
======== ======== ====== ==== ========
</TABLE>
P-9
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
LAST TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(B)SHELTER PRO FORMA
(1) The operations and certain assets of Danube were sold on December 31,
1996. Historical results represent results of operations related to Danube
for the three months ended December 31, 1996.
(2) The PSI Acquisition was consummated on June 27, 1997. Historical results
represent results of operations of PSI for the nine months ended June 27,
1997.
(3) To: (i) eliminate one-time bonuses given to employees of PSI in connection
with the sale; (ii) reduce compensation expense pursuant to post
acquisition employment agreements and (iii) record additional depreciation
expense for equipment adjusted to fair market value in connection with the
PSI Acquisition.
(4) To: (i) record amortization of goodwill; (ii) reduce compensation expense
for a certain employment agreement and (iii) eliminate non-recurring
charges incurred in connection with the PSI Acquisition.
(5) To reflect interest expense on debt issued, net of interest expense on the
repayment of existing debt in connection with the PSI Acquisition.
(6) Income tax expense was adjusted to reflect Shelter's effective tax rate of
38.5%.
(7) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income reflected
in the determination of net income.
P-10
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE OLD
KEVCO PRO SHELTER SHELTER NOTES KEVCO
FORMA PRO FORMA ACQUISITION OFFERING COMBINED
TOTALS(A) TOTALS(B) ADJUSTMENTS ADJUSTMENTS PRO FORMA
--------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $289,952 $362,139 $ -- $ -- $652,091
Cost of sales........... 250,896 311,329 -- -- 562,225
-------- -------- ------ ------- --------
Gross profit.......... 39,056 50,810 -- -- 89,866
Commission income....... 4,506 2,074 -- -- 6,580
-------- -------- ------ ------- --------
43,562 52,884 -- -- 96,446
Selling, general and
administrative expenses
....................... 30,667 41,239 (3,597)(1) -- 69,077
(883)(2)
1,651 (3)
-------- -------- ------ ------- --------
Operating income...... 12,895 11,645 2,829 -- 27,369
Interest expense........ (2,869) (612) (13,935)(4) (14,652)
3,297 (4)
(533)(4)
Other income (expense).. 52 447 -- -- 499
-------- -------- ------ ------- --------
Income before income
taxes.................. 10,078 11,480 2,829 (11,171) 13,216
Income taxes............ 4,031 4,422 1,054 (5) (3,561)(5) 5,946
-------- -------- ------ ------- --------
Net income............ $ 6,047 $ 7,058 $1,775 $(7,610) $ 7,270
======== ======== ====== ======= ========
Earnings per share...... $ 0.87 $ 1.05
======== ========
Weighted average shares
outstanding............ 6,916 6,916
======== ========
Other Data:
Operating income...... $ 12,895 $ 11,645 $2,829 $ -- $ 27,369
Depreciation and
amortization......... 2,455 2,864 768 -- 6,087
-------- -------- ------ ------- --------
EBITDA (6)............ $ 15,350 $ 14,509 $3,597 $ -- $ 33,456
======== ======== ====== ======= ========
</TABLE>
- ---------------------
(A) Includes the pro forma effect of the Kevco Acquisitions.
(B) Includes the pro forma effect of the PSI Acquisition.
P-11
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(1) Pursuant to EITF 95-3, Kevco has accrued liabilities for the involuntary
termination of certain employees which are included in the financial
statements along with the pro forma effect of the elimination of duplicate
costs. Costs include only direct costs and benefits of these employees.
Kevco believes that the elimination of duplicate employees will have no
material effect on the other reported amounts within the unaudited pro
forma condensed combined financial statements.
(2) To eliminate the historical amortization of goodwill of Shelter.
(3) Represents the amortization of excess purchase price over fair value of
net assets acquired related to the Shelter Acquisition over a period of 40
years.
(4) Interest expense was adjusted to reflect: (i) $13,935 resulting from the
effective interest rate of the Senior Credit Facility at 8.25% and the
Notes at 10 3/8%; (ii) the elimination of interest on existing debt of
$3,297 to be repaid from the proceeds from the Senior Credit Facility and
(iii) the amortization of financing costs of $533 over the life of the
indebtedness.
(5) Income tax expense was adjusted to reflect an effective tax rate of 45%,
which is the expected effective tax rate of the Company after giving
effect to the Shelter Acquisition. The effective rate is higher than the
statutory rate of approximately 40% because of the nondeductibility of
goodwill resulting from the Shelter Acquisition.
(6) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income reflected
in the determination of net income.
P-12
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(A)KEVCO PRO FORMA
<TABLE>
<CAPTION>
KEVCO
CONSOLIDATED PRO
KEVCO BOWEN SUPPLY FOREST ACQUISITION FORMA
HISTORICAL HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS TOTALS
---------- ------------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... $271,957 $6,710 $11,285 $ -- $289,952
Cost of sales........... 235,138 5,398 10,393 (33)(3) 250,896
-------- ------ ------- ---- --------
Gross profit.......... 36,819 1,312 892 33 39,056
Commission income....... 4,413 93 -- -- 4,506
-------- ------ ------- ---- --------
41,232 1,405 892 33 43,562
Selling, general and ad-
ministrative expenses.. 28,738 1,097 1,038 (85)(4) 30,667
(249)(5)
121 (6)
7 (7)
-------- ------ ------- ---- --------
Operating income...... 12,494 308 (146) 239 12,895
Interest expense, net... (2,354) (51) (120) (440)(8) (2,869)
102 (9)
(6)(7)
Other income (expense).. -- 46 6 -- 52
-------- ------ ------- ---- --------
Income before income
taxes................ 10,140 303 (260) (105) 10,078
Income taxes............ 4,056 123 -- (148)(10) 4,031
-------- ------ ------- ---- --------
Net income............ $ 6,084 $ 180 $ (260) $ 43 $ 6,047
======== ====== ======= ==== ========
Earnings per share...... $ 0.88 $ 0.87
======== ========
Weighted averaged shares
outstanding............ 6,916 6,916
======== ========
Other Data:
Operating income...... $ 12,494 $ 308 $ (146) $239 $ 12,895
Depreciation and
amortization......... 2,172 56 184 43 2,455
-------- ------ ------- ---- --------
EBITDA (11)........... $ 14,666 $ 364 $ 38 $282 $ 15,350
======== ====== ======= ==== ========
</TABLE>
P-13
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(A)KEVCO PRO FORMA
(1) The Bowen Acquisition was consummated on February 28, 1997. Historical
results represent unaudited results of operations of Bowen for the two
months ended February 28, 1997.
(2) The Consolidated Forest Acquisition was consummated on February 27, 1997.
Historical results represent unaudited results of operations of
Consolidated Forest for the two months ended February 27, 1997.
(3) To reflect the amortization of the fair value adjustment to inventory of
$33 related to the Bowen Acquisition.
(4) To eliminate amortization of historical goodwill of $4 and $81 related to
Bowen and Consolidated Forest, respectively.
(5) To eliminate expense of $78 related to an executive of Bowen who was
retired in connection with the Bowen Acquisition, to eliminate historical
management fees of Consolidated Forest of $28 and to reflect a reduction
in commission expense of $143 resulting from the amendment of a contract
with a third party in connection with the Consolidated Forest Acquisition.
(6) To reflect the amortization of the fair value adjustments to property and
equipment of $10 related to the Consolidated Forest Acquisition, and to
reflect the amortization of loan origination fees of $7 and $7 and
goodwill of $62 and $35 related to the Bowen Acquisition and Consolidated
Forest Acquisition, respectively.
(7) To reflect the amortization and interest expense related to the non-
compete agreements entered into in connection with the Consolidated Forest
Acquisition.
(8) To reflect interest expense on borrowings to fund the Kevco Acquisitions
at an assumed interest rate of 7.6% totalling $259 and $181 related to the
Bowen Acquisition and Consolidated Forest Acquisition, respectively.
(9) To eliminate historical interest expense related to long-term debt not
assumed by Kevco in the Consolidated Forest Acquisition.
(10) Income tax expense was adjusted to reflect an effective tax rate of 40%,
which is the expected effective tax rate of Kevco.
(11) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income
reflected in the determination of net income.
P-14
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
(B) SHELTER PRO FORMA
<TABLE>
<CAPTION>
SHELTER
SHELTER PSI ACQUISITION PRO FORMA
HISTORICAL HISTORICAL(1) ADJUSTMENTS TOTALS
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................... $357,879 $4,260 $ -- $362,139
Cost of sales................. 307,906 3,682 (259)(2) 311,329
-------- ------ ----- --------
Gross profit................ 49,973 578 259 50,810
Commission income............. 2,074 -- -- 2,074
-------- ------ ----- --------
52,047 578 259 52,884
Selling, general and
administrative expenses...... 40,810 380 49 (3) 41,239
-------- ------ ----- --------
Operating income............ 11,237 198 210 11,645
Interest expense.............. (464) (113) (35)(4) (612)
Other income (expense)........ 447 -- -- 447
-------- ------ ----- --------
Income before income taxes.. 11,220 85 175 11,480
Income taxes.................. 4,320 -- 102 (5) 4,422
-------- ------ ----- --------
Net income.................. $ 6,900 $ 85 $ 73 $ 7,058
======== ====== ===== ========
Other Data:
Operating income............ $ 11,237 $ 198 $ 210 $ 11,645
Depreciation and
amortization............... 2,454 215 195 2,864
-------- ------ ----- --------
EBITDA (6).................. $ 13,691 $ 413 $ 405 $ 14,509
======== ====== ===== ========
</TABLE>
P-15
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(B)SHELTER PRO FORMA
(1) The PSI Acquisition was consummated on June 27, 1997. Historical results
represent results of operations of PSI for the six months ended June 27,
1997.
(2) To: (i) eliminate one-time bonuses given to employees of PSI in connection
with the sale; (ii) reduce compensation expense pursuant to post
acquisition employment agreements and (iii) record additional depreciation
expense for equipment adjusted to fair market value in connection with the
PSI Acquisition.
(3) To: (i) record amortization of goodwill; (ii) reduce compensation expense
for a certain Employment Agreement and (iii) eliminate non-recurring
charges incurred in connection with the PSI Acquisition.
(4) To reflect interest expense on debt issued, net of interest expense on the
repayment of existing debt in connection with the PSI Acquisition.
(5) Income tax expense was adjusted to reflect Shelter's effective tax rate of
38.5%.
(6) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income reflected
in the determination of net income.
P-16
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE OLD
KEVCO SHELTER SHELTER NOTES KEVCO
PRO FORMA PRO FORMA ACQUISITION OFFERING COMBINED
TOTALS(A) TOTALS(B) ADJUSTMENTS ADJUSTMENTS PRO FORMA
--------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $401,119 $454,567 $ -- $ -- $855,686
Cost of sales........... 341,473 391,440 -- -- 732,913
-------- -------- ------- -------- --------
Gross profit.......... 59,646 63,127 -- -- 122,773
Commission income....... 6,900 2,459 -- -- 9,359
-------- -------- ------- -------- --------
66,546 65,586 -- -- 132,132
Selling, general and
administrative
expenses............... 42,264 50,553 (4,914)(1) -- 88,722
(1,382)(2) --
2,201 (3) --
-------- -------- ------- -------- --------
Operating income...... 24,282 15,033 4,095 -- 43,410
Interest expense........ (4,420) (1,994) -- (18,580)(4) (19,536)
6,169 (4)
(711)(4)
Other income............ 61 -- -- -- 61
-------- -------- ------- -------- --------
Income before income
taxes................ 19,923 13,039 4,095 (13,122) 23,935
Income taxes............ 7,969 5,072 1,535 (5) (3,805)(5) 10,771
-------- -------- ------- -------- --------
Net income............ $ 11,954 $ 7,967 $ 2,560 $ (9,317) $ 13,164
======== ======== ======= ======== ========
Earnings per share...... $ 1.73 $ 1.90
======== ========
Weighted average shares
outstanding............ 6,911 6,911
======== ========
Other Data:
Operating income...... $ 24,282 $ 15,033 $ 4,095 $ -- $ 43,410
Depreciation and
amortization......... 3,418 3,596 819 -- 7,833
-------- -------- ------- -------- --------
EBITDA (6)............ $ 27,700 $ 18,629 $ 4,914 $ -- $ 51,243
======== ======== ======= ======== ========
</TABLE>
- ---------------------
(A) Includes the pro forma effect of the Public Offering and the Kevco
Acquisitions.
(B) Includes the pro forma effect of the sale of Danube and the PSI
Acquisition.
P-17
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(1) Pursuant to EITF 95-3, Kevco has accrued liabilities for the involuntary
termination of certain employees which are included in the financial
statements along with the pro forma effect of the elimination of duplicate
costs. Costs include only direct costs and benefits of these employees.
Kevco believes that the elimination of duplicate employees will have no
material effect on the other reported amounts within the unaudited pro
forma condensed combined financial statements.
(2) To eliminate the historical amortization of goodwill of Shelter.
(3) Represents the amortization of excess purchase price over fair value of
net assets acquired related to the Shelter Acquisition over a period of 40
years.
(4) Interest expense was adjusted to reflect: (i) $18,580 resulting from the
effective interest rate of the Senior Credit Facility at 8.25% and the
Notes at 10 3/8%; (ii) the elimination of interest on existing debt of
$6,169 to be repaid from the proceeds from the Senior Credit Facility and
(iii) the amortization of financing costs of $711 over the life of the
indebtedness.
(5) Income tax expense was adjusted to reflect an effective tax rate of 45%,
which is the expected effective tax rate of the Company after giving
effect to the Shelter Acquisition. The effective rate is higher than the
statutory rate of approximately 40% because of the nondeductibility of
goodwill resulting from the Shelter Acquisition.
(6) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income reflected
in the determination of net income.
P-18
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) KEVCO PRO FORMA
<TABLE>
<CAPTION>
PUBLIC BOWEN CONSOLIDATED KEVCO
KEVCO OFFERING SUPPLY FOREST ACQUISITION PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL HISTORICAL(3) ADJUSTMENTS TOTALS
---------- ----------- ---------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $267,344 $ -- $41,301 $92,474 $ -- $401,119
Cost of sales........... 226,653 -- 33,270 81,746 (196)(4) 341,473
-------- ------- ------- ------- ------- --------
Gross profit.......... 40,691 -- 8,031 10,728 196 59,646
Commission income....... 5,497 -- 1,403 -- -- 6,900
-------- ------- ------- ------- ------- --------
46,188 -- 9,434 10,728 196 66,546
Selling, general and
administrative
expenses............... 29,723 -- 6,180 7,597 (511)(5) 42,264
(1,493)(6)
727 (7)
41 (8)
-------- ------- ------- ------- ------- --------
Operating income...... 16,465 -- 3,254 3,131 1,432 24,282
Interest expense........ (2,058) 1,296 (1) (364) (1,230) (2,641)(9) (4,420)
611 (10)
(34)(8)
Other income (expense).. -- -- 15 46 -- 61
-------- ------- ------- ------- ------- --------
Income before income
taxes................ 14,407 1,296 2,905 1,947 (632) 19,923
Income taxes............ 1,695 4,643 (2) 1,149 -- 482 (11) 7,969
-------- ------- ------- ------- ------- --------
Net income............ $ 12,712 $(3,347) $ 1,756 $ 1,947 $(1,114) $ 11,954
======== ======= ======= ======= ======= ========
Historical income before
income taxes........... $ 14,407
Income tax expense
adjustment(2).......... 5,475
--------
Pro forma net income.... $ 8,932
========
Pro forma earnings per
share.................. $ 1.61 $ 1.73
======== ========
Pro forma weighted
average shares
outstanding............ 5,531 1,380 (13) 6,911
======== ======= ========
Other Data:
Operating income...... $ 16,465 $ -- $ 3,254 $ 3,131 $ 1,432 $ 24,282
Depreciation and
amortization......... 1,792 -- 308 1,061 257 3,418
-------- ------- ------- ------- ------- --------
EBITDA(12)............ $ 18,257 $ -- $ 3,562 $ 4,192 $ 1,689 $ 27,700
======== ======= ======= ======= ======= ========
</TABLE>
P-19
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(A)KEVCO PRO FORMA
(1) To reflect a decrease in interest expense as if debt of $16.9 million, at
an average interest rate of 7.65%, had been repaid on January 1, 1996 from
the net proceeds of the Public Offering. Indebtedness repaid reflects the
portion of net proceeds that were available to repay debt after making
final S corporation distributions of $9.1 million in 1996.
(2) To reflect a provision for income taxes at an effective rate of 40%
associated with the Kevco's conversion to a C corporation offset by the
tax effect of the decrease in interest expense referred to in (1).
(3) For the year ended September 29, 1996, which represents Consolidated
Forest's fiscal year end.
(4) To reflect the amortization of the fair value adjustment to inventory of
$196 related to the Bowen Acquisition.
(5) To eliminate amortization of historical goodwill of $23 and $488 related
to Bowen and Consolidated Forest, respectively.
(6) To eliminate expense of $471 related to an executive of Bowen who was
retired in connection with the Bowen Acquisition, to eliminate historical
management fees of Consolidated Forest of $166 and to reflect a reduction
in commission expense of $856 resulting from the amendment of a contract
with a third party in connection with the Consolidated Forest Acquisition.
(7) To reflect the amortization of the fair value adjustments to property and
equipment of $60 related to the Consolidated Forest Acquisition, and to
reflect the amortization of loan origination fees of $42 and $42 and
goodwill of $372 and $211 related to the Bowen Acquisition and
Consolidated Forest Acquisition, respectively.
(8) To reflect the amortization and interest expense related to the non-
compete agreements entered into in connection with the Consolidated Forest
Acquisition.
(9) To reflect interest expense on borrowings to fund the Kevco Acquisitions
at an assumed interest rate of 7.6% totalling $1,556 and $1,085 related to
the Bowen Acquisition and Consolidated Forest Acquisition, respectively.
(10) To eliminate historical interest expense related to long-term debt not
assumed by the Kevco in the Consolidated Forest Acquisition.
(11) Income tax expense was adjusted to reflect an effective tax rate of 40%,
which is the expected effective tax rate of Kevco.
(12) EBITDA is defined as net income plus interest expense, income taxes,
depreciation, amortization, and other expenses less other income
reflected in the determination of net income.
(13) To reflect the incremental weighted average shares issued in connection
with the Public Offering in November 1996.
P-20
<PAGE>
KEVCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
(B) SHELTER PRO FORMA
<TABLE>
<CAPTION>
SHELTER
SHELTER SALE OF PSI ACQUISITION PRO FORMA
HISTORICAL DANUBE(1) ACQUISITION(2) ADJUSTMENTS TOTALS
---------- --------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... $521,022 $(74,851) $8,396 $ -- $454,567
Cost of sales........... 447,701 (63,403) 7,180 (38)(3) 391,440
-------- -------- ------ ----- --------
Gross profit.......... 73,321 (11,448) 1,216 38 63,127
Commission income....... 2,459 -- -- -- 2,459
-------- -------- ------ ----- --------
75,780 (11,448) 1,216 38 65,586
Selling, general and
administrative
expenses............... 60,194 (10,547) 673 233 (4) 50,553
-------- -------- ------ ----- --------
Operating income...... 15,586 (901) 543 (195) 15,033
Interest expense........ (1,654) 4 (243) (101)(5) (1,994)
Other income (expense).. 5,919 (5,919) -- -- --
-------- -------- ------ ----- --------
Income before income
taxes................ 19,851 (6,816) 300 (296) 13,039
Income taxes............ 8,153 (3,083) -- 2 (6) 5,072
-------- -------- ------ ----- --------
Net income............ $ 11,698 $ (3,733) $ 300 $(298) $ 7,967
======== ======== ====== ===== ========
Other Data:
Operating income...... $ 15,586 $ (901) $ 543 $(195) $ 15,033
Depreciation and
amortization......... 3,350 (560) 437 369 3,596
-------- -------- ------ ----- --------
EBITDA (7)............ $ 18,936 $ (1,461) $ 980 $ 174 $ 18,629
======== ======== ====== ===== ========
</TABLE>
P-21
<PAGE>
KEVCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(B)SHELTER PRO FORMA
(1) The operations and certain assets of Danube were sold on December 31,
1996. Historical results represent results of operations related to Danube
for the year ended December 31, 1996.
(2) The PSI Acquisition was consummated on June 27, 1997. Historical results
represent results of operations of PSI for the year ended December 31,
1996.
(3) To: (i) eliminate non-recurring compensation expense; (ii) reduce
compensation expense pursuant to post acquisition employment agreements
and (iii) record additional depreciation expense for equipment adjusted to
fair market value in connection with the PSI Acquisition.
(4) To: (i) record amortization of goodwill; (ii) reduce compensation expense
for a certain Employment Agreement and (iii) eliminate non-recurring
charges incurred in connection with the PSI Acquisition.
(5) To reflect interest expense on debt issued, net of interest expense on the
repayment of existing debt in connection with the PSI Acquisition.
(6) Income tax expense was adjusted to reflect Shelter's effective tax rate of
39%.
(7) EBITDA is defined as net income plus interest expense, income taxes,
depreciation and amortization, and other expenses less other income
reflected in the determination of net income.
P-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE EX-
CHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SO-
LICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGES NOTES TO ANYONE OR BY ANY-
ONE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICA-
TION THAT THERE HAS NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------
TABLE OF CONTENTS
------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information.................................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 17
The Transactions......................................................... 23
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Unaudited Pro Forma Condensed Combined Financial Data.................... 25
Selected Consolidated Financial Data of Kevco............................ 34
Selected Consolidated Financial Data of Shelter.......................... 35
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 36
Business................................................................. 46
Management............................................................... 58
Management Compensation.................................................. 60
Principal Shareholders................................................... 64
Description of Senior Credit Facility.................................... 65
The Exchange Offer....................................................... 67
Description of the Notes................................................. 75
Certain United States Federal Income Tax Considerations.................. 104
Plan of Distribution..................................................... 105
Legal Matters............................................................ 105
Experts.................................................................. 106
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1998, (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
KEVCO, INC.
[LOGO OF KEVCO, INC. APPEARS HERE]
OFFER TO EXCHANGE
ITS 10 3/8% SENIOR SUBORDINATED
NOTES DUE 2007 (SERIES B)
FOR ANY AND ALL OF OUTSTANDING
10 3/8% SENIOR SUBORDINATED
NOTES
DUE 2007 (SERIES A)
----------------
PROSPECTUS
----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that, to the fullest extent
permitted by Texas law, directors of the Company will not be liable to the
Company or its shareholders for monetary damages for an act or omission in the
director's capacity as a director. Texas law does not currently authorize the
elimination or limitation of the liability of a director to the extent the
director is found liable for (i) any breach of the director's duty of loyalty
to the Company or its shareholders, (ii) acts or omissions not in good faith
that constitute a breach of duty of the director to the Company or which
involve intentional misconduct or a knowing violation of law, (iii)
transactions from which the director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's office or (iv) acts or omissions for which the liability of a
director is expressly provided by an applicable statute. In addition, the
Company's Articles of Incorporation provide that if applicable law is amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of the directors shall be eliminated or limited
to the fullest extent permitted by law, as amended.
The Company's Articles of Incorporation and Bylaws grant mandatory
indemnification and advancement of expenses to directors and officers of the
Company to the fullest extent authorized by Texas law. In general, a Texas
corporation may indemnify a director or officer who was, is or is threatened
to be made a named defendant or respondent in a proceeding by virtue of his
position in the corporation if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, in the case of criminal proceedings, had no reasonable cause
to believe his conduct was unlawful. A Texas corporation may indemnify a
director or officer in an action brought by or in the right of the corporation
only if such director or officer was not found liable to the corporation,
unless or only to the extent that a court finds him to be fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
The Company entered into an agreement with each of its shareholders of
record immediately prior to the consummation of the Company's initial public
offering (including Mr. Kimmel) pursuant to which the Company agreed to
distribute to such shareholders an amount equal to earnings of the Company as
provided in the agreement and as finally determined for tax purposes for the
period January 1, 1995 through the date of the consummation of such initial
public offering, to the extent such earnings exceeded the earnings for such
period as theretofore reported by the Company. In addition, the Company agreed
to indemnify such shareholders for any penalties and interest attributable to
any additional income taxes they incurred as a result of being taxed on such
additional earnings, as well as for related costs and expenses incurred.
The Company has procured insurance that purports to insure the Company's
directors and officers against certain liabilities incurred by them in the
discharge of their functions as directors and officers, with certain
exceptions including exceptions for liabilities arising from such directors'
and officers' own malfeasance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.1 --Merger Agreement, dated June 6, 1995 by and among Kevco, Inc. and
Service Supply Systems, Inc., joined by a wholly-owned subsidiary of
Kevco, Inc.(1)
2.2 --Form of Plan and Agreement of Merger (between Kevco Texas, Inc. and
Kevco Delaware, Inc.(1)
2.3 --Form of Bill of Sale and General Assignment from Kevco Delaware,
Inc., as Assignor, to Sunbelt Wood Components, Inc., as Assignee.(1)
2.4 --Form of Assumption Agreement between Kevco Delaware, Inc. and
Sunbelt Wood Components, Inc.(1)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
2.5 --Asset Purchase Agreement by and among Consolidated Forest Products,
Inc., Consolidated Forest Products, L.L.C. and the members of
Consolidated Forest Products, L.L.C.(2)
2.6 --Stock Purchase Agreement by and among Kevco Delaware, Inc. and the
shareholders of Bowen Supply, Inc.(2)
2.7 --Agreement and Plan of Merger, dated as of October 21, 1997, between
Kevco, Inc., SCC Acquisition Corp., and Shelter Components
Corporation.(6)
3.1 --Articles of Incorporation of Kevco, Inc., as amended.(1)
3.2 --Bylaws of Kevco, Inc.(1)
4.1 --Form of certificate evidencing ownership of the Common Stock of Kevco,
Inc.(1)
5.1 --Opinion of Jackson Walker L.L.P.(9)
10.1 --Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated 1995
Stock Option Plan of Kevco, Inc.) and Supplementary Letter.(1)
10.2 --1996 Stock Option Plan of Kevco, Inc., as amended, and Supplementary
Letter.(1)
10.3 --Form of Amended and Restated Employment Agreement between Gerald E.
Kimmel and Kevco, Inc., joined therein by Kevco Delaware, Inc. and
Sunbelt Wood Components, Inc.(1)
10.4 --Employment Agreement between C. Lee Denham and Kevco, Inc. dated June
30, 1995.(1)
10.5 --Lease between K & E Land & Leasing and Kevco, Inc. dated December 1,
1977.(1)
10.6 --Amendment No. 1 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated March , 1982.(1)
10.7 --Amendment No. 2 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated May 30, 1983.(1)
10.8 --Amendment No. 3 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated February 1, 1993.(1)
10.9 --Lease dated April 1, 1980 between City of Newton, Kansas and K & E
Land & Leasing.(1)
10.10 --Sublease and Lease Guarantee Agreement dated April 1, 1980 between K &
E Land & Leasing and Kevco, Inc.(1)
10.11 --Amendment No. 1 to Sublease and Lease Guaranty Agreement by and
between K & E Land & Leasing and Kevco, Inc. dated May 30, 1983.(1)
10.12 --Lease Agreement dated October 12, 1987 between 1741 Conant Partnership
& Kevco Inc.(1)
10.13 --Equipment Lease Agreement dated January 1, 1991 between K & E Land &
Leasing and Kevco, Inc.(1)
10.14 --Amendment No. 1 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated February 12, 1993.(1)
10.15 --Amendment No. 2 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.16 --Amendment No. 3 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated May 23, 1994.(1)
10.17 --Deferred Compensation Agreement between Kevco, Inc. and Clyde A. Reed,
Jr. dated May 24, 1977.(1)
10.18 --Amendment No. 1 to Deferred Compensation Agreement dated May ,
1980.(1)
10.19 --Amendment No. 2 to Deferred Compensation Agreement dated March 10,
1992.(1)
10.20 --Amended and Restated Health and Accident Plan of Kevco, Inc.(1)
10.21 --Investment and Tax Advice Plan of Kevco, Inc.(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.22 --Credit Agreement among Kevco, Inc., certain Lenders and NationsBank of
Texas, N.A., as Administrative Lender dated June 30, 1995.(1)
10.23 --First Amendment to Credit Agreement, dated as of September 1, 1995,
among Kevco, Inc., the banks listed on the signature pages thereof, and
NationsBank of Texas, N.A.(1)
10.24 --Second Amendment to Credit Agreement, dated as of November 29, 1995,
among Kevco, Inc., the banks listed on the signature pages thereof, and
NationsBank of Texas, N.A.(1)
10.25 --Revolving Credit Note of Kevco, Inc. to NationsBank of Texas, N.A.
dated September 1, 1995 in the amount of $14,285,714.28.(1)
10.26 --Term Loan Note of Kevco, Inc. to NationsBank of Texas, N.A. dated
September 1, 1995 in the amount of $10,714,285.72.(1)
10.27 --Revolving Credit Note of Kevco, Inc. to The Sumitomo Bank, Ltd. dated
February 2, 1996 in the amount of $5,714,285.72.(1)
10.28 --Term Loan Note of Kevco, Inc. to The Sumitomo Bank, Ltd. dated
February 2, 1996 in the amount of $4,285,714.28.(1)
10.29 --PaineWebber Standardized 401(K) Profit-Sharing Adoption Agreement (No.
005) (To be used with Basic Plan Document No. 03 Only) for Kevco, Inc.
dated May 24, 1996 and PaineWebber Defined Contribution Plan.(1)
10.30 --Promissory Note of Gerald E. Kimmel to Kevco, Inc. dated October 26,
1993 in the amount of $5,000,000.(1)
10.31 --Amendment No. 4 to Lease dated December 1, 1977 by and between K&E
Land & Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.32 --Assignment and Acceptance dated February 2, 1996 between The Daiwa
Bank, Limited and The Sumitomo Bank, Ltd., Chicago Branch.(1)
10.33 --Form of Tax Indemnification and Distribution Agreement.(1)
10.34 --Form of Promissory Note made by Kevco Texas, Inc. in the amount of
$3,733,000 (the Prior S Corporation Earnings Note).(1)
10.35 --Form of Promissory Note made by Kevco Texas, Inc. (the Future S
Corporation Earnings Note).(1)
10.36 --Form of Assignment of $5,000,000 Note made by Kevco, Inc. (n/k/a Kevco
Delaware, Inc.).(1)
10.37 --Form of Adoption Agreement by Kevco, Inc. and Kevco Texas, Inc. (re:
1995 Stock Option Plan and 1996 Stock Option Plan).(1)
10.38 --Amendment No. 1 dated September 21, 1988, to Lease Agreement by 1741
Conant Partnership as lessor and Kevco, Inc. (n/k/a Kevco Delaware,
Inc.).(1)
10.39 --Letter Agreement dated June 22, 1982, between Kevco, Inc. (n/k/a Kevco
Delaware, Inc.) and K&E Land & Leasing (re: lease rentals).(1)
10.40 --Letter Agreement dated October 1, 1996 by Kevco, Inc., K&E Land &
Leasing, and 1741 Conant Partnership (re: lease rental).(1)
10.41 --Form of Parent Pledge Agreement.(1)
10.42 --Consent and Waiver, dated as of October 21, 1996, by and among
NationsBank of Texas, N.A., The Sumitomo Bank, Ltd. and Kevco Texas,
Inc.(1)
10.43 --Amended and Restated Credit Agreement, dated as of February 27, 1997,
by and among Kevco Delaware, Inc., certain lenders and NationsBank of
Texas, N.A.(5)
10.44 --Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated 1995
Stock Option Plan of Kevco, Inc.) and Supplementary Letter.(4)
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.45 --Senior Commitment Letter dated October 27, 1997 from NationsBank of
Texas, N.A. and NationsBanc Montgomery Securities, Inc.(6)
10.46 --First Amendment to Amended and Restated Credit Agreement dated as of
November 25, 1997 between Kevco Delaware, Inc., certain lenders and
NationsBank of Texas, N.A.(7)
10.47 --Second Amended and Restated Credit Agreement dated December 1, 1997
between Kevco, Inc., certain lenders and NationsBank of Texas,
N.A.(7)(8)
10.48 --Revolving Credit Note dated December 1, 1997 between Kevco, Inc. and
NationsBank of Texas, N.A. in the original principal amount of
$11,666,666.66.(7)
10.49 --Revolving Credit Note dated December 1, 1997 between Kevco, Inc. and
National City Bank of Kentucky in the original principal amount of
$8,166,666.67.(7)
10.50 --Revolving Credit Note dated December 1, 1997 between Kevco, Inc. and
Guaranty Federal Bank, F.S.B. in the original principal amount of
$7,000,000.00.(7)
10.51 --Revolving Credit Note dated December 1, 1997 between Kevco, Inc. and
The Sumitomo Bank, Limited in the original principal amount of
$8,166,666.67.(7)
10.52 --Facility A Term Loan Note dated December 1, 1997 between Kevco, Inc.
and NationsBank of Texas, N.A. in the original principal amount of
$13,333,333.34.(7)
10.53 --Facility A Term Loan Note dated December 1, 1997 between Kevco, Inc.
and National City Bank Kentucky in the original principal amount of
$9,333,333.33.(7)
10.54 --Facility A Term Loan Note dated December 1, 1997 between Kevco, Inc.
and Guaranty Federal Bank, F.S.B. in the original principal amount of
$8,000,000.00.(7)
10.55 --Facility A Term Loan Note dated December 1, 1997 between Kevco, Inc.
and The Sumitomo Bank, Limited in the original principal amount of
$9,333,333.33.(7)
10.56 --Facility B Term Loan Note dated December 1, 1997 between Kevco, Inc.
and NationsBank of Texas, N.A. in the original principal amount of
$50,000,000.00.(7)
10.57 --Security Agreement dated December 1, 1997 between Kevco, Inc., and
NationsBank of Texas, N.A. as Administrative Agent.(7)
10.58 --Registration Rights Agreement dated December 1, 1997.(3)
10.59 --Indenture dated December 1, 1997.(3)
10.60 --Supplemental Indenture.(9)
10.61 --Supplemental Indenture.(9)
10.62 --Supplemental Indenture.(9)
10.63 --Supplemental Indenture.(9)
10.64 --Supplemental Indenture.(9)
10.65 --Supplemental Indenture.(9)
10.66 --Supplemental Indenture.(9)
11.1 --Computation of Earnings per Common Share.(3)
12.1 --Computation of Ratio of Earnings to Fixed Charges.(3)
21.1 --Subsidiaries.(9)
23.1 --Consent of Coopers & Lybrand L.L.P.(3)
23.2 --Consent of Rylander, Clay & Opitz, L.L.P.(3)
23.3 --Consent of Price Waterhouse LLP(3)
23.4 --Consent of Coopers & Lybrand L.L.P.(3)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
23.5 --Consent of Dougherty McKinnon & Luby(3)
23.6 --Consent of Coopers & Lybrand L.L.P.(3)
23.7 --Consent of Rumsey & Huckaby, P.C.(3)
23.8 --Consent of Jackson Walker L.L.P. (to be contained in Exhibit 5.1
hereto).
24.1 --Power of Attorney.(contained on the signature page of this Registration
Statement).
25.1 --Statement of Eligibility of Trustee(9)
</TABLE>
- ---------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-11173) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 27, 1997, and incorporated herein by reference.
(3) Filed herewith.
(4) Previously filed as an exhibit to the Company's registration statement on
Form S-8 (No. 333-19959), and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q, for the quarter ended March 31, 1997 and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Company's Tender Offer Statement on
Schedule 14D-1 filed October 28, 1997, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Tender Offer Statement on
Schedule 14D-1/A, filed December 12, 1997, and incorporated herein by
reference.
(8) Schedules and similar attachments to this exhibit have not been filed
herewith, but the nature of their contents is described in the body of this
exhibit. The Company agrees to furnish a copy of any such omitted schedules
and attachments to the Securities and Exchange Commission upon request.
(9) To be filed by Amendment.
ITEM 22. UNDERTAKINGS.
Each of the undersigned to co-registrants hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
directors, officers and controlling persons of the registrant pursuant to
the provision described under Item 20 or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
this and/or the following signature pages constitutes and appoints Ellis L.
McKinley, Jr. and Richard S. Tucker, and each individually, any one of whom
may act without the joinder of the others, as his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
KEVCO, Inc.
/s/ Ellis L. McKinley, Jr.
By: _________________________________
Ellis L. McKinley, Jr.
Vice President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board, Chief
- ------------------------------------- Executive Officer, President and
JERRY E. KIMMEL Director (Principal Executive
Officer)
/s/ Clyde A. Reed, Jr. Executive Vice President, Chief
- ------------------------------------- Operating Officer and Director
CLYDE A. REED, JR.
/s/ Ellis L. McKinley, Jr. Vice President, Chief Financial
- ------------------------------------- Officer, Treasurer and Director
ELLIS L. MCKINLEY, JR. (Principal Financial Officer and
Principal Accounting Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
/s/ Gregory G. Kimmel Vice President, Corporate
- ------------------------------------- Development and Director
GREGORY G. KIMMEL
/s/ Martin C. Bowen Director
- -------------------------------------
MARTIN C. BOWEN
/s/ Richard Nevins Director
- -------------------------------------
RICHARD NEVINS
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
KEVCO DELAWARE, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board, President,
- ------------------------------------- Chief Executive Officer and
JERRY E. KIMMEL Director (Principal Executive
Officer)
/s/ Ellis L. McKinley, Jr. Vice President, Treasurer and Chief
- ------------------------------------- Financial Officer (Principal
ELLIS L. MCKINLEY, JR. Financial and Accounting Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
SUNBELT WOOD COMPONENTS, INC.
By: /s/ Jerry E. Kimmel
---------------------------------
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
CONSOLIDATED FOREST PRODUCTS, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
BOWEN SUPPLY, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
ENCORE INDUSTRIES, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
SHELTER COMPONENTS CORPORATION
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
BPR HOLDINGS, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
SHELTER COMPONENTS OF INDIANA, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-14
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
DESIGN COMPONENTS, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-15
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
DUO-FORM OF MICHIGAN, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-16
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
DCM, INC.
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CO-
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT
WORTH, STATE OF TEXAS, ON DECEMBER 30, 1997.
SHELTER DISTRIBUTION, L.P.
By BPR Holdings, Inc. (General
Partner)
/s/ Jerry E. Kimmel
By: _________________________________
Chairman and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS ON DECEMBER 30, 1997 IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
/s/ Jerry E. Kimmel Chairman of the Board and Director
- ------------------------------------- (Principal Executive Officer)
JERRY E. KIMMEL
/s/ Ellis L. McKinley, Jr. Vice President and Treasurer
- ------------------------------------- (Principal Financial and Accounting
ELLIS L. MCKINLEY, JR. Officer)
/s/ Richard S. Tucker Secretary and Director
- -------------------------------------
RICHARD S. TUCKER
II-18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 --Merger Agreement, dated June 6, 1995 by and among Kevco, Inc. and
Service Supply Systems, Inc., joined by a wholly-owned subsidiary of
Kevco, Inc.(1)
2.2 --Form of Plan and Agreement of Merger (between Kevco Texas, Inc. and
Kevco Delaware, Inc.(1)
2.3 --Form of Bill of Sale and General Assignment from Kevco Delaware,
Inc., as Assignor, to Sunbelt Wood Components, Inc., as Assignee.(1)
2.4 --Form of Assumption Agreement between Kevco Delaware, Inc. and
Sunbelt Wood Components, Inc.(1)
2.5 --Asset Purchase Agreement by and among Consolidated Forest Products,
Inc., Consolidated Forest Products, L.L.C. and the members of
Consolidated Forest Products, L.L.C.(2)
2.6 --Stock Purchase Agreement by and among Kevco Delaware, Inc. and the
shareholders of Bowen Supply, Inc.(2)
2.7 --Agreement and Plan of Merger, dated as of October 21, 1997, between
Kevco, Inc., SCC Acquisition Corp., and Shelter Components
Corporation.(6)
3.1 --Articles of Incorporation of Kevco, Inc., as amended.(1)
3.2 --Bylaws of Kevco, Inc.(1)
4.1 --Form of certificate evidencing ownership of the Common Stock of
Kevco, Inc.(1)
5.1 --Opinion of Jackson Walker L.L.P.(9)
10.1 --Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated 1995
Stock Option Plan of Kevco, Inc.) and Supplementary Letter.(1)
10.2 --1996 Stock Option Plan of Kevco, Inc., as amended, and Supplementary
Letter.(1)
10.3 --Form of Amended and Restated Employment Agreement between Gerald E.
Kimmel and Kevco, Inc., joined therein by Kevco Delaware, Inc. and
Sunbelt Wood Components, Inc.(1)
10.4 --Employment Agreement between C. Lee Denham and Kevco, Inc. dated
June 30, 1995.(1)
10.5 --Lease between K & E Land & Leasing and Kevco, Inc. dated December 1,
1977.(1)
10.6 --Amendment No. 1 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated March , 1982.(1)
10.7 --Amendment No. 2 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated May 30, 1983.(1)
10.8 --Amendment No. 3 to Lease, by and between K & E Land & Leasing and
Kevco, Inc. dated February 1, 1993.(1)
10.9 --Lease dated April 1, 1980 between City of Newton, Kansas and K & E
Land & Leasing.(1)
10.10 --Sublease and Lease Guarantee Agreement dated April 1, 1980 between K
& E Land & Leasing and Kevco, Inc.(1)
10.11 --Amendment No. 1 to Sublease and Lease Guaranty Agreement by and
between K & E Land & Leasing and Kevco, Inc. dated May 30, 1983.(1)
10.12 --Lease Agreement dated October 12, 1987 between 1741 Conant
Partnership & Kevco Inc.(1)
10.13 --Equipment Lease Agreement dated January 1, 1991 between K & E Land &
Leasing and Kevco, Inc.(1)
10.14 --Amendment No. 1 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated February 12, 1993.(1)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.15 --Amendment No. 2 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.16 --Amendment No. 3 to Equipment Lease Agreement between K & E Land &
Leasing and Kevco, Inc. dated May 23, 1994.(1)
10.17 --Deferred Compensation Agreement between Kevco, Inc. and Clyde A.
Reed, Jr. dated May 24, 1977.(1)
10.18 --Amendment No. 1 to Deferred Compensation Agreement dated May ,
1980.(1)
10.19 --Amendment No. 2 to Deferred Compensation Agreement dated March 10,
1992.(1)
10.20 --Amended and Restated Health and Accident Plan of Kevco, Inc.(1)
10.21 --Investment and Tax Advice Plan of Kevco, Inc.(1)
10.22 --Credit Agreement among Kevco, Inc., certain Lenders and NationsBank
of Texas, N.A., as Administrative Lender dated June 30, 1995.(1)
10.23 --First Amendment to Credit Agreement, dated as of September 1, 1995,
among Kevco, Inc., the banks listed on the signature pages thereof,
and NationsBank of Texas, N.A.(1)
10.24 --Second Amendment to Credit Agreement, dated as of November 29, 1995,
among Kevco, Inc., the banks listed on the signature pages thereof,
and NationsBank of Texas, N.A.(1)
10.25 --Revolving Credit Note of Kevco, Inc. to NationsBank of Texas, N.A.
dated September 1, 1995 in the amount of $14,285,714.28.(1)
10.26 --Term Loan Note of Kevco, Inc. to NationsBank of Texas, N.A. dated
September 1, 1995 in the amount of $10,714,285.72.(1)
10.27 --Revolving Credit Note of Kevco, Inc. to The Sumitomo Bank, Ltd.
dated February 2, 1996 in the amount of $5,714,285.72.(1)
10.28 --Term Loan Note of Kevco, Inc. to The Sumitomo Bank, Ltd. dated
February 2, 1996 in the amount of $4,285,714.28.(1)
10.29 --PaineWebber Standardized 401(K) Profit-Sharing Adoption Agreement
(No. 005) (To be used with Basic Plan Document No. 03 Only) for
Kevco, Inc. dated May 24, 1996 and PaineWebber Defined Contribution
Plan.(1)
10.30 --Promissory Note of Gerald E. Kimmel to Kevco, Inc. dated October 26,
1993 in the amount of $5,000,000.(1)
10.31 --Amendment No. 4 to Lease dated December 1, 1977 by and between K&E
Land & Leasing and Kevco, Inc. dated October 26, 1993.(1)
10.32 --Assignment and Acceptance dated February 2, 1996 between The Daiwa
Bank, Limited and The Sumitomo Bank, Ltd., Chicago Branch.(1)
10.33 --Form of Tax Indemnification and Distribution Agreement.(1)
10.34 --Form of Promissory Note made by Kevco Texas, Inc. in the amount of
$3,733,000 (the Prior S Corporation Earnings Note).(1)
10.35 --Form of Promissory Note made by Kevco Texas, Inc. (the Future S
Corporation Earnings Note).(1)
10.36 --Form of Assignment of $5,000,000 Note made by Kevco, Inc. (n/k/a
Kevco Delaware, Inc.).(1)
10.37 --Form of Adoption Agreement by Kevco, Inc. and Kevco Texas, Inc. (re:
1995 Stock Option Plan and 1996 Stock Option Plan).(1)
10.38 --Amendment No. 1 dated September 21, 1988, to Lease Agreement by 1741
Conant Partnership as lessor and Kevco, Inc. (n/k/a Kevco Delaware,
Inc.).(1)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.39 --Letter Agreement dated June 22, 1982, between Kevco, Inc. (n/k/a
Kevco Delaware, Inc.) and K&E Land & Leasing (re: lease rentals).(1)
10.40 --Letter Agreement dated October 1, 1996 by Kevco, Inc., K&E Land &
Leasing, and 1741 Conant Partnership (re: lease rental).(1)
10.41 --Form of Parent Pledge Agreement.(1)
10.42 --Consent and Waiver, dated as of October 21, 1996, by and among
NationsBank of Texas, N.A., The Sumitomo Bank, Ltd. and Kevco Texas,
Inc.(1)
10.43 --Amended and Restated Credit Agreement, dated as of February 27,
1997, by and among Kevco Delaware, Inc., certain lenders and
NationsBank of Texas, N.A.(5)
10.44 --Amendment No. 2 to 1995 Stock Option Plan (Amended and Restated 1995
Stock Option Plan of Kevco, Inc.) and Supplementary Letter. (4)
10.45 --Senior Commitment Letter dated October 27, 1997 from NationsBank of
Texas, N.A. and NationsBanc Montgomery Securities, Inc.(6)
10.46 --First Amendment to Amended and Restated Credit Agreement dated as of
November 25, 1997 between Kevco Delaware, Inc., certain lenders and
NationsBank of Texas, N.A.(7)
10.47 --Second Amended and Restated Credit Agreement dated December 1, 1997
between Kevco, Inc., certain lenders and NationsBank of Texas,
N.A.(7)(8)
10.48 --Revolving Credit Note dated December 1, 1997 between Kevco, Inc. and
NationsBank of Texas, N.A. in the original principal amount of
$11,666,666.66.(7)
10.49 --Revolving Credit Note dated December 1, 1997 between Kevco, Inc. and
National City Bank of Kentucky in the original principal amount of
$8,166,666.67.(7)
10.50 --Revolving Credit Note dated December 1, 1997 between Kevco, Inc. and
Guaranty Federal Bank, F.S.B. in the original principal amount of
$7,000,000.00.(7)
10.51 --Revolving Credit Note dated December 1, 1997 between Kevco, Inc. and
The Sumitomo Bank, Limited in the original principal amount of
$8,166,666.67.(7)
10.52 --Facility A Term Loan Note dated December 1, 1997 between Kevco, Inc.
and NationsBank of Texas, N.A. in the original principal amount of
$13,333,333.34.(7)
10.53 --Facility A Term Loan Note dated December 1, 1997 between Kevco, Inc.
and National City Bank Kentucky in the original principal amount of
$9,333,333.33.(7)
10.54 --Facility A Term Loan Note dated December 1, 1997 between Kevco, Inc.
and Guaranty Federal Bank, F.S.B. in the original principal amount of
$8,000,000.00.(7)
10.55 --Facility A Term Loan Note dated December 1, 1997 between Kevco, Inc.
and The Sumitomo Bank, Limited in the original principal amount of
$9,333,333.33.(7)
10.56 --Facility B Term Loan Note dated December 1, 1997 between Kevco, Inc.
and NationsBank of Texas, N.A. in the original principal amount of
$50,000,000.00.(7)
10.57 --Security Agreement dated December 1, 1997 between Kevco, Inc., and
NationsBank of Texas, N.A. as Administrative Agent.(7)
10.58 --Registration Rights Agreement dated December 1, 1997.(3)
10.59 --Indenture dated December 1, 1997.(3)
10.60 --Supplemental Indenture.(9)
10.61 --Supplemental Indenture.(9)
10.62 --Supplemental Indenture.(9)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.63 --Supplemental Indenture.(9)
10.64 --Supplemental Indenture.(9)
10.65 --Supplemental Indenture.(9)
10.66 --Supplemental Indenture.(9)
11.1 --Computation of Earnings per Common Share.(3)
12.1 --Computation of Ratio of Earnings to Fixed Charges.(3)
21.1 --Subsidiaries.(9)
23.1 --Consent of Coopers & Lybrand L.L.P.(3)
23.2 --Consent of Rylander, Clay & Opitz, L.L.P.(3)
23.3 --Consent of Price Waterhouse LLP(3)
23.4 --Consent of Coopers & Lybrand L.L.P.(3)
23.5 --Consent of Dougherty McKinnon & Luby(3)
23.6 --Consent of Coopers & Lybrand L.L.P.(3)
23.7 --Consent of Rumsey & Huckaby, P.C.(3)
23.8 --Consent of Jackson Walker L.L.P. (to be contained in Exhibit 5.1
hereto).
24.1 --Power of Attorney.(contained on the signature page of this
Registration Statement).
25.1 --Statement of Eligibility of Trustee(9)
</TABLE>
- ---------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (No. 333-11173) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 27, 1997, and incorporated herein by reference.
(3) Filed herewith.
(4) Previously filed as an exhibit to the Company's registration statement on
Form S-8 (No. 333-19959), and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q, for the quarter ended March 31, 1997 and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Company's Tender Offer Statement on
Schedule 14D-1 filed October 28, 1997, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Tender Offer Statement on
Schedule 14D-1/A, filed December 12, 1997, and incorporated herein by
reference.
(8) Schedules and similar attachments to this exhibit have not been filed
herewith, but the nature of their contents is described in the body of
this exhibit. The Company agrees to furnish a copy of any such omitted
schedules and attachments to the Securities and Exchange Commission upon
request.
(9) To be filed by Amendment.
4
<PAGE>
EXHIBIT 10.58
================================================================================
REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER 1, 1997
BY AND AMONG
KEVCO, INC.,
AS ISSUER,
THE SUBSIDIARIES OF KEVCO, INC. IDENTIFIED HEREIN,
AS SUBSIDIARY GUARANTORS
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
AND
NATIONSBANC MONTGOMERY SECURITIES, INC.,
AS INITIAL PURCHASERS
================================================================================
<PAGE>
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), entered into as
of December 1, 1997, by and among Kevco, Inc., a Texas corporation (the
"Company"), the subsidiaries of the Company identified on the signature page
hereof (each a "Subsidiary Guarantor" and, collectively, the "Subsidiary
Guarantors") and Donaldson, Lufkin & Jenrette Securities Corporation and
NationsBanc Montgomery Securities, Inc. (each, an "Initial Purchaser" and,
collectively, the "Initial Purchasers"), who have agreed to purchase
$105,000,000 in aggregate principal amount of the Company's 10 3/8% Series A
Senior Subordinated Notes due 2007 (the "Series A Notes") upon the terms and
subject to the conditions set forth in the Purchase Agreement (as defined
below).
This Agreement is made pursuant to the Purchase Agreement, dated
November 21, 1997 (the "Purchase Agreement"), by and among the Company, the
Subsidiary Guarantors and the Initial Purchasers. In order to induce the
Initial Purchasers to purchase the Series A Notes, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 2 of the Purchase Agreement to purchase and pay
for the Series A Notes. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in the Indenture, dated as of the date
hereof (the "Indenture"), among the Company, the Subsidiary Guarantors and
United States Trust Company of New York, as Trustee, relating to the Series A
Notes and the Series B Notes (as defined below).
The parties hereto agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following
capitalized terms set forth below shall have the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 under the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement, (b)
the maintenance of such
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Exchange Offer Registration Statement continuously effective and the keeping of
the Exchange Offer open for a period not less than the period required pursuant
to Section 3(b) hereof and (c) the delivery by the Company to the Registrar
under the Indenture of Series B Notes in the same aggregate principal amount as
the aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by the Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Series A Notes (i) to certain "qualified institutional
buyers" (as such term is defined in Rule 144A under the Act) in reliance on the
exemption from the registration requirements of the Act provided by Rule 144A or
(ii) outside the United States to certain persons in reliance on Regulation S
under the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Holders: As defined in Section 2 hereof.
Indemnified Holders: Each Holder and other person entitled to
indemnification pursuant to Section 8(a) hereof.
Notes: Series A Notes and Series B Notes.
Prospectus: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
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Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and
the Subsidiary Guarantors filed pursuant to this Agreement in connection with
(a) the exchange and issuance by the Company of Series B Notes pursuant to the
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to Section 4 hereof, in each case, including the Prospectus
included therein, all amendments and supplements thereto (including post-
effective amendments) and all exhibits and material incorporated by reference
therein.
Regulation S: Regulation S promulgated under the Act.
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 10 3/8% Series B Senior Subordinated
Notes due 2007 to be issued pursuant to the Indenture (i) in the Exchange Offer
or (ii) as contemplated by Section 6(c)(xiii) hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939, as in effect on the date of the
Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer by a
Holder other than a Broker-Dealer, (b) if such Note is exchanged by a Broker-
Dealer in the Exchange Offer, the date on which the Note received pursuant to
the Exchange Offer is sold to a purchaser who receives from such Broker-Dealer
on or prior to the date of such sale a copy of the Prospectus contained in the
Exchange Offer Registration Statement (unless such Prospectus is not appropriate
or available for resales by such Broker-Dealer), (c) the date on which such Note
has been effectively registered under the Act and disposed of in accordance with
a Shelf Registration Statement or (d) the date on which such Note is distributed
to the public pursuant to Rule 144 under the Act or may be sold without
restrictions pursuant to Rule 144(k) under the Act.
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SECTION 2. Holders. A Person is deemed to be a holder of Transfer
Restricted Securities (each, a "Holder") whenever such Person owns Transfer
Restricted Securities.
SECTION 3. Registered Exchange Offer.
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company and the Subsidiary Guarantors shall (i) cause the
Exchange Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date (the "Exchange Offer Filing Date"), but in no
event later than 45 days after the Closing Date (such 45th day being hereinafter
referred to, in the case of any references herein to the Exchange Offer
Registration Statement, as the "Filing Deadline"), (ii) use its reasonable best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 120 days after the
Closing Date (such 120th day being hereinafter referred to, in the case of any
references herein to the Exchange Offer Registration Statement, as the
"Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Series B Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting
registration of the Series B Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and to permit resales of Series B
Notes by Broker-Dealers that tendered into the Exchange Offer Series A Notes
that any such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its Affiliates) as contemplated by
Section 3(c) below.
(b) The Company and the Subsidiary Guarantors shall use their
respective reasonable best efforts to cause the Exchange Offer Registration
Statement to be effective continuously, and shall keep the Exchange Offer open
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; provided,
however, that in no event shall such period be less than 20 Business Days. The
Company and the Subsidiary Guarantors shall cause the Exchange Offer to comply
with all applicable federal and state securities laws. No securities other than
the Series B Notes shall be included in the Exchange Offer Registration
Statement.
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The Company and the Subsidiary Guarantors shall use their respective reasonable
best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter.
(c) The Company and the Subsidiary Guarantors shall include a "Plan of
Distribution" section in the Prospectus contained in the Exchange Offer
Registration Statement and indicate therein that (i) any Broker-Dealer who holds
Transfer Restricted Securities that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities (other than Transfer Restricted Securities acquired directly from the
Company or any Affiliate of the Company), may exchange such Transfer Restricted
Securities pursuant to the Exchange Offer; provided, however, such Broker-
Dealer may be deemed to be an "underwriter" within the meaning of the Act and
must, therefore, deliver a prospectus meeting the requirements of the Act in
connection with its initial sale of any Series B Notes received by such Broker-
Dealer in the Exchange Offer; and (ii) the Prospectus contained in the Exchange
Offer Registration Statement may be used to satisfy such prospectus delivery
requirement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales by such Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Transfer Restricted Securities held by any such Broker-Dealer, except
to the extent required by the Commission as a result of a change in policy,
rules or regulations after the date of this Agreement. See the Shearman &
----------
Sterling no-action letter (available July 2, 1993).
- --------
To the extent necessary to ensure that the Exchange Offer Registration
Statement is available for sales of Series B Notes by Broker-Dealers, the
Company and the Subsidiary Guarantors each agree to use their respective
reasonable best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 6(c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period ending on the earlier of (i) the
expiration of one year from the date on which the Exchange Offer is Consummated
(as extended pursuant to Section 6(d)) or (ii) the date upon which all Transfer
Restricted Securities that were received by Broker-Dealers in the Exchange Offer
have been sold by such Broker-Dealers in compliance with the Securities Act.
The Company and the Subsidiary Guarantors shall provide sufficient copies of the
latest version of such Prospectus to such Broker-Dealers promptly upon request,
and in no event later than one day after such request, at any time during such
period.
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<PAGE>
SECTION 4. Shelf Registration.
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company and the Subsidiary Guarantors have complied
with the procedures set forth in Section 6(a)(i) hereof) or (ii) if any Holder
of Transfer Restricted Securities shall notify the Company within 20 Business
Days following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (C) such Holder is a Broker-Dealer
and holds Series A Notes acquired directly from the Company or any of its
Affiliates, then the Company and the Subsidiary Guarantors shall:
(1) cause to be filed, on or prior to 45 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above
and (ii) the date on which the Company receives the notice specified in
clause (a) (ii) above (the 45th day after such earlier date, being
hereinafter referred to, in the case of any references herein to the Shelf
Registration Statement, as the "Filing Deadline"), a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to
the Exchange Offer Registration Statement (the "Shelf Registration
Statement")), relating to all Transfer Restricted Securities, and
(2) shall use their respective reasonable best efforts to cause such
Shelf Registration Statement to become effective on or prior to 120 days
after the date on which the obligation of the Company and the Subsidiary
Guarantors to file the Shelf Registration Statement arises (such 120th day
being hereinafter referred to, in the case of any references herein to the
Shelf Registration Statement, as the "Effectiveness Deadline").
The Company and the Subsidiary Guarantors shall use their respective
reasonable best efforts to keep any Shelf Registration Statement required by
this Section 4(a) continuously effective, supplemented and amended as required
by and subject to the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for sales of Transfer Restricted
Securities by the Holders thereof entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period of at least two years (as extended pursuant to Section
6(d)) following the date on which such Shelf Registration Statement first became
effective under
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<PAGE>
the Act, or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary prospectus included therein. Each selling Holder
agrees to promptly furnish additional information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not materially misleading.
SECTION 5. Liquidated Damages.
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated within 30 Business Days after the
Effectiveness Deadline with respect to the Exchange Offer Registration Statement
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a post-
effective amendment to such Registration Statement that cures such failure and
that is itself declared effective immediately (each such event referred to in
clauses (i) through (iv), a "Registration Default"), then the Company and the
Subsidiary Guarantors hereby jointly and severally agree to pay to each Holder
of Transfer Restricted Securities affected thereby liquidated damages in an
amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.30 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided that the Company and the
Subsidiary Guarantors shall in no event be required to pay liquidated damages
for more than one Registration Default at any given time. Notwithstanding
anything to the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above,
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<PAGE>
(2) upon the effectiveness of the Exchange Offer Registration Statement (and/or,
if applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All obligations of the Company and the Subsidiary Guarantors set forth
in the preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such obligations with respect to
such security shall have been satisfied in full.
SECTION 6. Registration Procedures.
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Subsidiary Guarantors shall comply with all
applicable provisions of Section 6(c) below, and shall use their respective
reasonable best efforts to effect such exchange and to permit the resale of
Series B Notes by Broker-Dealers that tendered in the Exchange Offer Series A
Notes that any such Broker-Dealer acquired for its own account as a result of
its market making activities or other trading activities (other than Series A
Notes acquired directly from the Company or any of its Affiliates) being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been announced a change in
Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company and the Subsidiary Guarantors hereby
agree to seek a no-action letter or other favorable decision from the
Commission allowing the Company and the Subsidiary Guarantors to
Consummate an Exchange Offer for such Transfer Restricted Securities. The
Company and the Subsidiary Guarantors hereby agree to pursue the issuance
of such a decision to the Commission staff level. In connection with the
foregoing, the Company and the Subsidiary Guarantors hereby agree to take
all such other actions as may be requested by the Commission
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<PAGE>
or otherwise required in connection with the issuance of such decision,
including without limitation (A) participating in telephonic conferences
with the Commission, (B) delivering to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal bases, if any,
upon which such counsel has concluded that such an Exchange Offer should
be permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker-Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company and the Subsidiary Guarantors (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an Affiliate of
the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution of the Series B Notes to be issued in the Exchange Offer
and (C) it is acquiring the Series B Notes in its ordinary course of
business. Each Holder using the Exchange Offer to participate in a
distribution of the Series B Notes hereby acknowledges and agrees that, if
the resales are of Series B Notes obtained by such Holder in exchange for
Series A Notes acquired directly from the Company or an Affiliate thereof,
it (1) could not, under Commission policy as in effect on the date of this
Agreement, rely on the position of the Commission enunciated in Morgan
------
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
--------------------- ----------------------
Corporation (available May 13, 1988), as interpreted in the Commission's
-----------
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
-------------------
letters (including, if applicable, any no-action letter obtained pursuant
to clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Subsidiary Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and the
Subsidiary Guarantors are registering the Exchange Offer in reliance on
the position of the Commission enunciated in Exxon Capital Holdings
----------------------
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
----------- ----------------------------
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable,
-------------------
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<PAGE>
any no-action letter obtained pursuant to clause (i) above, (B) including
a representation that neither the Company nor any Subsidiary Guarantor has
entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Subsidiary Guarantor's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer and (C)
any other undertaking or representation required by the Commission as set
forth in any no-action letter obtained pursuant to clause (i) above, if
applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Subsidiary Guarantors shall comply
with all the provisions of Section 6(c) below and shall use their respective
reasonable best efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the intended method
or methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company
and the Subsidiary Guarantors will prepare and file with the Commission a
Registration Statement on any appropriate form under the Act, which form shall
be available for the sale of the Transfer Restricted Securities in accordance
with the intended method or methods of distribution thereof within the time
periods and otherwise in accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company and the
Subsidiary Guarantors shall:
(i) use their respective reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained therein
(A) to contain a material misstatement or omission or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company and the Subsidiary
Guarantors shall file promptly an appropriate amendment to such
Registration Statement curing such defect, and, if Commission review is
required, use their respective reasonable best efforts to cause such
amendment to be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such
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<PAGE>
Registration Statement effective for the applicable period set forth in
Section 3 or 4 hereof, as the case may be; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 under the Act, and to comply fully with Rules
424, 430A and 462, as applicable, under the Act in a timely manner; and
comply with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by
the sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise the selling Holders and Initial Purchasers promptly and,
if requested by such Persons, confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any applicable Registration Statement or any
post-effective amendment thereto, when the same has become effective, (B) of
any request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act or
of the suspension by any state securities commission of the qualification of
the Transfer Restricted Securities for offering or sale in any jurisdiction,
or the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document incorporated
by reference therein untrue, or that requires the making of any additions to
or changes in the Registration Statement in order to make the statements
therein not misleading, or that requires the making of any additions to or
changes in the Prospectus in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company and the
Subsidiary Guarantors shall use their respective reasonable best efforts to
obtain the withdrawal or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement
or post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus
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<PAGE>
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) furnish to the Initial Purchasers and each selling Holder named in
any Registration Statement or Prospectus in connection with such exchange or
sale, if any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or supplements
to any such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and comment of such
Initial Purchasers and selling Holders in connection with such sale, if any,
for a period of at least five Business Days, and the Company will not file
any such Registration Statement or Prospectus or any amendment or supplement
to any such Registration Statement or Prospectus (including all such
documents incorporated by reference) to which the Initial Purchasers or such
selling Holders shall reasonably object within five Business Days after the
receipt thereof;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the Initial Purchasers and selling Holders
in connection with such exchange or sale, if any, make the Company's and the
Subsidiary Guarantors' representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as the Initial
Purchasers or such selling Holders may reasonably request;
(vii) make available at reasonable times for inspection by the
selling Holders participating in any disposition pursuant to such
Registration Statement and any attorney or accountant retained by such
selling Holders, all financial and other records, pertinent corporate
documents of the Company and the Subsidiary Guarantors and cause the
Company's and the Subsidiary Guarantors' officers, directors and employees to
supply all information reasonably requested by any such selling Holder,
attorney or accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and prior
to its effectiveness; provided, however, that such persons shall first agree
in writing with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at the time
of delivery of such information shall be kept confidential by such persons,
unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities, (ii) disclosure of such information is required by law
(including any
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<PAGE>
disclosure requirements pursuant to federal securities laws in connection
with the filing of such Registration Statement or the use of any Prospectus),
(iii) such information becomes generally available to the public other than
as a result of a wrongful disclosure such information by such person or (iv)
such information becomes available to such person from a source other than
the Company and its subsidiaries and such source is not known by such person
to be bound by a confidentiality agreement.
(viii) if requested by any selling Holders in connection with such
exchange or sale promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders may reasonably request to
have included therein, including, without limitation, information relating to
the "Plan of Distribution" of the Transfer Restricted Securities; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the matters
to be included in such Prospectus supplement or post-effective amendment;
(ix) furnish to each selling Holder in connection with such exchange
or sale, without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including
exhibits incorporated therein by reference);
(x) deliver to each selling Holder without charge, as many copies of
the Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company and
the Subsidiary Guarantors hereby consent to the use (in accordance with law)
of the Prospectus and any amendment or supplement thereto by each of the
selling Holders in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(xi) upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) and make such representations
and warranties and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement contemplated by
this Agreement as may be reasonably requested by any Holder of Transfer
Restricted Securities in connection with any sale or resale pursuant to any
applicable Registration Statement. In such connection, the Company and the
Subsidiary Guarantors shall:
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<PAGE>
(A) upon request of any selling Holder, furnish (or, in the case
of paragraphs (2) and (3), use its reasonable best efforts to cause to
be furnished) to each selling Holder, upon the effectiveness of the
Shelf Registration Statement or upon Consummation of the Exchange
Offer, as the case may be:
(1) a certificate, dated such date, signed on behalf of the
Company and each Subsidiary Guarantor by (x) the President or any
Vice President and (y) a principal financial or accounting officer
of the Company and such Subsidiary Guarantor, confirming, as of the
date thereof, the matters set forth in paragraphs (a) and (d) of
Section 9 of the Purchase Agreement and such other similar matters
as the selling Holders may reasonably request;
(2) an opinion, dated the date of Consummation of the Exchange
Offer, or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company and the
Subsidiary Guarantors covering matters similar to those set forth
in paragraph (f) of Section 9 of the Purchase Agreement and such
other matter as the selling Holders may reasonably request, and in
any event including a statement to the effect that such counsel has
participated in conferences with officers and other representatives
of the Company and the Subsidiary Guarantors, representatives of
the independent public accountants for the Company and the
Subsidiary Guarantors and have considered the matters required to
be stated therein and the statements contained therein, although
such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such counsel
advises that, on the basis of the foregoing, no facts came to such
counsel's attention that caused such counsel to believe that the
applicable Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became effective
and, in the case of the Exchange Offer Registration Statement, as
of the date of Consummation of the Exchange Offer, contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus contained
in such Registration Statement as of its date and, in the case of
the opinion dated the date of Consummation of the Exchange Offer,
as of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and
14
<PAGE>
schedules and other financial data included in any Registration
Statement contemplated by this Agreement or the related Prospectus;
and
(3) a customary comfort letter, dated the date of Consummation
of the Exchange Offer, or as of the date of effectiveness of the
Shelf Registration Statement, as the case may be, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort letters
to underwriters in connection with underwritten offerings, and
affirming the matters set forth in the comfort letters delivered
pursuant to paragraph (h) of Section 9 of the Purchase Agreement;
and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with clause (A) above and with any customary conditions contained in
the any agreement entered into by the Company and the Subsidiary
Guarantors pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as the selling Holders
may reasonably request and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Transfer Restricted Securities covered by the applicable Registration
Statement; provided, however, that neither the Company nor any Subsidiary
Guarantor shall be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would subject it
to the general consent to service of process or to taxation (other than any
taxes arising from or based upon matters and transactions relating to the
Registration Statement), in any jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of Series A Notes
covered by any Shelf Registration Statement contemplated by this Agreement,
Series B Notes having an aggregate principal amount equal to the aggregate
principal amount of Series A Notes surrendered to the Company by such Holder
in exchange therefor or being sold by such Holder; such Series B Notes to be
registered in the name of such Holder or in the name of the purchaser(s) of
such Series B Notes, as the case may be; in return, the Series A Notes held
by such Holder shall be surrendered to the Company for cancellation;
(xiv) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with
15
<PAGE>
the selling Holders to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Securities to be sold and not
bearing any restrictive legends (other than, in the case of Transfer
Restricted Securities in global form, any customary legends required by DTC);
and to register such Transfer Restricted Securities in such denominations and
such names as the selling Holders may request at least two Business Days
prior to such sale of Transfer Restricted Securities;
(xv) use their respective reasonable best efforts to cause the
disposition of the Transfer Restricted Securities covered by the Registration
Statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the seller or sellers
thereof to consummate the disposition of such Transfer Restricted Securities,
subject to the proviso contained in clause (xii) above;
(xvi) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities which are in
a form eligible for deposit with the Depository Trust Company;
(xvii) otherwise use their respective reasonable best efforts to
comply with all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule 158
under the Act);
(xviii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its reasonable best efforts to cause the Trustee to execute,
all documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner; and
(xix) provide promptly to each Holder upon request each document filed
with the Commission pursuant to the requirements of Section 13 or Section
15(d) of the Exchange Act.
16
<PAGE>
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "Recommencement
Date"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
SECTION 7. Registration Expenses.
(a) All expenses incident to the Company's and the Subsidiary
Guarantors' performance of or compliance with this Agreement will be borne by
the Company, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses;
(ii) all reasonable fees and expenses of compliance with federal securities and
state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Series B Notes to be issued in the Exchange Offer
and printing of Prospectuses whether for exchanges, sales, or otherwise),
messenger and delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company, the Subsidiary Guarantors and the Holders of
Transfer Restricted Securities; (v) all application and filing fees in
connection with listing the Series B Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company, including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its and the Subsidiary
Guarantors' internal expenses (including, without limitation, all salaries and
expenses of its officers and
17
<PAGE>
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company or the Subsidiary Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Subsidiary
Guarantors will reimburse the Initial Purchasers and the Holders of Transfer Rer
Registration Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and disbursements of not more
than one counsel, who shall be Baker & Botts, L.L.P. unless another firm shall
be chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. Indemnification.
(a) The Company and the Subsidiary Guarantors agree, jointly and
severally, to indemnify and hold harmless each Holder, its directors, its
officers and each Person, if any, who controls such Holder (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act), from and against
any and all losses, claims, damages, liabilities, judgments, (including without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action that could give rise
to any such losses, claims, damages, liabilities or judgments) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement, preliminary prospectus or Prospectus (or any amendment
or supplement thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by an untrue statement or omission
or alleged untrue statement or omission that is based upon information relating
to any of the Holders furnished in writing to the Company by any of the Holders
expressly for use in any Registration Statement.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Subsidiary
Guarantors and their respective directors, officers and each Person, if any, who
controls the Company and the Subsidiary Guarantors (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) to the same extent as
the foregoing indemnity from the Company and the Subsidiary Guarantors to each
of the Indemnified Holders, but only with reference to
18
<PAGE>
information relating to such Indemnified Holder furnished in writing to the
Company by such Indemnified Holder expressly for use in any Registration
Statement.
(c) In case any action shall be commenced or threatened or any claim
shall be asserted involving any person in respect of which indemnity may be
sought pursuant to Section 8(a) or 8(b) (the "indemnified party"), the
indemnified party shall promptly notify the person against whom such indemnity
may be sought (the "indemnifying person") in writing and the indemnifying party
shall assume the defense of such action or claim, including the employment of
counsel reasonably satisfactory to the indemnified party and the payment of all
fees and expenses of such counsel, as incurred (except that in the case of any
action or claim in respect of which indemnity may be sought pursuant to both
Sections 8(a) and 8(b), an Indemnified Holder shall not be required to assume
the defense of such action or claim pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Indemnified Holder). Any indemnified party shall have the right to employ
separate counsel in connection with any such action or claim and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel shall
have been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
claim or employ counsel reasonably satisfactory to the indemnified party or
(iii) the named parties to any such action (including any impleaded parties) or
the persons asserting such claim and against whom such claim is asserted include
both the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those avathe
indemnifying party shall not have the right to assume the defense of such action
or claim on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by a
majority of the Indemnified Holders, in the case of the parties indemnified
pursuant to Section 8(a), and by the Company, in the case of parties indemnified
pursuant to Section 8(b); provided, however, that, in each case, the firm so
designated shall be reasonably acceptable to the indemnifying party (it being
understood that, in order to object to a firm as not being reasonably acceptable
for purposes of this Section 8(c), the indemnifying party shall be required to
establish that the selection of such counsel is reasonably likely to prejudice
the defense of such action or claim. The indemnifying party shall indemnify and
hold harmless the
19
<PAGE>
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action or claim
effected with the written consent of the indemnifying party, which consent shall
not be unreasonably withheld. Notwithstanding the immediately preceding
sentence, if in any case where the fees and expenses of counsel are at the
expense of the indemnifying party and an indemnified party shall have requested
that the indemnifying party reimburse the indemnified party for such fees and
expenses of counsel, such indemnifying party agrees that it shall be liable for
any settlement of any action or claim effected without its written consent if
(i) such settlement is entered into more than 30 days after the indemnifying
party of the aforesaid request and (ii) prior to the date of such settlement
such indemnifying party shall have failed to reimburse the indemnified party in
accordance with such request for reimbursement; provided, however, that if
within 30 days of the receipt of the aforesaid request, the indemnifying party
shall have made a good faith written challenge to the reasonableness of the
amount of the reimbursement requested or the sufficiency of the documentation
supporting the reimbursement requested (which challenge shall specifically set
forth the amount of the requested reimbursement which the indemnifying party in
good faith believes to be unreasonable or the basis for the good faith claim as
to the insufficiency of any supporting documentation), this sentence shall only
apply if such indemnifying party shall not have reimbursed the indemnified party
for the amount which is not being so challenged. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action or claim in respect of which the
indemnified party is or could have been a party and indemnity or contribution
may be or could have been sought hereunder by the indemnified party, unless such
settlement, compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability on claims that are or could have been the
subject matter of such action or claim and (ii) does not include a statement as
to or an admission of fault, culpability or a failure to act, by or on behalf of
the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid orf such losses, claims, damages, liabilities or
judgments (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Subsidiary Guarantors, on the one hand,
and the Holders, on the other hand, from their sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company and the Subsidiary Guarantors, on the one hand, and of the
Indemnified Holder, on the other hand,
20
<PAGE>
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company and the Subsidiary
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or such
Subsidiary Guarantor, on the one hand, or by the Indemnified Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and judgments referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 8(a), any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company, the Subsidiary Guarantors and each Holder agree that it
would not be just and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Holders were treated as one
entthod of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any matter, including any action
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Holder or its
related Indemnified Holders shall be required to contribute, in the aggregate,
any amount in excess of the amount by which the total received by such Holder
with respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities and (B) the amount of any damages which such
Holder has otherwise paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each of the Holders hereunder and not
joint.
SECTION 9. Rule 144 and Rule 144A. The Company and each
Subsidiary Guarantor agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company or such
21
<PAGE>
Subsidiary Guarantor (i) is not subject to Section 13 or 15(d) of the Exchange
Act, to make available, upon request of any Holder of Transfer Restricted
Securities, to any Holder or beneficial owner of Transfer Restricted Securities
in connection with any sale thereof and any prospective purchaser of such
Transfer Restricted Securities designated by such Holder or beneficial owner,
the information required by Rule 144A(d)(4) under the Act in order to permit
resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii)
is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 10. Miscellaneous.
(a) Remedies. The Company and the Subsidiary Guarantors acknowledge
and agree that any failure by the Company or the Subsidiary Guarantors to comply
with their respective obligations under Sections 3 and 4 hereof may result in
material irreparable injury to the Initial Purchasers or the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
the Initial Purchasers or any Holder may obtain such relief as may be required
to specifically enforce the Company's and the Subsidiary Guarantor's obligations
under Sections 3 and 4 hereof. The Company and the Subsidiary Guarantors
further agree to waive the defense in any action for specific performance that a
remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any
Subsidiary Guarantor will, on or after the date of this Agreement, enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor any Subsidiary Guarantor has
previously entered into any agreement granting any registration rights with
respect to its securities to any Person. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's and the Subsidiary Guarantors'
securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities
22
<PAGE>
held by the Company or its Affiliates). Notwithstanding the foregoing, a waiver
or consent to departure from the provisions hereof that relates exclusively to
the rights of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly the rights of
other Holders whose securities are not being tendered pursuant to such Exchange
Offer may be given by the Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Subsidiary Guarantors, on the one hand, and the Initial Purchasers, on the other
hand, and shall have the right to enforce such agreements directly to the extent
they may deem such enforcement necessary or advisable to protect its rights or
the rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be mad-delivery, first-class mail (registered or
certified, return receipt requested), telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Subsidiary Guarantors:
c/o Kevco, Inc.
University Centre I
1300 South University Drive, Suite 200
Fort Worth, Texas 76107
Telecopier No.: (817) 332-2765
Attention: Jerry E. Kimmel
With a copy to:
Jackson Walker L.L.P.
777 Main Street, Suite 1800
Fort Worth, Texas 76102
Telecopier No.: (817) 334-7290
Attention: Richard S. Tucker
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being
23
<PAGE>
deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if
telecopied; and on the next business day, if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation, on behalf of the Initial Purchasers (in the
form attached hereto as Exhibit A) and shall be addressed to: Attention: Louise
Guarneri (Compliance Department), 277 Park Avenue, New York, New York 10172.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Transfer Restricted Securities in violation of the terms hereof or of the
Purchase Agreement or the Indenture. If any transferee of any Holder shall
acquire Transfer Restricted Securities in any manner, whether by operation of
law or otherwise, such Transfer Restricted Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such Person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
24
<PAGE>
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
25
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
KEVCO, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------------
Name: Jerry E. Kimmel
Title: Chairman of the Board and
President
KEVCO DELAWARE, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------------
Name: Jerry E. Kimmel
Title: Chairman of the Board and
President
SUNBELT WOOD COMPONENTS, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------------
Name: Jerry E. Kimmel
Title: Chairman of the Board
CONSOLIDATED FOREST PRODUCTS, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------------
Name: Jerry E. Kimmel
Title: Chairman of the Board
26
<PAGE>
BOWEN SUPPLY, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------------
Name: Jerry E. Kimmel
Title: Chairman of the Board
ENCORE INDUSTRIES, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------------
Name: Jerry E. Kimmel
Title: Chairman of the Board
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ M. R. Nicolais
-------------------------------------------
Name: Michael R. Nicolais
Title: Managing Director
NATIONSBANC
MONTGOMERY SECURITIES, INC.
By: /s/ Stuart B. Gleichenhaus
-------------------------------------------
Name: Stuart B. Gleichenhaus
Title: Managing Director
27
<PAGE>
EXHIBIT A
NOTICE OF FILING OF REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Kevco, Inc.
10 3/8% Senior Subordinated Notes due 2007
Date: _______ __, 199_
For your information only (NO ACTION REQUIRED):
Today, _______ __, 199_, we filed [an Exchange Offer Registration
Statement/a Shelf Registration Statement] with the Securities and Exchange
Commission. We currently expect this registration statement to be declared
effective within __ business days of the date hereof.
28
<PAGE>
EXHIBIT 10.59
KEVCO, INC.
AND
SCC ACQUISITION CORP.,
KEVCO DELAWARE, INC.,
SUNBELT WOOD COMPONENTS, INC.,
CONSOLIDATED FOREST PRODUCTS, INC.,
BOWEN SUPPLY, INC. AND
ENCORE INDUSTRIES, INC.
AS SUBSIDIARY GUARANTORS
================================================================================
$105,000,000
10 3/8% SENIOR SUBORDINATED NOTES DUE DECEMBER 1, 2007
_____________
INDENTURE
DATED AS OF DECEMBER 1, 1997
================================================================================
UNITED STATES TRUST COMPANY OF NEW YORK
AS TRUSTEE
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
310(1)..................................................................... 7.10
(a)(2)............................................................... 7.10
(a)(3)............................................................... N.A.
(a)(4)............................................................... N.A.
(a)(5)............................................................... 7.10
(b)............................................................ 7.03, 7.10
(c).................................................................. N.A.
311(a)..................................................................... 7.11
(b).................................................................. 7.11
(c).................................................................. N.A.
312(a)..................................................................... 2.05
(b)................................................................. 12.03
(c)................................................................. 12.03
313(a)..................................................................... 7.06
(b)(1)............................................................... N.A.
(b)(2)......................................................... 7.06, 7.07
(c)........................................................... 7.06, 12.02
(d).................................................................. 7.06
314(a).................................................................... 12.05
(b).................................................................. N.A.
(c)(1).............................................................. 12.04
(c)(2).............................................................. 12.04
(c)(3)............................................................... N.A.
(d).................................................................. N.A.
(e)................................................................. 12.05
(f).................................................................. N.A.
315(a).................................................................. 7.01(b)
(b)........................................................... 7.05, 12.02
(c)............................................................... 7.01(a)
(d)............................................................... 7.01(c)
(e).................................................................. 6.11
316(a)(last sentence)...................................................... 2.09
(a)(1)(A)............................................................ 6.05
(a)(1)(B)............................................................ 6.04
(a)(2)............................................................... N.A.
(b).................................................................. 6.07
(c)............................................................ 2.13, 9.04
317(a)(1).................................................................. 6.08
(a)(2)............................................................... 6.09
(b).................................................................. 2.04
318(a).................................................................... 12.01
(b)................................................................. N.A.
(c)................................................................. 12.01
N.A. means "not applicable."
* This Cross-Reference Table is not part of the Indenture.
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TABLE OF CONTENTS
Page
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ARTICLE 1 - DEFINITIONS AND INCORPORATION BY REFERENCE.........................1
Section 1.01 Definitions...................................................1
Section 1.02 Other Definitions............................................17
Section 1.03 Incorporation by Reference of Trust Indenture Act............18
Section 1.04 Rules of Construction........................................19
ARTICLE 2 - THE NOTES.........................................................19
Section 2.01 Form and Dating..............................................19
Section 2.02 Execution and Authentication.................................21
Section 2.03 Registrar and Paying Agent...................................21
Section 2.04 Paying Agent to Hold Money in Trust..........................22
Section 2.05 Holder Lists.................................................22
Section 2.06 Transfer and Exchange........................................23
Section 2.07 Replacement Notes............................................31
Section 2.08 Outstanding Notes............................................31
Section 2.09 Treasury Notes...............................................32
Section 2.10 Temporary Notes..............................................32
Section 2.11 Cancellation.................................................32
Section 2.12 Defaulted Interest...........................................32
Section 2.13 Record Date..................................................33
Section 2.14 Computation of Interest......................................33
Section 2.15 CUSIP Number.................................................33
Section 2.16 Deposit of Moneys............................................33
ARTICLE 3 - REDEMPTION........................................................34
Section 3.01 Notices to Trustee...........................................34
Section 3.02 Selection of Notes to be Redeemed............................34
Section 3.03 Notice of Redemption.........................................34
Section 3.04 Effect of Notice of Redemption...............................35
Section 3.05 Deposit of Redemption Price..................................36
Section 3.06 Notes Redeemed in Part.......................................36
Section 3.07 Optional Redemption..........................................36
Section 3.08 Special Redemption...........................................37
Section 3.09 Mandatory Redemption.........................................38
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ARTICLE 4 - COVENANTS.........................................................38
Section 4.01 Payment of Notes.............................................38
Section 4.02 Maintenance of Office or Agency..............................39
Section 4.03 Compliance Certificate.......................................39
Section 4.04 Taxes........................................................40
Section 4.05 Stay, Extension and Usury Laws...............................40
Section 4.06 Offer to Repurchase Upon Change of Control...................40
Section 4.07 Limitation on Sale of Assets and Restricted Subsidiary
Stock........................................................42
Section 4.08 Limitation on Restricted Payments............................43
Section 4.09 Limitation on Incurrence of Indebtedness.....................46
Section 4.10 Limitation on Liens..........................................47
Section 4.11 Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries...............48
Section 4.12 Limitation on Layering Indebtedness..........................49
Section 4.13 Designation of Restricted and Unrestricted
Subsidiaries.................................................49
Section 4.14 Limitation on Issuance, Sale and Ownership of
Capital Stock of Restricted Subsidiaries.....................50
Section 4.15 Limitation on Transactions With Affiliates...................50
Section 4.16 Sale and Leaseback Transactions..............................51
Section 4.17 Reports......................................................51
Section 4.18 Limitation on Lines of Business..............................52
Section 4.19 Payments for Consent.........................................52
Section 4.20 Limitation on Status as Investment Company...................53
Section 4.21 Escrow of Proceeds of Notes on Issue Date....................53
Section 4.22 Repurchase Offers For Change of Control and
Asset Sales..................................................53
ARTICLE 5 - SUCCESSORS........................................................56
Section 5.01 Limitations on Merger, Consolidation or Sale of
Substantially All Assets.....................................56
Section 5.02 Successor Corporation Substituted............................56
ARTICLE 6 - DEFAULTS AND REMEDIES.............................................57
Section 6.01 Events of Default............................................57
Section 6.02 Acceleration.................................................58
Section 6.03 Other Remedies...............................................59
Section 6.04 Waiver of Past Defaults......................................60
Section 6.05 Control by Majority..........................................60
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Section 6.06 Limitation on Suits..........................................60
Section 6.07 Rights of Holders to Receive Payment.........................61
Section 6.08 Collection Suit by Trustee...................................61
Section 6.09 Trustee May File Proofs of Claim.............................61
Section 6.10 Priorities...................................................62
Section 6.11 Undertaking for Costs........................................62
Section 6.12 Notices to Escrow Agent......................................62
ARTICLE 7 - TRUSTEE...........................................................63
Section 7.01 Duties of Trustee............................................63
Section 7.02 Rights of Trustee............................................64
Section 7.03 Individual Rights of Trustee.................................65
Section 7.04 Trustee's Disclaimer.........................................65
Section 7.05 Notice of Defaults...........................................66
Section 7.06 Reports by Trustee to Holders................................66
Section 7.07 Compensation and Indemnity...................................66
Section 7.08 Replacement of Trustee.......................................67
Section 7.09 Successor Trustee by Merger, Etc.............................68
Section 7.10 Eligibility; Disqualification................................69
Section 7.11 Preferential Collection of Claims Against
the Company..................................................69
ARTICLE 8 - LEGAL DEFEASANCE AND COVENANT DEFEASANCE..........................69
Section 8.01 Option to Effect Defeasance or Covenant Defeasance...........69
Section 8.02 Legal Defeasance and Discharge...............................69
Section 8.03 Covenant Defeasance..........................................70
Section 8.04 Conditions to Defeasance or Covenant Defeasance..............70
Section 8.05 Deposited Money and U.S. Government Obligations
to be Held in Trust; Other Miscellaneous Provisions..........72
Section 8.06 Repayment to Company.........................................72
Section 8.07 Reinstatement................................................73
ARTICLE 9 - AMENDMENT, SUPPLEMENT AND WAIVER..................................73
Section 9.01 Without Consent of Holders...................................73
Section 9.02 With Consent of Holders......................................74
Section 9.03 Compliance With Trust Indenture Act..........................76
Section 9.04 Revocation and Effect of Consents............................76
Section 9.05 Notation on or Exchange of Notes.............................76
Section 9.06 Trustee to Sign Amendments, Etc..............................77
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ARTICLE 10 - SUBSIDIARY GUARANTEES............................................77
Section 10.01 Subsidiary Guarantees........................................77
Section 10.02 Execution and Delivery of Subsidiary Guarantees..............79
Section 10.03 Subsidiary Guarantors May Consolidate, Etc.,
on Certain Terms.............................................79
Section 10.04 Releases Following Sale of Assets
and Restricted Subsidiary Stock..............................80
Section 10.05 Limitation of Subsidiary Guarantor's Liability...............80
Section 10.06 Application of Certain Terms and Provisions to
the Subsidiary Guarantors....................................81
Section 10.07 Release of Subsidiary Guarantees.............................81
Section 10.08 Subordination of Subsidiary Guarantees.......................82
Section 10.09 Future Subsidiary Guarantors.................................82
ARTICLE 11 - SUBORDINATION....................................................83
Section 11.01 Notes Subordinated to Senior Indebtedness....................83
Section 11.02 No Payment on Notes in Certain Circumstances.................83
Section 11.03 Payment Over of Proceeds Upon Dissolution, Etc...............84
Section 11.04 Subrogation..................................................85
Section 11.05 Obligations of Company Unconditional.........................86
Section 11.06 Notice to Trustee............................................86
Section 11.07 Reliance on Judicial Order or Certificate of
Liquidating Agent............................................87
Section 11.08 Trustee's Relation to Senior Indebtedness....................87
Section 11.09 Subordination Rights Not Impaired by Acts or
Omissions of the Company or Holders of
Senior Indebtedness..........................................88
Section 11.10 Holders of Notes Authorize Trustee to
Effectuate Subordination of Notes............................88
Section 11.11 This Article Not to Prevent Event of Default.................88
Section 11.12 Trustee's Compensation Not Prejudiced........................88
Section 11.13 No Waiver of Subordination Provisions........................88
Section 11.14 Subordination Provisions Not Applicable to
Collateral Held in Trust for Holders of Notes;
Payments May be Paid Prior to Dissolution....................89
Section 11.15 Acceleration of Notes........................................89
ARTICLE 12 - MISCELLANEOUS....................................................89
Section 12.01 Trust Indenture Act Controls.................................89
Section 12.02 Notices......................................................90
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Section 12.03 Communication by Holders With Other Holders..................91
Section 12.04 Certificate and Opinion as to Conditions Precedent...........91
Section 12.05 Statements Required in Certificate or Opinion................91
Section 12.06 Rules By Trustee and Agents..................................92
Section 12.07 Legal Holidays...............................................92
Section 12.08 No Recourse Against Others...................................92
Section 12.09 Duplicate Originals..........................................92
Section 12.10 Governing Law................................................92
Section 12.11 No Adverse Interpretation of Other Agreements................93
Section 12.12 Successors...................................................93
Section 12.13 Severability.................................................93
Section 12.14 Counterpart Originals........................................93
Section 12.15 Table of Contents, Headings, Etc.............................93
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EXHIBITS
- --------
Exhibit A Form of Note
Exhibit B-1 Form of Certificate for Exchange or Registration of Transfer of
Certificated Notes
Exhibit B-2 Form of Certificate for Exchange or Registration of Transfer From
Global Note to Certificated Note
Exhibit B-3 Form of Certificate for Exchange or Registration of Transfer From
Certificated Note to Global Note
Exhibit C Form of Supplemental Indenture
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INDENTURE dated as of December 1, 1997, among Kevco, Inc., a Texas
corporation (the "Company"), SCC Acquisition Corp., an Indiana corporation,
Kevco Delaware, Inc., a Delaware corporation, Sunbelt Wood Components, Inc., a
Delaware corporation, Consolidated Forest Products, Inc., a Delaware
corporation, Bowen Supply, Inc., a Georgia corporation, and Encore Industries,
Inc., a Georgia corporation, as Subsidiary Guarantors (as hereinafter defined),
and United States Trust Company of New York, a New York banking corporation, as
trustee ("Trustee").
Each party agrees as follows for the benefit of each other and for the
equal and ratable benefit of the Holders of the 10 3/8% Series A Senior
Subordinated Notes due 2007 (the "Series A Notes") and the 10 3/8% Series B
Senior Subordinated Notes due 2007 (the "Series B Notes" and, together with the
Series A Notes, the "Notes") of the Company:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions
"Acquired Indebtedness" means, with respect to the Company or any
Restricted Subsidiary, (i) Indebtedness of any other Person existing at the time
such other Person is merged with or into or becomes a Restricted Subsidiary of
the Company or another Restricted Subsidiary, including, without limitation,
Indebtedness Incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Restricted Subsidiary of the Company
or another Restricted Subsidiary and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by the Company or any Restricted Subsidiary.
"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 the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
Beneficial Ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar or Paying Agent.
"Agent Members" means any member of, or participant in, the
Depositary.
"Applicable Procedures" means, with respect to any transfer or
exchange of beneficial interests in a Global Note, the rules and procedures of
the Depositary that are applicable to such transfer or exchange.
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"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 a Restricted Subsidiary (a
"disposition"), in one transaction or a series of transactions; provided that
the disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
Section 4.06 and/or the provisions of Section 5.01 and not by the provisions of
Section 4.07 and (b) the issuance or disposition by the Company or any of its
Restricted Subsidiaries of Equity Interests of the Company's Restricted
Subsidiaries. Notwithstanding the foregoing, none of the following will be
deemed an Asset Sale: (i) a disposition of assets by the Company to a Wholly
Owned Restricted Subsidiary or by a Restricted Subsidiary to the Company or to a
Wholly Owned Restricted Subsidiary; (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to a Wholly Owned Restricted Subsidiary;
(iii) a Restricted Payment that is permitted by Section 4.08; (iv) dispositions
of $250,000 or less; (v) dispositions of assets or rights in the ordinary course
of business consistent with past practices; (vi) a disposition of assets on or
before the second anniversary of the Issue Date which meets the requirements of
Section 4.07(a) the proceeds of which are used for Shelter Transition
Expenditures on or before the second anniversary of the Issue Date; (vii) the
grant in the ordinary course of business of any non-exclusive license of
intellectual property rights; (viii) any liquidation of any Cash Equivalents;
(ix) any disposition of defaulted receivables for collection; and (x) the grant
of any Lien securing Indebtedness (or any foreclosure thereon) to the extent
that such Lien is granted in compliance with Section 4.10.
"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).
"Authentication Order" means an Officer's Certificate ordering the
Trustee to authenticate Notes.
"Average Life" means, as of the date of determination, with respect to
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.
"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
2
<PAGE>
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.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such Person.
"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 of the Company and to be in full force and effect on the
date of such certification and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
"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.
"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.
"Cash Equivalents" means (i) Government Securities having maturities
of not more than twelve months from the date of acquisition, (ii) certificates
of deposit and eurodollar time deposits with maturities of twelve 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.
3
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"CEDEL" means Cedel Bank, societe anonyme (or any successor securities
clearing agency).
"Certificated Notes" means Notes that are in the form of the Notes
attached hereto as Exhibit A, that do not include the information called for by
footnotes 1 and 3 thereof.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), except to the Existing Majority Stockholder, (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Existing Majority Stockholder, becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the Voting Stock of the Company
(measured by voting power rather than number of shares), or (iv) during any
period of 24 consecutive months after the Issue Date, individuals who at the
beginning of any such 24-month period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors then still in office who
were either 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 Board of Directors of the Company then in office.
"Commission" or "SEC" means the Securities and Exchange Commission.
"Company" means Kevco, Inc., a Texas corporation, and any successor
thereto permitted pursuant to Section 5.01 hereof.
"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, 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 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
4
<PAGE>
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, with respect to 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 Restricted 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, with respect to the Company for
any period, the sum of (i) the consolidated interest expense of the Company and
its Restricted 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 with respect to Attributable
Debt, interest payments in respect of Indebtedness of another Person that is
Guaranteed by the Company or one of its Restricted Subsidiaries or secured by a
Lien on assets of the Company or one of its Restricted 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 Restricted 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 Restricted
Subsidiaries or preferred stock of the Company's Restricted Subsidiaries, to the
extent such Disqualified Stock or preferred stock is owned by Persons other than
the Company and its Restricted 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>
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate of the Net Income of the Company and the Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted 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 Restricted Subsidiary as to
which Consolidated Net Income is being calculated, (ii) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by such Restricted 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 and all
agreements, instruments, judgments, decrees, orders, statutes, rules or
governmental regulations applicable to such Restricted 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, (iv) 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
Restricted 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.
"Consolidated Net Worth" means, with respect to the Company as of any
date, the sum of (i) the consolidated equity of the common equity holders of the
Company and its consolidated Restricted Subsidiaries as of such date plus (ii)
the respective amounts reported on the Company's balance sheet as of such date
with respect to any series of preferred equity (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends or other
distributions, unless such dividends or other distributions may be declared and
paid only out of net earnings in respect of the year of such declaration and
payment, but only to the extent of any cash received by the Company upon
issuance of such preferred equity, less (x) all write-ups (other than write-ups
resulting from foreign currency translations and write-ups of tangible assets of
a going concern business made within 12 months after the acquisition of such
business) subsequent to the Issue Date in the book value of any asset owned by
the Company or a consolidated Restricted Subsidiary, (y) all investments as of
such date in Persons that are not Restricted Subsidiaries (except, in each case,
Permitted Investments), and (z) all unamortized debt discount and expense and
unamortized deferred charges, as of such date, all of the foregoing determined
in accordance with GAAP.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 or such other address as the Trustee may give
notice to the Company.
"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.
6
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"Depositary" means, with respect to the Global Notes, the Person
specified in Section 2.03 hereof as the Depositary with respect to such Notes,
until a successor shall have been appointed and become such Depositary pursuant
to the applicable provision of this Indenture, and, thereafter, "Depositary"
shall mean or include such successor.
"Designated Senior Indebtedness" means (i) any Indebtedness
outstanding under the Senior Credit Facility and (ii) any other Senior
Indebtedness permitted under this Indenture the principal amount of which is
$25,000,000 or more and that has been designated by the Company as "Designated
Senior Indebtedness" by the filing with the Trustee of a Board Resolution giving
effect to such designation.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Dollars" and "$" means lawful money or currency of the United States
of America.
"Eligible Receivables" means the trade receivables of the Company and
its Restricted Subsidiaries less the allowance for doubtful accounts, each of
the foregoing determined in accordance with GAAP.
"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).
"Escrow Agent" means United States Trust Company of New York, as
escrow agent under the Escrow Agreement, and any successor.
"Escrow Agreement" means the Escrow Agreement, dated as of the Issue
Date, by and among the Company, the Trustee and the Escrow Agent, as the same
may be amended from time to time pursuant to the terms hereof and thereof.
"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Offer" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange Series B Notes for
Series A Notes.
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<PAGE>
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date after application of the
net proceeds from the Company's sale of the Notes.
"Existing Majority Stockholder" means (i) Jerry E. Kimmel; (ii) his
beneficiaries, estates, spouse and lineal descendants, legal representatives of
any of the foregoing and the trustee of any bona fide trust of which any of the
foregoing are the sole beneficiaries or grantors and (iii) all Affiliates
controlled by Jerry E. Kimmel (provided that, for purposes of this clause (iii)
only, the proviso set forth in the definition of the term "Affiliate" shall be
deemed modified to provide that Beneficial Ownership of 50% or more of the
voting securities of a Person shall constitute, and shall be necessary to
constitute, control).
"Fair Market Value" means, with respect to 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 that if such value exceeds
$1,000,000, such determination shall be made in good faith by the Board of
Directors of the Company.
"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.
"Global Notes" means the Rule 144A Global Notes and the Regulation S
Global Notes.
"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.
"Hedging Obligations" means, with respect to 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").
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<PAGE>
"Holder" means a Person in whose name a Note is registered.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness.
"Indebtedness" means, with respect to 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 Restricted 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 this Indenture, as amended or supplemented from time
to time.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation and NationsBanc Montgomery Securities, Inc.
"Interest Payment Date" means each June 1 and December 1 of each year
or if any such day is not a Business Day, the next succeeding Business Day.
9
<PAGE>
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations (but
excluding endorsements of negotiable instruments for collection in the ordinary
course of business)), advances or capital contributions (excluding commissions,
travel and similar advances to directors, officers and employees made in the
ordinary course of business), purchases or other acquisitions (for
consideration) of Indebtedness, Equity Interest 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 December 1, 1997, the date on which the Series A
Notes are originally issued.
"Junior Securities" means, with respect to the Company or any of the
Restricted Subsidiaries, securities (including Capital Stock but excluding
Disqualified Stock) issued by the Company or any of the Restricted 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 Restricted 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 laws of any
jurisdiction to Persons which held "Designated Senior Indebtedness" in such
reorganization proceeding.
"Lien" means, with respect to 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, any lease in
the nature thereof).
"Liquidated Damages" means all liquidated damages owing pursuant to
Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP.
"Net Proceeds" means, with respect to any Asset Sale, the aggregate
amount of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either case,
only as and when so received) received by the Company or any of its Restricted
Subsidiaries in respect of such Asset Sale, net of: (i) the cash expenses of
such Asset Sale (including, without
10
<PAGE>
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 (other than the
Notes) 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
Restricted 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
Restricted Subsidiary 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.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender, (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity and (iii) as to which the lenders have expressly waived any
recourse which they may have, in law, equity or otherwise, whether based on
misrepresentations, control, ownership or otherwise, to the Company or any of
its Restricted Subsidiaries, including, without limitation, a waiver of the
benefit of the provisions of Section 1111(b) of the U.S. Bankruptcy Code (Title
11, United States Code), as amended.
"Note Custodian" means the Trustee, as custodian with respect to the
Global Note, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, 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 thereof.
"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 such Person.
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<PAGE>
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee. Except with respect to any opinion
delivered pursuant to Article 8, the counsel may be an employee of the Company.
"Permitted Investments" means (i) any Investment in the Company or in
a Restricted Subsidiary of the Company; (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any of its Restricted Subsidiaries in a
Person engaged in a Related Business if, as a result of such Investment, (A)
such Person becomes a Restricted 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
Restricted 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 Restricted 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 Restricted 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 such Restricted Subsidiary; (iv) Liens
securing any Acquired Indebtedness and which exist at the time of acquisition
thereof by the Company or any of its Restricted Subsidiaries, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens arising under the Indenture in favor of the Trustee; (vi) Liens existing
on the date of the Indenture; (vii) 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 with respect to 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 Restricted
Subsidiary 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 Restricted
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<PAGE>
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; (viii) Liens resulting from the
deposit of funds in trust for the purpose of decreasing or defeasing
Indebtedness of the Company and its Restricted Subsidiaries so long as such
deposit of funds and such decreasing or defeasing of Indebtedness are permitted
under Section 4.08; and (ix) 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 (vi) above; provided
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 Restricted 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 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
the Restricted Subsidiary 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.
"Public Equity Offering" means an underwritten offering of Equity
Interests (other than Disqualified Stock) of the Company for cash pursuant to an
effective registration statement under the Securities Act.
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"Purchase Agreement" means the Purchase Agreement, dated as of the
Issue Date, among the Company, the Subsidiary Guarantors and the Initial
Purchasers, as such agreement may be amended, modified or supplemented from time
to time.
"Purchase Money Indebtedness" means, with respect to the Company or
any Restricted Subsidiary, any Indebtedness of the Company or any Restricted
Subsidiary 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 of the Company or the
board of directors of any Restricted Subsidiary, as applicable, is directly
related to a Related Business of the Company or a Restricted Subsidiary and
which is Incurred within 180 days of such acquisition and is secured only by the
assets so financed.
"Qualified Tender Offer Purchase" means the purchase by the Company
pursuant to the Tender Offer of such number of Shelter Shares as constitute on a
fully-diluted basis at least a majority of the total number of outstanding
Shelter Shares.
"Reference Period" with regard to 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 the Notes or the Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Issue Date, by and among the Company, the Subsidiary
Guarantors and the Initial Purchasers, as such agreement may be amended,
modified or supplemented from time to time.
"Regulation S Global Note" means a permanent Global Note that contains
the paragraph referred to in footnote 1 and the additional schedule referred to
in footnote 3 to the form of the Note attached hereto as Exhibit A, and that is
deposited with and registered in the name of the Depositary, representing Notes
sold in reliance on Regulation S.
"Related Business" means the business conducted by the Company and its
Restricted Subsidiaries as of the Issue Date and any and all businesses that in
the good faith judgment of the Board of Directors of the Company are materially
related businesses.
"Responsible Officer" when used with respect to the Trustee, means any
officer within the Corporate Trust Office of the Trustee (or any successor group
of the Trustee) assigned by the Trustee to administer the Indenture in its
corporate trust department.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
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"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that contains
the paragraph referred to in footnote 1 and the additional schedule referred to
in footnote 3 to the form of the Note attached hereto as Exhibit A, and that is
deposited with and registered in the name of the Depositary, representing Notes
sold in reliance on Rule 144A.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Senior Credit Facility" means the Credit Agreement to be entered into
on the Issue Date among the Company, the guarantors named therein, and
NationsBank of Texas, N.A., as agent and lender, and the other lenders party
thereto, or any refinancing or increases thereof made in accordance with Section
4.09.
"Senior Indebtedness" means, with respect to any Person, (i) all
Indebtedness of such Person outstanding under the Senior Credit Facility and all
Hedging Obligations with respect thereto, (ii) any other Indebtedness of such
Person permitted to be issued under the Indenture, provided, however, 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 Restricted Subsidiaries or Affiliates and (iii) all Obligations
with respect to 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 the Indenture, (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 and (ix) any
Indebtedness or obligation which is subordinated in right of payment to any
other Indebtedness or obligation of such Person. "Senior Indebtedness," when
used with respect to a Subsidiary Guarantor, shall have a meaning substantially
identical to that applied to the Indebtedness of the Person or its Subsidiaries.
"Shelter" means Shelter Components Corporation, an Indiana
corporation.
"Shelter Shares" means all of the outstanding shares of common stock,
par value $.01 per share, of Shelter.
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"Shelter Transition Expenditures" means costs and expenses incurred by
the Company and its Restricted Subsidiaries to facilitate the consolidation of
the distribution and manufacturing businesses of the Company and the Restricted
Subsidiaries with Shelter.
"Special Redemption Consideration" has the meaning set forth in the
Escrow Agreement.
"Stated Maturity" means December 1, 2007.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof). Unless indicated to
the contrary, "Subsidiary" refers to a direct or indirect Subsidiary of the
Company.
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under this Indenture and the Notes by any Person in accordance with the
provisions of this Indenture, including pursuant to a supplemental indenture
substantially in the form attached hereto as Exhibit C.
"Subsidiary Guarantors" means (i) as of the Issue Date, SCC
Acquisition Corp., Kevco Delaware, Inc., Sunbelt Wood Components, Inc.,
Consolidated Forest Products, Inc., Bowen Supply, Inc. and Encore Industries,
Inc. and (ii) thereafter, all future Subsidiaries (other than Unrestricted
Subsidiaries) that become guarantors of the Notes in compliance with the
provisions of this Indenture and execute a supplemental indenture agreeing to be
bound by the terms of this Indenture; in each case until such time, if any, as
such Subsidiary is released from its Subsidiary Guarantee as permitted by this
Indenture.
"Tender Offer" means the tender offer commenced by the Company on
October 28, 1997 pursuant to which it offered to acquire all of the Shelter
Shares.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) and the rules and regulations thereunder, as in effect on the date on
which this Indenture is qualified under the TIA (except as provided in Sections
9.01(h) and 9.03); provided, however, that, in the event the Trust Indenture Act
of 1939 is amended after such date, "TIA" means, to the extent required by any
such amendments, the Trust Indenture Act of 1939 as so amended.
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"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to
a resolution of the Board of Directors of the Company, but only to the extent
that such Subsidiary and each of the Subsidiaries of such Subsidiary (i) has no
Indebtedness at the time of designation, and does not thereafter Incur any
Indebtedness, other than Non-Recourse Debt, (ii) does not own any Equity
Interests of, or own or hold any Lien on, any property of the Company or any
Restricted Subsidiary of the Company (other than any Subsidiary of the
Subsidiary to be so designated), (iii) is not party to any material agreement,
contract, rearrangement or understanding with the Company or any of its
Restricted Subsidiaries unless the terms of any such agreement, contract,
rearrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company, (iv) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results, (v) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries and (vi) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries.
"Voting Stock" means any class or classes of Capital Stock of any
Person pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect the board of directors (or Persons performing
similar functions) of such Person.
"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.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all
of the outstanding Capital Stock or other ownership interests of which (other
than directors' qualifying shares) shall at the time be owned by the Company or
by one or more Wholly Owned Restricted Subsidiaries.
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Section 1.02 Other Definitions
Defined in
Term Section
---- -----------
"Acceleration Notice" 6.02
"Affiliate Transaction" 4.15
"Asset Sale Offer" 4.07
"Benefitted Party" 10.01
"Change of Control Offer" 4.06
"Change Of Control Offer Period" 4.06
"Change of Control Purchase Date" 4.06
"Change of Control Purchase Price" 4.06
"Covenant Defeasance" 8.03
"Custodian" 6.01
"Debt Incurrence Ratio" 4.09
"DTC" 2.03
"Escrowed Amounts" 4.21
"Event of Default" 6.01
"Excess Proceeds" 4.07
"Excess Proceeds Offer" 4.22
"Excess Proceeds Trigger Date" 4.22
"Incurrence Date" 4.09
"Legal Defeasance" 8.02
"Net Offering Proceeds" 4.21
"Offer Amount" 4.22
"Offering Period" 4.22
"Paying Agent" 2.03
"Payment Blockage Notice" 11.02
"Payment Blockage Period" 11.02
"Payment Default" 6.01
"Permitted Indebtedness" 4.09
"Purchase Date" 4.22
"QIB" 2.01
"Register" 2.03
"Registrar" 2.03
"Regulation S" 2.01
"Repurchase Offer" 4.22
"Restricted Payments" 4.08
"Special Redemption Trigger Date" 4.21
"Transfer Restricted Security" 2.06
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Section 1.03 Incorporation by Reference of Trust Indenture Act
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, each Subsidiary Guarantor
and any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04 Rules of Construction
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions;
(6) references to sections of or rules under the Exchange Act or the
Securities Act shall be deemed to include substitute, replacement of successor
sections or rules adopted by the SEC from time to time; and
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(7) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole (as amended and supplemented from time to time) and not to
any particular Article, Section or other subdivision.
ARTICLE 2
THE NOTES
Section 2.01 Form and Dating
The Notes, the Subsidiary Guarantees and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, which is part of
this Indenture. The Notes may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be issued only in registered form without
coupons and only in minimum denominations of $1,000 and integral multiples
thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, the
Subsidiary Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
(a) Rule 144A Global Notes. Notes offered and sold within the United
States to qualified institutional buyers as defined in Rule 144A ("QIBs")
in reliance on Rule 144A shall be issued initially in the form of one or
more Rule 144A Global Notes, which shall be deposited on behalf of the
purchasers of the Notes represented thereby with the Depositary or a
custodian of the Depositary at its New York office, and registered in the
name of the Depositary or a nominee of the Depositary. The aggregate
principal amount of the Rule 144A Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee
and the Depositary or its nominee as hereinafter provided.
(b) Regulation S Global Notes. Notes offered and sold in reliance on
Regulation S under the Securities Act ("Regulation S") shall be issued
initially in the form of one or more Regulation S Global Notes, which shall
be deposited on behalf of the purchasers of the Notes represented thereby
with the Depositary or a custodian of the Depositary at its New York
office, and registered in the name of the Depositary or a nominee of the
Depositary, provided that upon such deposit all such Notes shall be
credited to or through accounts maintained at the Depository by or on
behalf of Euroclear or CEDEL. The aggregate principal amount of the
Regulation S Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee and the Depositary or its
nominee as hereinafter provided.
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(c) Global Notes in General. Each Global Note shall be duly executed
by the Company and authenticated by the Trustee as hereinafter provided.
The Global Notes shall represent the outstanding Notes registered in the
name of the Depositary or its nominee, and shall provide that they shall
represent the aggregate amount of outstanding Notes from time to time
endorsed thereon and that the aggregate amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of the
Global Notes to reflect the amount of any increase or decrease in the
amount of outstanding Notes represented thereby shall be made by the
Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by
Section 2.06 hereof.
The Company shall cause the Rule 144A Global Notes and the Regulation
S Global Notes to have separate CUSIP numbers.
Except as set forth in Section 2.06 hereof, the Global Notes may be
transferred, in whole and not in part, only to another nominee of the
Depositary or to a successor of the Depositary or its nominee.
(d) Book-Entry Provisions for Global Notes. The Company shall execute
and the Trustee shall, in accordance with this Section 2.01(d) and Section
2.02, authenticate and deliver the Global Notes that (i) shall be
registered in the name of the Depositary or the nominee of the Depositary
and (ii) shall be delivered by the Trustee to the Depositary or pursuant to
the Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Agent Members shall have no rights either under this Indenture with
respect to the Global Notes held on their behalf by the Depositary or by the
Note Custodian or under the Global Notes, and the Depositary may be treated by
the Company, the Subsidiary Guarantors, the Trustee and any agent of the Company
or the Trustee as the absolute owner of the Global Notes for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Subsidiary Guarantors, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices of such Depositary
governing the exercise of the rights of an owner of a beneficial interest in the
Global Notes.
Section 2.02 Execution and Authentication
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
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A Note shall not be valid or obligatory for any purpose or entitled to
the benefits of this Indenture until authenticated by the manual signature of
the Trustee or its authenticating agent. The signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee shall, upon delivery to the Trustee of an Authentication
Order, from time to time, authenticate Notes for original issue up to the
aggregate principal amount of $105,000,000. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount, except as provided in
Section 2.07.
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
Neither the Company nor the Trustee shall have any responsibility for
any defect in the CUSIP number that appears on any Note, check, advice of
payment or redemption notice, and any such document may contain a statement to
the effect that CUSIP numbers have been assigned by an independent service for
convenience of reference and that neither the Company nor the Trustee shall be
liable for any inaccuracy in such numbers.
Section 2.03 Registrar and Paying Agent
The Company shall maintain in the Borough of Manhattan, The City of
New York, State of New York, and in such other locations as it shall determine,
(i) an office or agency where Notes may be presented for registration of
transfer or for exchange ("Registrar") and (ii) an office or agency where Notes
may be presented for payment ("Paying Agent"). The Registrar shall keep a
register ("Register") of the Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar upon notice to the Trustee and the Holders of Notes. The
Company shall notify the Trustee in writing of the name and address of any Agent
not a party to this Indenture. If the Company fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act, subject to
the last paragraph of this Section 2.03, as such. The Company or any of its
Subsidiaries may act as Paying Agent or Registrar; provided, however, that none
of the Company, its Subsidiaries or the Affiliates of the foregoing shall act
(i) as Paying Agent in connection with any redemption, offer to purchase,
discharge or defeasance or as otherwise specified in this Indenture, and (ii) as
Paying Agent or Registrar if a Default or Event of Default has occurred and is
continuing.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
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The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes. The
Company initially appoints the Trustee to act as the Registrar and Paying Agent
with respect to the Certificated Notes.
All of the terms and provisions with respect to such powers and
authority contained in the Notes are subject to and governed by the terms and
provisions hereof.
The Trustee may resign as Registrar or Paying Agent upon 30 days prior
written notice to the Company.
Section 2.04 Paying Agent to Hold Money in Trust
The Company shall require each Paying Agent, other than the Trustee,
to agree in writing that the Paying Agent will hold in trust for the benefit of
Holders and the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, interest and Liquidated Damages, if any, on the
Notes, and shall notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders of Notes all money held by it as Paying
Agent. Upon the occurrence of events specified in Section 6.01(h) or (i), the
Trustee shall serve as Paying Agent for the Notes.
Section 2.05 Holder Lists
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders of Notes and shall otherwise comply with TIA (S) 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
ten Business Days before each Interest Payment Date and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of the Holders of
Notes and, after qualification of the Indenture under the TIA, the Company shall
otherwise strictly comply with TIA (S) 312(a).
Section 2.06 Transfer and Exchange
(a) Transfer and Exchange of Beneficial Interests in Global Notes.
Subject to the provisions of this Section 2.06 and Section 2.01(d), the transfer
and exchange of any beneficial interest in a Global Note shall be effected
through the Depositary, in accordance with this Indenture and the procedures of
the Depositary therefor, which shall include restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Beneficial interests in any Global Notes may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in such Global Note or any
other Global Notes in accordance with and subject to the transfer
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restrictions set forth in the legend in subsection (g)(i) of this Section 2.06.
Upon receipt by the Registrar of written instructions, or such other instruction
as is customary for the Depositary, from the Depositary or its nominee,
requesting the registration of transfer of an interest in a Rule 144A Global
Note or Regulation S Global Note, as the case may be, to another type of Global
Note, together with the applicable Global Notes (or, if the applicable type of
Global Note required to represent the interest as requested to be transferred is
not then outstanding, only the Global Note representing the interest being
transferred), the Registrar shall make an endorsement on such Global Notes (or
Global Note) to reflect the applicable increase and decrease of the principal
amount of Notes represented thereby, giving effect to such transfer. If the
applicable type of Global Note required to represent the interest as requested
to be transferred is not outstanding at the time of such request, the Company
shall issue and the Trustee shall, upon receipt of an Authentication Order in
accordance with Section 2.02, authenticate a new Global Note of such type in
principal amount equal to the principal amount of the interest requested to be
transferred.
(b) Transfer and Exchange of Certificated Notes. When Certificated
Notes are presented by a Holder of Notes to the Registrar with a request:
(x) to register the transfer of the Certificated Notes; or
(y) to exchange such Certificated Notes for an equal principal
amount of Certificated Notes of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if
the requirements under this Indenture as set forth in this Section 2.06 for
such transactions are met; provided that the Certificated Notes presented
or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder of Notes or by his attorney, duly authorized
in writing with the signature guaranteed; and
(ii) in the case of a Certificated Note that is a Transfer
Restricted Security, such request shall be accompanied by the
following additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder of Notes for registration
in the name of such Holder of Notes, without transfer, or such
Transfer Restricted Security is being transferred to the Company
or any of its Subsidiaries, a certification to that effect from
such Holder of Notes (in substantially the form of Exhibit B-1
hereto);
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(B) if such Transfer Restricted Security is being
transferred (i) to a QIB in a transaction meeting the
requirements of Rule 144A under the Securities Act, (ii) in a
transaction meeting the requirements of an exemption from
registration provided by Rule 144 under the Securities Act, (iii)
in reliance on Rule 903 or 904 of Regulation S or (iv) pursuant
to an effective registration statement under the Securities Act,
a certification to that effect from such Holder of Notes (in
substantially the form of Exhibit B-1 hereto); or
(C) if such Transfer Restricted Security is being
transferred in reliance on any exemption from the registration
requirements of the Securities Act (other than those referred to
paragraphs (A) and (B) above), a certification to that effect
from such Holder of Notes (in substantially the form of Exhibit
B-1 hereto) and an Opinion of Counsel from such Holder of Notes
or the transferee reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in compliance with
the Securities Act.
(c) Transfer of a Beneficial Interest in a Global Note for a
Certificated Note.
(i) Any Person having a beneficial interest in a Global Note may
upon request, subject to the Applicable Procedures, exchange such
beneficial interest for a Certificated Note. Upon receipt by the Trustee of
written instructions or such other form of instructions as is customary for
the Depositary, from the Depositary or its nominee on behalf of any Person
having a beneficial interest in a Global Note, and, in the case of a
Transfer Restricted Security, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial owner, a
certification to that effect from such Person (in substantially the
form of Exhibit B-2 hereto);
(B) if such beneficial interest is being transferred (i) to a
QIB in a transaction meeting the requirements of Rule 144A under the
Securities Act, (ii) in a transaction meeting the requirements of an
exemption from registration provided by Rule 144 under the Securities
Act, (iii) in reliance on Rule 903 or 904 of Regulation S or (iv)
pursuant to an effective registration statement under the Securities
Act, a certification to that effect from such Person (in substantially
the form of Exhibit B-2 hereto); or
(C) if such beneficial interest is being transferred in
reliance on any exemption from the registration requirements of the
Securities Act (other than those referred to in paragraphs (A) and (B)
above), a certification to that effect from
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the transferor (in substantially the form of Exhibit B-2 hereto)
and an Opinion of Counsel from the transferee or the transferor
reasonably acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the Securities Act;
in which case the Trustee or the Note Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and procedures
existing between the Depositary and the Note Custodian, make an endorsement
on such Global Note to reflect a decrease in the aggregate principal amount
of Notes represented by such Global Note and, following such reduction, the
Company shall execute and the Trustee shall authenticate and deliver to the
transferee a Certificated Note in the appropriate principal amount.
(ii) Certificated Notes issued in exchange for a beneficial
interest in the Global Notes pursuant to this Section 2.06(c) shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Certificated Notes to the Persons in whose names such Notes
are so registered.
(d) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), the Global Notes may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary.
(e) Transfer and Exchange of a Certificated Note for a Beneficial
Interest in a Global Note. When Certificated Notes are presented by a Holder of
Notes to the Registrar with a request to cancel any Certificated Notes in
exchange for a beneficial interest in the Global Notes, the Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transactions are met; provided that the Certificated Notes presented or
surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instruction
of transfer in form satisfactory to the Registrar duly executed by such
Holder of Notes or by his attorney, duly authorized in writing, which
instructions, if applicable, shall direct the Trustee (A) to cancel any
Certificated Note being exchanged for a beneficial interest in the Global
Notes in accordance with Section 2.11 hereof, and (B) to make, or to direct
the Registrar to make, an endorsement on the Global Notes to reflect an
increase in the aggregate principal amount of the Notes represented by the
Global Notes; and
(ii) in the case of a Certificated Note that is a Transfer
Restricted Security, such request shall be accompanied by the following
additional information and documents, as applicable:
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(A) if such Transfer Restricted Security is being delivered
to the Registrar by a Holder for registration in the name of the
Depositary or a nominee of the Depositary for the account, directly or
indirectly, of such Holder, without transfer, a certification to that
effect from such Holder (in substantially the form of Exhibit B-3
hereto);
(B) if such Transfer Restricted Security is being transferred
(i) to a QIB in a transaction meeting the requirements of Rule 144A
under the Securities Act, (ii) in a transaction meeting the
requirements of an exemption from registration provided by Rule 144
under the Securities Act, (iii) in reliance on Rule 903 or 904 of
Regulation S or (iv) pursuant to an effective registration statement
under the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B-3 hereto); or
(C) if such Transfer Restricted Security is being transferred
in reliance on any other exemption from the registration requirements
of the Securities Act, a certification to that effect from such Holder
(in substantially the form of Exhibit B-3 hereto) and an Opinion of
Counsel from such Holder or the transferee reasonably acceptable to
the Company and to the Registrar to the effect that such transfer is
in compliance with the Securities Act.
If no Rule 144A Global Note or Regulation S Global Note, as the case
may be, is then outstanding, the Company shall issue and the Trustee shall, upon
receipt of an Authentication Order of the Company in accordance with Section
2.02 hereof, authenticate such Global Note in the appropriate principal amount.
(f) Authentication of Certificated Notes in Absence of Depositary. If
at any time:
(i) the Depositary for the Notes notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Global
Notes and a successor Depositary for the Global Notes is not appointed by
the Company within 90 days after delivery of such notice; or
(ii) the Depositary for the Notes notifies the Company that the
Depositary has ceased to be a clearing agency registered under the Exchange
Act; or
(iii) the Company delivers to the Trustee an Officer's Certificate
notifying the Trustee that it elects to cause the issuance of Certificated
Notes in exchange for all outstanding Global Notes issued under the
Indenture; or
(iv) there shall have occurred and be continuing an Event of
Default with respect to the Notes and one or more Holders or the Trustee
requests the issuance of Certificated Notes;
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then the Company shall execute, and the Trustee shall, upon receipt of an
Authentication Order of the Company in accordance with Section 2.02 hereof,
authenticate and deliver, Certificated Notes in an aggregate principal
amount equal to the principal amount of the Global Notes in exchange for
the Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii), (iii)
and (iv), each Note certificate evidencing the Global Notes and
Certificated Notes (and all Notes issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following
form (each a "Transfer Restricted Security"):
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE SECOND SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, AND (2) AGREES THAT IT WILL NOT, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
(B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY, IF REQUESTED BY THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION"
AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER
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THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by the Global
Notes) pursuant to Rule 144 under the Securities Act or pursuant to an
effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that is
a Certificated Note, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Certificated Note
that does not bear the legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer Restricted Security upon
receipt of a certification from the transferring Holder substantially
in the form of Exhibit B-1 hereto; and
(B) in the case of any Transfer Restricted Security
represented by the Global Notes, such Transfer Restricted Security
shall not be required to bear the legend set forth in (i) above, but
shall continue to be subject to the provisions of Section 2.06(a)
hereof; provided that with respect to any request for an exchange of a
Transfer Restricted Security that is represented by a Global Note for
a Certificated Note that does not bear the legend set forth in (i)
above, which request is made in reliance upon Rule 144, the Holder
thereof shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B-2 hereto).
(iii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by the Global
Notes) in reliance on any exemption from the registration requirements of
the Securities Act (other than exemptions pursuant to Rule 144A, Rule 144,
Rule 903 or Rule 904 under the Securities Act) in which the Holder or the
transferee provides an Opinion of Counsel to the Company and the Registrar
in form and substance reasonably acceptable to the Company and the
Registrar (which Opinion of Counsel shall also state that the transfer
restrictions contained in the legend are no longer applicable):
(A) in the case of any Transfer Restricted Security that is
a Certificated Note, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Certificated Note
that does not bear the legend set forth in (i) above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
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(B) in the case of any Transfer Restricted Security
represented by the Global Notes, such Transfer Restricted Security
shall not be required to bear the legend set forth in (i) above, but
shall continue to be subject to the provisions of Section 2.06(a) and
(c) hereof.
(iv) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, or following the effectiveness of a shelf registration
statement filed by the Company, in each case in accordance with the
Registration Rights Agreement, the Company shall issue and, upon receipt of
an Authentication Order of the Company in accordance with Section 2.02
hereof, the Trustee shall authenticate Series B Notes in exchange for
Series A Notes accepted for exchange in the Exchange Offer, or surrendered
to the Company in connection with such shelf registration statement, which
Series B Notes shall not bear the legend set forth in (i) above, and the
Registrar shall rescind any restriction on the transfer of such Series B
Notes, in each case unless the Holder of such Series A Notes has certified
to the Trustee that it is either (A) a broker-dealer, (B) a Person
participating in the distribution of the Series A Notes or (C) a Person who
is an affiliate (as defined in Rule 144) of the Company.
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in the Global Notes have been exchanged for
Certificated Notes, redeemed, repurchased or canceled, the Global Notes shall be
returned to or retained and canceled by the Trustee in accordance with Section
2.11 hereof. At any time prior to such cancellation, if any beneficial interest
in the Global Notes is exchanged for an interest in Certificated Notes,
redeemed, repurchased or cancelled, the principal amount of Notes represented by
the Global Notes shall be reduced accordingly and an endorsement shall be made
on the Global Notes, by the Trustee or the Note Custodian, at the direction of
the Trustee, to reflect such reduction.
(i) General Restrictions on Transfer and Exchange of Transfer
Restricted Securities. Holders of Transfer Restricted Securities may offer,
resell, pledge or otherwise transfer such Notes only (i) to the Company or any
of its Subsidiaries, (ii) to a QIB purchasing for its own account or for the
account of another QIB in a transaction meeting the requirements of Rule 144A,
(iii) in an offshore transaction meeting the requirements of Rule 903 or 904 of
the Securities Act, (iv) in a transaction meeting the requirements of Rule 144
under the Securities Act, (v) in accordance with another exemption from the
registration requirements of the Securities Act, or (vi) pursuant to an
effective registration statement under the Securities Act, inside the United
States, in each case in compliance with any applicable securities laws of any
State of the United States or any other applicable jurisdiction. The Trustee
shall refuse to register the transfer of any Note in violation of the foregoing.
(j) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Certificated Notes
and the Global Notes at the Registrar's request.
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(ii) No service charge shall be made to a Holder of Notes for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.07, 3.08, 4.06, 4.07 and 9.05 hereof).
(iii) The Certificated Notes and the Global Notes issued upon any
registration of transfer or exchange of Certificated Notes or the Global
Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the
Certificated Notes or the Global Notes surrendered upon such registration
of transfer or exchange.
(iv) Neither the Company nor the Registrar shall be required:
(A) to issue, to register the transfer of or to exchange
Notes during a period beginning at the opening of business on a
Business Day fifteen (15) days before the day of any selection of
Notes for redemption under Section 3.02 hereof and ending at the close
of business on the day of selection; or
(B) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part; or
(C) to register the transfer of or to exchange a Note between
a record date and the next succeeding Interest Payment Date.
(v) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of, premium, if any,
interest and Liquidated Damages, if any, on such Notes, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the
contrary.
The Registrar may conclusively rely on information set forth in a
certificate substantially in the form of Exhibit B-1, B-2 or B-3 hereto, and
other certificates and opinions received pursuant to this Section 2.06 and, in
the absence of receipt of such a certificate or opinion, shall not be deemed to
have knowledge of a transfer of an interest in the Global Notes absent actual
knowledge of such transfer.
(k) Certain Transfers in Connection with and after the Exchange Offer.
Notwithstanding any other provision of this Indenture: (i) no Series B Note may
be exchanged by the Holder thereof for a Series A Note; (ii) accrued and unpaid
interest on the Series A Notes being exchange in the Exchange Offer shall be due
and payable on the next Interest Payment Date for the
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Series B Notes following the Exchange Offer; and (iii) interest on the Series B
Notes to be issued in the Exchange Offer shall accrue from the date of the
Exchange Offer.
Section 2.07 Replacement Notes
If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon an
Authentication Order of the Company, shall authenticate a replacement Note if
the Trustee's requirements are met. If required by the Trustee or the Company,
an indemnity bond must be supplied by the Holder of such replacement Note that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge the Holder
of a replacement Note for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08 Outstanding Notes
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in the Global Notes effected by
the Trustee in accordance with the provisions hereof, and those described in
this Section as not outstanding. Except as set forth in Section 2.09, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay the principal amount of any Notes due and payable on that
date, then on and after that date such Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
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Section 2.09 Treasury Notes
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any Restricted Subsidiary or any Affiliate of the Company or any
Restricted Subsidiary, shall be considered as though not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Notes that a Responsible
Officer of the Trustee knows are so owned shall be so disregarded.
Section 2.10 Temporary Notes
Until Certificated Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon receipt of an
Authentication Order. Temporary Notes shall be substantially in the form of
Certificated Notes but may have variations that the Company considers
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate Certificated Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
Section 2.11 Cancellation
The Company at any time may deliver Notes to the Trustee for
cancellation, which the Company may have acquired in any manner whatsoever, and
all Notes so delivered shall be promptly canceled by the Trustee. The Registrar
and Paying Agent shall forward to the Trustee any Notes surrendered to them for
registration of transfer, exchange or payment. The Trustee and no one else
shall cancel all Notes surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall destroy canceled Certificated
Notes or the canceled Global Notes in accordance with its customary procedures
(subject to the record retention requirement of the Exchange Act).
Certification of the destruction of all canceled Notes shall be delivered to the
Company. The Company may not issue new Notes to replace Notes that it has
redeemed or paid or that have been delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest
If the Company or any Subsidiary Guarantor defaults in a payment of
interest on the Notes, it shall pay the defaulted interest in any lawful manner
plus, to the extent lawful, interest payable on the defaulted interest, to the
Persons who are Holders of Notes on a subsequent special record date, in each
case at the rate provided in the Notes and in Section 4.01 hereof. The Company
shall notify the Trustee in writing of the amount of defaulted interest proposed
to be paid on each Note and the date of the proposed payment. The Company
shall fix or cause to be fixed each such special record date and payment date;
provided that no such special record date shall be less than ten (10) days prior
to the related payment date for such defaulted interest. At least fifteen (15)
days
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before the special record date, the Company (or, upon the written request of the
Company, the Trustee in the name and at the expense of the Company) shall mail
or cause to be mailed to Holders a notice that states the special record date,
the related payment date and the amount of such interest to be paid.
Section 2.13 Record Date
The record date for purposes of determining the identity of Holders of
Notes or consent to any action by vote or consent authorized or permitted under
this Indenture shall be determined as provided for in TIA (S) 316(c).
Section 2.14 Computation of Interest
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Section 2.15 CUSIP Number
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company in issuing the Notes may use a
"CUSIP" number, and if it does so, the Trustee may use the CUSIP number in
notices of redemption or exchanges as a convenience to Holders of Notes;
provided, however, that any such notice may state that no representation is made
as the correctness or accuracy of the CUSIP number printed in the notice or on
the Notes and that reliance may be placed only on the other identification
numbers printed on the Notes, and any such redemption or purchase shall not be
affected by any defect or omission in such numbers. The Company shall promptly
notify the Trustee of any change in the CUSIP number.
Section 2.16 Deposit of Moneys
Prior to 10:00 a.m. New York City time on each Interest Payment Date,
redemption date and the final maturity date, the Company shall deposit with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date, redemption date or final
maturity date, as the case may be, in a timely manner which permits the Paying
Agent to remit payment to the Holders on such Interest Payment Date, redemption
date or final maturity date, as the case may be.
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ARTICLE 3
REDEMPTION
Section 3.01 Notices to Trustee
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07, it shall furnish to the Trustee, at least
30 days but not more than 60 days before a redemption date (unless a shorter
notice is acceptable to the Trustee), an Officer's Certificate setting forth (i)
the Section of this Indenture pursuant to which the redemption shall occur, (ii)
the redemption date, (iii) the principal amount of Notes to be redeemed, (iv)
the redemption price and accrued and unpaid interest and (v) subject to Section
3.03, whether it requests the Trustee to give notice of such redemption.
Section 3.02 Selection of Notes to be Redeemed
If less than all of the Notes are to be redeemed at any time pursuant
to the optional redemption provisions of Section 3.07, the Trustee shall select
the Notes to be redeemed among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such other method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 principal amount or less shall be redeemed in part. In
the event of partial redemption by lot, the Trustee shall make the selection not
less than 30 nor more than 60 days prior to the redemption date from the
outstanding Notes not previously called for redemption. Notices of redemption
may not be conditional.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the portion of the principal amount thereof to be redeemed. Notes
and portions of Notes selected to be redeemed shall be in principal amounts of
$1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder
are to be redeemed, the entire outstanding amount of Notes held by such Holder,
even if not a multiple of $1,000, shall be redeemed. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
Section 3.03 Notice of Redemption
At least 30 days but not more than 60 days before the date upon which
an optional redemption of Notes is to be effected pursuant to Section 3.07, the
Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at such Holder's
registered address.
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The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price and the accrued and unpaid interest and
Liquidated Damages, if any, per $1,000 of principal;
(3) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date, upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion will be issued upon cancellation of the
original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date and the only remaining right of the Holders of
such Notes is to receive payment of the redemption price upon surrender to
the Paying Agent of the Notes redeemed;
(7) the paragraph of the Notes pursuant to which the Notes called for
redemption are being redeemed; and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 40 days prior to the
redemption date (unless a shorter period is acceptable to the Trustee), an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
Section 3.04 Effect of Notice of Redemption
Once notice of redemption is mailed, Notes called for redemption
become irrevocably due and payable on the redemption date at the price set forth
in the Note.
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Section 3.05 Deposit of Redemption Price
On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent (other than the Company or any of its
Subsidiaries) money sufficient in same day funds to pay the redemption price of
and accrued interest and Liquidated Damages, if any, on all Notes to be redeemed
on that date. The Trustee or the Paying Agent shall return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest and
Liquidated Damages, if any, on all Notes to be redeemed. If the money is
deposited on the redemption date, such deposit shall be made by 10:00 a.m. New
York City time.
Interest on the Notes to be redeemed will cease to accrue on the
applicable redemption date, whether or not such Notes are presented for payment,
if the Company makes the redemption payment and otherwise complies with the
provisions of the preceding paragraph. If any Note called for redemption shall
not be so paid upon surrender for redemption because of the failure of the
Company to comply with the preceding paragraph, interest will be paid on the
unpaid principal, from the redemption date until such principal is paid, and to
the extent lawful on any interest not paid on such unpaid principal, in each
case at the rate provided in the Notes and in Section 4.01. Section 8.06 shall
apply to any Notes not redeemed within two years from the redemption date. If a
Note is redeemed on or after an interest record date but on or prior to the
related Interest Payment Date, then on such Interest Payment Date any accrued
and unpaid interest and Liquidated Damages, if any, shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date.
Section 3.06 Notes Redeemed in Part
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon receipt of an Authentication Order, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
Section 3.07 Optional Redemption
(a) Except as set forth in clause (b) of this Section 3.07, the
Company shall not have the option to redeem any Notes prior to December 1, 2002.
Thereafter, the Notes shall be subject to redemption at any time at the option
of the Company, in whole or in part, at the following redemption prices
(expressed as percentages of principal amount of the Notes) if redeemed during
the twelve-month period commencing December 1 of the years indicated below
(subject to the right of Holders of Notes on an interest record date to receive
interest on the related Interest Payment Date), in each case, together with
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date:
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<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 105.188%
2003 103.458%
2004 101.729%
2005 and thereafter 100.000%
</TABLE>
(b) Until December 1, 2000, if the Company consummates a Public Equity
Offering of Common Stock for cash, up to 35% of the aggregate principal amount
of the Notes originally outstanding may be redeemed at the option of the Company
within 90 days of such Public Equity Offering, upon not less than 30 days nor
more than 60 days notice to each Holder of Notes to be redeemed, using the net
cash proceeds of such Public Equity Offering, at a redemption price equal to
110.375% of the principal amount of the Notes (subject to the right of Holders
of Notes on an interest record date to receive interest due on the related
Interest Payment Date that is on or prior to such date of redemption), together
with accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of redemption; provided, however, that at least 65% of the aggregate
principal amount of the Notes originally outstanding remain outstanding
immediately following such redemption.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Sections 3.01 through 3.06 hereof.
Section 3.08 Special Redemption
If the Company does not consummate a Qualified Tender Offer Purchase
prior to the close of business on December 31, 1997 (the "Special Redemption
Trigger Date"), the Company shall be obligated to redeem all of the outstanding
Notes at a redemption price equal to 101% of the principal amount of the Notes,
together with accrued and unpaid interest thereon to the date of redemption.
Any such redemption shall be effected in accordance with the provisions set
forth below.
On or prior to the date upon which the Notes are to be redeemed
pursuant to this Section 3.08, the Company shall take all action on its part (if
any) required to cause the Escrow Agent to release the Special Redemption
Consideration to the Trustee pursuant to Section 5(c) of the Escrow Agreement.
The date upon which the redemption of Notes pursuant to this Section
3.08 shall be effected shall be a date selected by the Company which is not more
than five Business Days after the Special Redemption Trigger Date. The Company
shall provide the Trustee and the Paying Agent with written notice of the
redemption date no later than the first Business Day immediately following the
Special Redemption Trigger Date.
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On the Business Day immediately following the Special Redemption
Trigger Date, the Company shall mail or cause to be mailed, by first class mail,
a notice of redemption to each Holder of Notes at such Holder's registered
address.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price and the accrued and unpaid interest per
$1,000 of principal;
(3) the name and address of the Paying Agent;
(4) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date and the only remaining right of the Holders of
such Notes is to receive payment of the redemption price upon surrender to
the Paying Agent of the Notes redeemed;
(6) that the Notes are being called for redemption pursuant to this
Section 3.08; and
(7) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
Section 3.09 Mandatory Redemption
Except as set forth in Section 3.08, the Company shall have no
mandatory redemption or sinking fund obligations with respect to the Notes.
Nothing contained in this Section 3.09 shall affect the obligations of the
Company to repurchase Notes pursuant to a Change of Control Offer or an Asset
Sale Offer made in accordance with the provisions of Sections 4.06 or 4.07, as
applicable.
ARTICLE 4
COVENANTS
Section 4.01 Payment of Notes
The Company will pay or cause to be paid the principal of, premium, if
any, and interest and Liquidated Damages, if any, on the Notes on the dates and
in the manner provided herein, in the Notes and in the Registration Rights
Agreement. Principal, premium, if any, and
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interest and Liquidated Damages, if any, shall be considered paid on the date
due if the Paying Agent (other than the Company or a Subsidiary), holds as of
10:00 a.m. (New York City time) on the due date money deposited by the Company
in immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest and Liquidated Damages, if any, then
due. The Paying Agent shall return to the Company, no later than two Business
Days following the due date for payment, any money that exceeds such amount of
principal, premium, if any, and interest and Liquidated Damages, if any,
required for payment on the Notes.
The Company will pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the applicable
interest rate on the Notes to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law to
the extent that such interest is an allowed claim against the debtor under such
Bankruptcy Law) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.02 Maintenance of Office or Agency
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee or Registrar) where Notes may be surrendered for registration of
transfer or for exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
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Section 4.03 Compliance Certificate
(a) The Company and each Subsidiary Guarantor will deliver to the
Trustee, within 90 days after the end of each fiscal year, an Officer's
Certificate stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officer with a view to determining whether it has
kept, observed, performed and fulfilled in all respects its obligations under
this Indenture and further stating, as to such Officer signing such certificate,
that to the best of his or her knowledge, the Company and the Restricted
Subsidiaries have kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and no Default or Event of Default has
occurred during such year (or, if such Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action is being taken or proposed to be taken with
respect thereto).
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.17 shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements, nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Article 4 or Article 5 hereof or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation. In the event that such
written statement of the Company's independent public accountants cannot be
obtained, the Company shall deliver to the Trustee an Officer's Certificate
certifying that it has used its best efforts to obtain such statement but was
unable to do so.
(c) The Company will, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officer's Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.04 Taxes
The Company will, and will cause each of its Subsidiaries to, pay
prior to delinquency all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings.
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Section 4.05 Stay, Extension and Usury Laws
The Company covenants (to the extent that it may lawfully do so) that
it will not and will not permit any of its Restricted Subsidiaries to at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Indenture; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
Section 4.06 Offer to Repurchase Upon Change of Control
(a) Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right, pursuant to an irrevocable and unconditional offer by the
Company (the "Change of Control Offer"), to require the Company to repurchase
all or any part of the Notes held by such Holder (provided, that the principal
amount of such Notes must be $1,000 or an integral multiple thereof) on a date
(the "Change of Control Purchase Date") that is no later than 45 Business Days
after the occurrence of such Change of Control, at a cash price equal to 101% of
the principal amount thereof (the "Change of Control Purchase Price"), together
with accrued and unpaid interest and Liquidated Damages, if any, to the Change
of Control Purchase Date, pursuant to the procedures required by this Indenture,
including Section 4.22 and as described in the notice of a Change of Control
Offer.
(b) Notwithstanding anything in this Section 4.06 to the contrary,
prior to the commencement of a Change of Control Offer, 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.
(c) Any such Change of Control Offer 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 a Change
of Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Indenture 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 Indenture by virtue thereof.
(d) On or before the Change of Control Purchase Date, the Company
shall (i) accept for payment Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent
(other than the Company or any of its Subsidiaries) cash
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sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any) of all Notes so tendered and
(iii) deliver to the Trustee Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof being purchased by the
Company. The Paying Agent promptly will pay the Holders of Notes so accepted an
amount equal to the Change of Control Purchase Price (together with accrued and
unpaid interest and Liquidated Damages, if any), and upon receipt of an
Authentication Order the Trustee promptly will authenticate and deliver (or
cause to be transferred by book entry) to such Holders new Notes equal in
principal amount to any unpurchased portion of the Notes surrendered. Any Notes
not so accepted will be delivered promptly by the Company to the Holder thereof.
The Company publicly will announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Purchase Date.
(e) The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company, including any requirement to repay in full any Senior
Indebtedness or obtain the consents of any of the Company's lenders to such
Change of Control Offer, and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.
Section 4.07 Limitation on Sale of Assets and Restricted Subsidiary Stock
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale, unless (i) the Company or such
Restricted 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 of the Company and set
forth in a Board Resolution delivered to the Trustee) 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
Restricted Subsidiary is in the form of cash or Cash Equivalents; provided, that
the 75% limitation referred to above shall not apply to any Asset Sale in which
the cash portion of the consideration received therefor, determined in
accordance with the following sentence, is equal to or greater than what the
after-tax net proceeds would have been had such transaction complied with the
aforementioned 75% limitation. For purposes of this covenant (and not for
purposes of any other provision of the Indenture), the term "cash" shall be
deemed to include (a) any notes or other obligations received by the Company or
such Restricted Subsidiary as consideration as part of such Asset Sale that are
immediately converted by the Company or such Restricted 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 Restricted
Subsidiary (as shown on the most recent balance sheet of the Company or such
Restricted Subsidiary) 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
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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 the Restricted
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. Pending the
final application of any such Net Proceeds, the Company or the Restricted
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 Indenture. 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 shall make an offer to all Holders of
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase, in accordance
with the procedures set forth in this Indenture, including Section 4.22 and as
described in the notice of an Asset Sale Offer. If the aggregate principal
amount of Notes tendered by 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 Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of any Restricted Subsidiary to any Person (other than the Company
or a Wholly Owned Restricted Subsidiary of the Company), unless (i) such
transfer, conveyance, sale, lease or other disposition is of all of the Capital
Stock of such Restricted Subsidiary owned by the Company and its Restricted
Subsidiaries or is otherwise permitted under Section 4.14 and (ii) such
transaction is conducted in accordance with clauses (a) and (b) above.
(d) The Company will 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 Notes using Excess Proceeds.
Section 4.08 Limitation on Restricted Payments
(a) The Company will not, and will not permit any of its Restricted
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 Restricted
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 Wholly Owned
Restricted Subsidiary of the Company; (ii) purchase, redeem or otherwise acquire
or retire for value any Equity Interests of the Company
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or any direct or indirect parent of the Company or other Affiliate of the
Company or any Restricted Subsidiary of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Restricted Subsidiary of the
Company); (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 (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 an Asset Sale Offer required under Section 4.07 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 the Change of Control Offer
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 the first paragraph of Section
4.09; and
(iii) such Restricted Payment, together with the aggregate amount
of all other Restricted Payments declared or made by the Company and its
Restricted 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, plus (4) the amount equal
to the net reduction in Restricted Investments made after the Issue Date
resulting from a sale or
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liquidation of a Restricted Investment for cash, to the extent such amount
is not included in the Consolidated Net Income of the Company, not to
exceed the lesser of (A) the Net Proceeds from such sale or liquidation to
the extent received by the Company or any Restricted Subsidiary, and (B)
the initial amount of such Restricted Investment, plus (5) in the event an
Unrestricted Subsidiary is redesignated as a Restricted Subsidiary, an
amount equal to the net reduction in Restricted Investments made in
Unrestricted Subsidiaries, not to exceed the lesser of (A) the Fair Market
Value of such Unrestricted Subsidiary, and (B) the amount of Restricted
Investments which were made in such Unrestricted Subsidiary.
(b) The foregoing provisions will not prohibit the following
Restricted Payments:
(i) the payment of any dividend or other distribution within 60
days after the date of declaration thereof, if at said date of declaration
such payment would have complied with the provisions of this Indenture;
(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); 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 the preceding subsection 4.08(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); 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 the preceding subsection 4.08(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 Restricted 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); and
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(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 4.08(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 by
the Board of Directors of the Company and set forth in a Board Resolution
delivered to the Trustee) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or any Restricted Subsidiary, 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 Trustee an
Officers' Certificate stating that such Restricted Payments were permitted and
setting forth the basis upon which the calculations required by this Section
4.08 were computed, which calculations may be based upon the Company's latest
available financial statements.
Section 4.09 Limitation on Incurrence of Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness), except for Permitted Indebtedness; provided, however,
that the Company and its Restricted 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 2.25 to 1 if such date is on or prior to the date which is
the second anniversary of the Issue Date, or 2.50 to 1 for any date thereafter
(the "Debt Incurrence Ratio").
(b) "Permitted Indebtedness" means any and all of the following:
(i) (A) Indebtedness of the Company and its Restricted
Subsidiaries pursuant to the Senior Credit Facility (including all
Guarantees thereof) up to an amount at any time Incurred equal to the
greater of (1) $35,000,000, less the aggregate amount of all Net Proceeds
of Asset Sales applied to permanently repay any such Indebtedness or, in
the case of any such revolving Indebtedness, permanently reduce the
commitments therefor, in each case pursuant to Section 4.07 and (2) 75% of
Eligible Receivables and (B) Indebtedness of the Company and its Restricted
Subsidiaries pursuant to the Senior Credit Facility (including all
Guarantees thereof) in an aggregate amount not to exceed $90,000,000
(which,
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in the event that and for so long as less than 100% but more than 50% (on a
fully diluted basis) of the Shelter Common Stock is acquired in the Tender
Offer, shall be reduced by an amount equal to the cash consideration
necessary to purchase the amount of Shelter Common Stock not so acquired
until such Shelter Common Stock is so acquired or until the merger is
consummated with Kevco owning 100% of Shelter), less the aggregate amount
of all repayments thereof;
(ii) Indebtedness represented by the Notes, the Indenture and
the Subsidiary Guarantees;
(iii) intercompany Indebtedness between or among the Company and
any of its Restricted 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
Restricted 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
Restricted Subsidiary of the Company, shall be deemed to constitute a new
Incurrence of such Indebtedness by the Company or such Restricted
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 the Indenture, (B)
Indebtedness referred to in clauses (b)(i) or (b)(ii) of this Section 4.09
or (C) Existing Indebtedness, other than Existing Indebtedness, if any,
related to the Indebtedness refinanced by the Senior Credit Facility;
(v) Indebtedness of a Restricted Subsidiary of the Company
constituting a Guarantee of Indebtedness of the Company or a Restricted
Subsidiary which Indebtedness was Incurred pursuant to this Section 4.09(b)
or the Debt Incurrence Ratio test set forth in Section 4.09(a);
(vi) the Incurrence by the Company or any Restricted Subsidiary
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 the Indenture 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;
(vii) the Incurrence by the Company or any Restricted Subsidiary,
if no Default or Event of Default shall have occurred and be continuing, of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate
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principal amount at any time outstanding not to exceed $25,000,000 (which
amount may, but need not, be incurred under the Senior Credit Facility);
and
(viii) Existing Indebtedness.
(c) Indebtedness of any Person which is outstanding at the time such
Person becomes a Restricted Subsidiary of the Company (including upon
designation of any Unrestricted Subsidiary or other Person as a Restricted
Subsidiary) or is merged with or into or consolidated with the Company or a
Restricted Subsidiary of the Company shall be deemed to have been Incurred at
the time such Person becomes such a Restricted Subsidiary of the Company or is
merged with or into or consolidated with the Company or a Restricted Subsidiary,
as applicable.
Section 4.10 Limitation on Liens
The Company will not, and will not permit any of its Restricted
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 Restricted
Subsidiary, a Subsidiary Guarantee of such Restricted Subsidiary) are equally
and ratably secured.
Section 4.11 Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted
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 Restricted Subsidiary to (i) (a) pay dividends or make
any other distributions to the Company or any of its Restricted 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 Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries, (iii) transfer any of its properties to the
Company or any of its Restricted Subsidiaries, (iv) grant any Liens in favor of
the Holders of the Notes and the Trustee 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 by the Company or any of its Restricted
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
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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 Indenture 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 Restricted Subsidiary, 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 4.12 Limitation on Layering Indebtedness
Notwithstanding the provisions of Section 4.09 hereof, the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, Incur any Indebtedness (other than the Notes) that is subordinate in
right of payment to any other Indebtedness of the Company or a Restricted
Subsidiary unless, by its terms, such Indebtedness is subordinate in right of
payment to, or ranks pari passu with, the Notes or the Subsidiary Guarantees, as
applicable.
Section 4.13 Designation of Restricted and Unrestricted Subsidiaries
(a) The Board of Directors may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary if (i) such designation would not cause a Default
or Event of Default, (ii) at the time of and after giving effect to such
designation, the Company could incur $1.00 of additional Indebtedness pursuant
to the Debt Incurrence Ratio test set forth in Section 4.09(a) and (iii) each of
the other requirements of the definition of the term "Unrestricted Subsidiary"
are satisfied. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under Section 4.08(a). All such outstanding Investments
will be deemed to constitute Restricted Payments in an amount equal to the
greater of (i) the net book value of such Investments at the time of such
designation and (ii) the Fair Market Value of such Investments at the time of
such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Subsidiary to be designated
as an Unrestricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. Upon being so designated as an Unrestricted Subsidiary, any
Subsidiary Guarantee that was previously executed by such Unrestricted
Subsidiary shall be deemed terminated. Any Subsidiary not designated as an
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Unrestricted Subsidiary pursuant to and in accordance with the terms and
conditions of this Indenture shall be a Restricted Subsidiary and shall promptly
comply with the provisions of Section 10.09.
(b) Any such designation of an Unrestricted Subsidiary by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a Board Resolution giving effect to such designation and an Officers'
Certificate certifying that (i) such designation complied with the foregoing
conditions, (ii) such designation was permitted by Section 4.08, (iii)
immediately after giving effect to such designation, the Company could Incur at
least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio
test set forth in Section 4.09(a) and (iv) no Default or Event of Default would
be in existence immediately following such designation. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness, Liens or
agreements of such Subsidiary shall be deemed to be Incurred or created by a
Restricted Subsidiary as of such date (and, if such Indebtedness, Liens or
agreements are not permitted to be Incurred or created as of such date under the
covenants of this Indenture, the Company shall be in default of such covenants).
(c) The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary, provided that such
designation shall be deemed to be an Incurrence of Indebtedness and a creation
of Liens and agreements by a Restricted Subsidiary of the Company of any
outstanding Indebtedness, Liens or agreements of such Unrestricted Subsidiary
and such designation shall only be permitted if (i) such Indebtedness, Liens and
agreements are permitted under the covenants of this Indenture, and (ii) no
Default or Event of Default would be in existence immediately following such
designation. Upon being so designated as a Restricted Subsidiary, such
Restricted Subsidiary shall comply with the provisions of Section 10.09.
(d) Any such designation of a Restricted Subsidiary by the Board of
Directors of the Company pursuant to Section 4.13(c) shall be evidenced to the
Trustee by filing with the Trustee a Board Resolution giving effect to such
designation and an Officer's Certificate certifying that (A) such designation
complied with the foregoing conditions and (B) no Default or Event of Default
would be in existence immediately following such designation.
Section 4.14 Limitation on Issuance, Sale and Ownership of Capital Stock of
Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, (i) sell, assign, transfer, convey or otherwise dispose of, any
Equity Interests of any Restricted Subsidiary, other than to the Company or a
Wholly Owned Restricted Subsidiary, (ii) permit any Restricted Subsidiary to
issue any Equity Interests (including, without limitation, pursuant to any
merger, consolidation, recapitalization or similar transaction) other than to
the Company or a Wholly Owned Restricted Subsidiary or (iii) permit any Person
other than the Company or a Wholly Owned Restricted Subsidiary to own any Equity
Interests of any Restricted Subsidiary, except that (A) the
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Company or a Restricted Subsidiary may consummate a sale to a Person of all of
the Equity Interests of a Restricted Subsidiary, if such sale is made by the
Company or a Restricted Subsidiary subject to, and in compliance with, Section
4.07, (B) the Company may issue and permit the subsequent ownership by directors
of, directors' qualifying shares, (C) in the event that a Qualified Tender Offer
Purchase results in the acquisition by the Company of less than 100% (on a fully
diluted basis) of the Equity Interests of Shelter, such unacquired Equity
Interests may be owned by other Persons until such unacquired Equity Interests
are so acquired by the Company or a Wholly Owned Restricted Subsidiary of the
Company or until the merger of Shelter with the Company or a Wholly Owned
Restricted Subsidiary is consummated and (D) the Company may permit the Persons
(other than the Company and its Restricted Subsidiaries) who own Equity
Interests in Encore Industries, Inc. to continue to own the number of shares of
Equity Interests owned by such other Persons as of the Issue Date.
Section 4.15 Limitation on Transactions With Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate of the Company (other than the Company or a Restricted Subsidiary), in
one transaction or a series of transactions (each of the foregoing an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions after the
Issue Date involving aggregate consideration in excess of $1,000,000, a
resolution described in an Officers' Certificate, certifying that such Affiliate
Transaction complies with clause (i) above and such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board of
Directors of the Company and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions after the Issue Date involving
aggregate consideration in excess of $5,000,000, an opinion as to the fairness
to the Company of such Affiliate Transaction from a financial point of view
issued by an independent nationally recognized investment banking firm or
appraisal firm experienced in the appraisal or similar review of similar types
of transactions; provided that the following types of transactions shall not
constitute Affiliate Transactions: (1) any transaction with an officer or
director of the Company or any Restricted Subsidiary in connection with such
individual's compensation (including directors' fees), employee benefits,
severance arrangements or indemnification (to the extent consistent with
applicable law and the charter and bylaws of the Company or such Restricted
Subsidiary), in each case entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business, (2) transactions between or
among the Company and its Restricted Subsidiaries, (3) Restricted Payments that
are permitted by the provisions of Section 4.08; (4) sales of Capital Stock of
the Company made at
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prevailing market rates; (5) transactions or agreements existing as of the Issue
Date; and (6) loans to officers, directors and employees of the Company or its
Restricted Subsidiaries made in the ordinary course of business and in
furtherance of the Company's business in an aggregate amount not to exceed
$1,000,000 at any one time outstanding.
Section 4.16 Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and any Restricted Subsidiary may enter into a sale and leaseback
transaction if (a) the Company or such Restricted Subsidiary could have (i)
Incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the Debt Incurrence Ratio test
set forth in Section 4.09(a) and (ii) incurred a Lien to secure such
Indebtedness pursuant to Section 4.10, (b) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the Fair Market Value (as
determined in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (c) the transfer of assets in such sale
and leaseback transaction is permitted by, and the proceeds of such sale and
leaseback transaction are applied in compliance with, Section 4.07.
Section 4.17 Reports
(a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Trustee and, to each Holder of Notes and to prospective purchasers of Notes
identified to the Company by an Initial Purchaser, within 15 days after it is or
would have been (if it were subject to such reporting obligations) required to
file such with the Commission, (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K filed with the Commission if the Company were
required to file such Forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its Subsidiaries and,
with respect to the annual information only, a report thereon by the Company's
certified independent auditors and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability (unless
the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
(b) In addition, the Company has agreed that, for so long as any
Transfer Restricted Securities remain outstanding, the Company will furnish to
Holders of Notes and to prospective purchasers designated by such Holders, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
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(c) The financial information to be distributed to Holders of Notes
will be filed with the Trustee and mailed to Holders of Notes within 15 days
after it is or would have been (if it were subject to such reporting
obligations) required to file such with the Commission, at their addresses
appearing in the register of the Notes maintained by the Registrar.
(d) The Company will provide the Trustee with a sufficient number of
copies of all reports and other documents and information and, if required by
the Company, the Trustee will deliver such reports to Holders of Notes under
this Section 4.17.
Section 4.18 Limitation on Lines of Business
Neither the Company nor any of its Restricted Subsidiaries will
directly or indirectly engage in any line or lines of business activity other
than a Related Business.
Section 4.19 Payments for Consent
The Company will not and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement or any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes or the Subsidiary
Guarantees, unless such consideration is offered to be paid or agreed to be paid
to all Holders of the Notes that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
Section 4.20 Limitation on Status as Investment Company
The Company will not and will not permit any of its Restricted
Subsidiaries to be required to register as an "investment company" (as that term
is defined in the Investment Company Act of 1940, as amended), or from otherwise
becoming subject to regulation under the Investment Company Act.
Section 4.21 Escrow of Proceeds of Notes on Issue Date
On the Issue Date, pursuant to the Escrow Agreement, the Company will
deposit with the Escrow Agent, the entire purchase price payable by the Initial
Purchasers to the Company in respect of the issuance and sale of the Notes
pursuant to the Purchase Agreement (the "Net Offering Proceeds"), together with
an additional amount in cash such that the total amounts held by the Escrow
Agent (the "Escrowed Amounts") will equal 101% of the aggregate principal amount
of the Notes originally outstanding, plus the amount that will accrue as
interest on the Notes from the Issue Date to December 31, 1997 (the "Special
Redemption Trigger Date"). The Escrow Agent will hold the Escrowed Amounts and
release such amounts to the Company or the Trustee in accordance with the terms
of the Escrow Agreement. The Trustee is authorized and directed to execute and
deliver the Escrow Agreement and to perform its duties and obligations
thereunder.
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Section 4.22 Repurchase Offers For Change of Control and Asset Sales
In the event that the Company shall be required to commence an offer
to repurchase Notes from Holders of Notes (a "Repurchase Offer") pursuant to a
Change of Control Offer under Section 4.06 or an Asset Sale Offer under Section
4.07, the Company shall follow the procedures specified below. The Company
shall provide the Trustee and the Paying Agent with written notice of the
Repurchase Offer at least five Business Days before the commencement of any such
Repurchase Offer.
A Repurchase Offer shall commence no later than 20 Business Days after
a Change of Control or the date that Excess Proceeds exceed an amount equal to
$10,000,000 (the "Excess Proceeds Trigger Date"), as the case may be, and remain
open for a period of 20 Business Days following its commencement and no longer,
except to the extent that a longer period is required by applicable law (the
"Offering Period"). No later than five Business Days after the termination of
the Offer Period (the "Purchase Date"), the Company shall purchase the principal
amount of Notes required to be purchased pursuant to Section 4.06, in the case
of a Change of Control Offer, or Section 4.07, in the case of an Asset Sale
Offer (the "Offer Amount") or, if less than the Offer Amount has been tendered,
all Notes tendered in response to the Repurchase Offer. Payment for any Notes
so purchased shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related Interest Payment Date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid on such Interest Payment Date to the
Person in whose name a Note is registered at the close of business on such
interest record date and no additional interest or Liquidated Damages, if any,
shall be payable to Holders of Notes who tender Notes pursuant to the Repurchase
Offer.
Upon the commencement of a Repurchase Offer, the Company shall send,
by first class mail, a notice of such Repurchase Offer to each Holder of Notes
(which to the extent consistent with this Indenture) shall govern the terms of
the Repurchase Offer. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to such Repurchase
Offer. The Repurchase Offer shall be made to all Holders of Notes. The notice
will give a brief description of the events resulting in the Change of Control
or which gave rise to the Asset Sale Offer, as the case may be, and shall state:
(a) that the Repurchase Offer is being made pursuant to this
Section 4.22 and Section 4.06 or 4.07, as the case may be, and the length
of time the Repurchase Offer shall remain open;
(b) the redemption price (including the amount of accrued but
unpaid interest and Liquidated Damages, if any) and the Purchase Date;
(c) that any Note, or portion thereof, not tendered or accepted
for payment shall continue to accrue interest;
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(d) that, unless the Company defaults in making such redemption
payment any Note, or portion thereof, accepted for payment pursuant to the
Repurchase Offer shall cease to accrue interest and Liquidated Damages, if
any, after the Purchase Date and the only remaining right of Holders of
such Notes is to receive payment of the redemption price upon surrender to
the Paying Agent of the Notes redeemed;
(e) that Holders electing to have a Note, or portion thereof,
purchased pursuant to a Repurchase Offer will be required to surrender the
Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note, duly completed, or to transfer by book-entry transfer,
to the Paying Agent (which may not for purposes of this Section 4.22 be the
Company or a Subsidiary) at the address specified in the notice not later
than the close of business on the last day of the Offering Period;
(f) that Holders shall be entitled to withdraw their election
if the Paying Agent receives, prior to the expiration of the Offer Period,
a facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Notes the Holder is withdrawing and a statement
containing a facsimile signature and stating that such Holder is
withdrawing its election to have such Notes purchased;
(g) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the redemption price, the Company shall
select the Notes to be purchased on a pro rata basis (with such adjustments
as may be deemed appropriate by the Company so that only Notes in
denominations of $1,000, or integral multiples thereof, shall be
purchased); and
(h) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On or before 10:00 a.m. (New York City time) on each Purchase Date,
the Company shall irrevocably deposit with the Trustee or Paying Agent (other
than the Company or any of its Subsidiaries) in immediately available funds the
aggregate purchase price with respect to a principal amount of Notes equal to
the Offer Amount, together with accrued and unpaid interest and Liquidated
Damages, if any, thereon, to be held for payment in accordance with the terms of
this Section 4.22. On the Purchase Date, the Company shall, to the extent
lawful, (i) accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Repurchase
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
(ii) deliver or cause the Paying Agent or Depositary, as the case may be, to
deliver to the Trustee the Notes so accepted and (iii) deliver to the Trustee an
Officer's Certificate stating that such Notes or portions thereof were accepted
for payment by the Company in accordance with the terms of this Section 4.22.
The Company, the Depositary or the Paying Agent, as the case may be, shall mail
or deliver to each tendering Holder on the Purchase Date an amount equal to the
purchase price of the Notes tendered by such Holder and accepted by the Company
for purchase, plus any accrued
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and unpaid interest and Liquidated Damages, if any, thereon (subject to the
rights of Holders of Notes on interest record dates to receive interest on the
related Interest Payment Date), and the Company shall promptly issue a new Note,
and upon receipt of a written order of the Company signed by two Officers, the
Trustee shall authenticate and mail or deliver such new Note, to such Holder
equal to the principal amount of any unpurchased portion of such Holder's Notes
surrendered. Any Note not so accepted shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce in a
newspaper of general circulation or in a press release provided to a nationally
recognized financial wire service the results of the Repurchase Offer on the
Purchase Date.
Other than as specifically provided in this Section 4.22, any purchase
pursuant to this Section 4.22 shall be made pursuant to the provisions of
Sections 3.01, 3.02, 3.05 and 3.06.
ARTICLE 5
SUCCESSORS
Section 5.01 Limitations on Merger, Consolidation or Sale of Substantially All
Assets
The Company may not consolidate or merge with or into (whether or not
the Company is the surviving entity), 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 entity, or the Person formed by or surviving any such
consolidation or merger (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 consolidation or merger (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 the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after giving effect to
such transaction, no Default or Event of Default exists or would exist; (iv)
except in the case of a merger of the Company with or into a Wholly Owned
Restricted Subsidiary of the Company, the Company or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will (treating any Indebtedness not previously an
obligation of the Company or any of its Restricted Subsidiaries as a result of
such transaction as having been Incurred at the time of such transaction) have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable Reference Period, be permitted to Incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio test set forth in Section
4.09(a); and (v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and
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such supplemental indenture (if any) comply with this Indenture. For purposes of
the foregoing, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of transactions) of all or substantially all of the
properties or assets of one or more of the Restricted Subsidiaries of the
Company, the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
Section 5.02 Successor Corporation Substituted
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company, in
accordance with Section 5.01, the successor Person formed by such consolidation
or into or with which the Company is merged or to which such sale, lease,
conveyance or other disposition is made shall succeed to, and be substituted for
(so that from and after the date of such consolidation, merger, sale, lease,
conveyance or other disposition, the provisions of this Indenture referring to
the "Company" shall refer instead to the successor Person and not to the
Company), and may exercise every right and power of the Company under this
Indenture with the same effect as if such successor Person had been named as the
Company herein; provided, that the Company shall not be released or discharged
from the obligation to pay the principal of or interest on the Notes. The
Trustee shall enter into a supplemental indenture to evidence the succession and
substitution of such successor Person.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 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,
or Liquidated Damages with respect to, the Notes (whether or not prohibited
by Article 11 hereof);
(b) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by Article 11 hereof);
(c) failure by the Company to comply with any of the provisions
of Sections 3.08, 4.06, 4.07, 4.21, 5.01 or 5.02 or any statement made in
the Qualified Tender Offer Purchase Release Certificate or the Acceptance
Confirmation (as such terms are defined in the Escrow Agreement) is untrue;
(d) failure by the Company for 30 days after written notice by
the Trustee to the Company or by Holders of at least 25% in principal
amount of the then outstanding Notes to the Company and the Trustee to
comply with any other covenant or agreement (except as provided in clauses
(a), (b) and (c) above) in this Indenture or the Notes;
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(e) except as permitted by this Indenture, 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 Restricted Subsidiary (or the payment of
which is Guaranteed by the Company or any Restricted Subsidiary) 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 or the maturity of which has been so accelerated,
aggregates $10,000,000 or more;
(g) failure by the Company or any Restricted Subsidiary 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 Restricted Subsidiary 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
(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
Restricted Subsidiary in an involuntary case, (ii) appoints a Custodian of
the Company or any Restricted Subsidiary or for all or substantially all of
their property, or (iii) orders the liquidation of the Company or any
Restricted Subsidiary, 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 clause
(a) or (d) of the immediately preceding paragraph 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., New York City time.
The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
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Section 6.02 Acceleration
If any Event of Default occurs and is continuing (other than an Event
of Default specified in clauses (h) or (i) of Section 6.01), then either the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes by notice in writing to the Company (and to the Trustee if
given by Holders of Notes) (an "Acceleration Notice") may declare all
outstanding Notes to be due and payable, and the same (i) shall become
immediately due and payable; or (ii) 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.
Notwithstanding the foregoing, in the case of an Event of Default specified in
clauses (h) or (i) of Section 6.01, all outstanding Notes will be immediately
due and payable without declaration or other action or notice on the part of the
Trustee or the Holders of Notes. Holders of Notes may not enforce this
Indenture or the Notes, except as provided in this Indenture. Subject to the
provisions of this Indenture, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. 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 clause (f) of Section 6.01, the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
such Indebtedness described in clause (f) of Section 6.01 have rescinded the
declaration of acceleration in respect of such Indebtedness within thirty (30)
days of the date of such declaration and the Trustee has 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, (b) all existing Events of Default, except nonpayment of
principal, premium, or interest or Liquidated Damages that became due solely
because of the acceleration of the Notes, have been cured or waived and (c) all
amounts due to the Trustee under Section 7.07 have been paid.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to Section
3.07, an equivalent premium shall also become and be immediately due and payable
to the extent permitted by law upon the acceleration of the Notes. If an Event
of Default occurs prior to December 1, 2002, by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding the prohibition on redemption of the Notes prior to December 1,
2002, then the premium specified Section 3.07 shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Notes.
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Section 6.03 Other Remedies
Subject to Section 6.02, if an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal, premium, if any, interest or
Liquidated Damages, if any, on the Notes or to enforce the performance of any
provision of this Indenture, the Notes, the Subsidiary Guarantees or the Escrow
Agreement, including but not limited to notifying the Escrow Agent, pursuant to
Section 5(a) or 5(b) of the Escrow Agreement, of the existence of such Event of
Default and thereby prohibiting the release of any Escrowed Funds (as defined in
the Escrow Agreement) to the Company.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of Notes in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults
Subject to Section 9.02, Holders of a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may, on behalf of
the Holders of all of the Notes, waive an existing Default or Event of Default
and its consequences under this Indenture, except a continuing Default or Event
of Default in the payment of the principal of, premium, if any, interest or
Liquidated Damages, if any, on the Notes which may only be waived with the
consent of each Holder of Notes affected.
Section 6.05 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 Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture or that the Trustee determines may be
unduly prejudicial to the rights of other Holders, or that may involve the
Trustee in personal liability. The Trustee may take any other action which is
proper which is not inconsistent with any such direction. Notwithstanding any
provision to the contrary in this Indenture, the Trustee shall not be obligated
to take any action with respect to the provisions of the last paragraph of
Section 6.02 hereof unless directed to do so pursuant to this Section 6.05.
Section 6.06 Limitation on Suits
Subject to the provisions of Section 6.07, no Holder of a Note may
pursue any remedy with respect to this Indenture, the Escrow Agreement, the
Subsidiary Guarantees or the Notes (including without limitation the institution
of any proceeding, judicial or otherwise, with respect to the Notes, the Escrow
Agreement, the Subsidiary Guarantees or this Indenture or for the
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appointment of a receiver or trustee for the Company and/or any of its
Restricted Subsidiaries) unless:
(a) the Holder has given to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount
of the then outstanding Notes have made a written request to the Trustee to
pursue the remedy;
(c) such Holder or Holders have offered and, if requested, have
provided to the Trustee indemnity reasonably satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee has not complied with the request within 60
calendar days after receipt of the request and the offer and, if requested,
the provision of indemnity; and
(e) during such 60-day period, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have not given the
Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder or to obtain a preference or priority over another Holder of a
Note.
Section 6.07 Rights of Holders to Receive Payment
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium, if any, interest
and Liquidated Damages, if any, on the Note, on or after the respective due
dates expressed in the Note (including in connection with an offer to purchase),
or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or adversely affected without the
consent of such Holder.
Section 6.08 Collection Suit by Trustee
If an Event of Default specified in Section 6.01(a), (b) or (c) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, interest, Liquidated Damages, if any, on the
Notes and interest on overdue principal and, to the extent lawful, interest and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07.
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Section 6.09 Trustee May File Proofs of Claim
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of Notes allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder of Notes to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders of Notes, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Holders of Notes may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder of Notes any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder of Notes thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder of Notes in any such proceeding.
Section 6.10 Priorities
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
First: to the Trustee, its agents and counsel, for amounts due under
Section 7.07, including payment of all compensation, expenses,
disbursements and liabilities incurred, and all advances made, by the
Trustee, its agents and counsel, and the costs and expenses of collection;
Second: subject to Article 11, to Holders of Notes for amounts due
and unpaid on the Notes for principal, premium, if any, interest and
Liquidated Damages, if any, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal,
premium, if any, interest, and Liquidated Damages, if any, respectively;
Third: subject to Article 11, without duplication, to Holders of
Notes for any other Obligations owing to the Holders of Notes under this
Indenture, the Notes, the Subsidiary Guarantees or the Escrow Agreement;
and
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Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, each party to this Indenture agrees, and each Holder of Notes
by its acceptance of its Notes shall be deemed to have agreed, that any court in
its discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07, or a
suit by Holders of Notes of more than 10% in principal amount of the then
outstanding Notes.
Section 6.12 Notices to Escrow Agent
If at any time on or prior to the termination of the Escrow Agreement,
the Trustee is notified or becomes aware (i) of any Default or Event of Default
or (ii) that any statement in either of the Qualified Tender Offer Purchase
Release Certificate or the Acceptance Confirmation (as such terms are defined in
the Escrow Agreement) is untrue, then the Trustee shall notify the Escrow Agent
not to release any Escrowed Funds (as defined in the Escrow Agreement) to the
Company as provided in Section 5(a) or 5(b) of the Escrow Agreement.
ARTICLE 7
TRUSTEE
Section 7.01 Duties of Trustee
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent Person would
exercise or use under the circumstances in the conduct of its own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee shall not be liable hereunder except for such
duties of the Trustee which shall be determined solely by the express
provisions of this Indenture and the Escrow Agreement and the Trustee need
perform only those duties that are specifically set
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forth in this Indenture and the Escrow Agreement and no others, and no
implied covenants or obligations shall be read into this Indenture or the
Escrow Agreement against the Trustee.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture or the
Escrow Agreement. In the case of any such certificates or opinions which by
any provision hereof or of the Escrow Agreement are specifically required
to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture or the Escrow Agreement (but need not
confirm or investigate the accuracy of mathematic calculations or other
facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture or the Escrow Agreement shall
require the Trustee to expend or risk its own funds or incur any liability
whatsoever in the performance of any of its duties hereunder or thereunder or in
the exercise of any of its rights or powers hereunder or thereunder. The
Trustee shall be under no obligation to exercise any of its rights and powers
under this Indenture or the Escrow Agreement at the request of any Holders of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it in its sole subjective discretion (which discretion
shall be exercised in good faith) against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
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(g) All indemnifications and releases from liability granted herein to
the Trustee shall extend to the directors, officers, employees and agents of the
Trustee and to the Paying Agent and Registrar. Every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
7.01 and to the provisions of the TIA.
Section 7.02 Rights of Trustee
(a) Subject to Section 7.01, the Trustee may conclusively rely upon
any document believed by it to be genuine and to have been signed or presented
by the proper Person. The Trustee need not investigate any fact or matter stated
in the document, but the Trustee may, in its discretion, make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and require an Officers' Certificate or an Opinion of Counsel or
both. The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such Officers' Certificate or Opinion of Counsel.
The Trustee may consult with counsel of its selection and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or omitted by
it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture or the Escrow Agreement.
(e) Unless otherwise specifically provided in this Indenture or the
Escrow Agreement, any demand, request, direction or notice from the Company
shall be sufficient if signed by an Officer of the Company.
(f) The permissive rights of the Trustee to do things enumerated in
this Indenture or the Escrow Agreement shall not be construed as a duty unless
so specified herein or therein.
(g) The Trustee shall not be required to take notice or deemed to have
notice of any Default or Event of Default, except for failure by the Company to
make any of the payments to the Trustee pursuant to Section 6.01(a) (except with
respect to the payments of Liquidated Damages) or (b), unless the Trustee shall
be specifically notified in writing of such Default or Event of Default by the
Company or by one or more of the Holders of Notes.
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(h) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders of Notes (including, without limitation, pursuant to the
provisions of Section 6.05 hereof) unless such Holders of Notes shall have
offered to the Trustee security or indemnity satisfactory to the Trustee in its
sole subjective discretion (which discretion shall be exercised in good faith)
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction.
Section 7.03 Individual Rights of Trustee
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Subsidiary Guarantor or any Affiliate of the Company or any Subsidiary Guarantor
with the same rights it would have if it were not Trustee. However, in the
event that the Trustee acquires any "conflicting interest" (as such term is
defined in TIA (S) 310(b)), it must eliminate such conflict within 90 days,
apply to the SEC for permission to continue as trustee (to the extent permitted
under TIA (S) 310(b)) or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11.
Section 7.04 Trustee's Disclaimer
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Subsidiary Guarantees, the
Escrow Agreement or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes or any money paid to the Company or upon the
Company's written direction under any provision of this Indenture or the Escrow
Agreement. The Trustee shall not be responsible for the use or application of
any money received by any Paying Agent other than the Trustee and it shall not
be responsible for any statement or recital herein or in the Escrow Agreement or
any statement in the Notes or any other document in connection with the sale of
the Notes or pursuant to this Indenture or the Escrow Agreement other than its
certificate of authentication.
Section 7.05 Notice of Defaults
If a Default or Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it obtains
knowledge of the existence of such Default or Event of Default. Except in the
case of a Default or Event of Default under Sections 6.01(a), (b) or (c), the
Trustee may withhold the notice if it determines that withholding the notice is
in the interests of the Holders of Notes.
Section 7.06 Reports by Trustee to Holders
Within 60 days after each December 31 beginning with the December 31
following the Issue Date, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of Notes a brief report dated as of such
reporting date that complies with TIA (S) 313(a) (but if no
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event described in TIA (S) 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA (S) 313(c).
Commencing at the time this Indenture is qualified under the TIA, a
copy of each report at the time of its mailing to the Holders of Notes shall be
filed with the SEC and each stock exchange, if any, on which the Company has
informed the Trustee that the Notes are listed in accordance with and to the
extent required by TIA (S) 313(d). The Company shall promptly notify the
Trustee when the Notes are listed on any stock exchange or automatic quotation
system.
Section 7.07 Compensation and Indemnity
The Company shall pay to the Trustee from time to time reasonable
compensation, as the Company and the Trustee shall from time to time agree, for
its acceptance of this Indenture and the Escrow Agreement and services hereunder
and thereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee and its agents, employees,
officers and directors against any and all losses, liabilities, expenses or
taxes (other than taxes based upon, measured by or determined by the income of
the Trustee) incurred by it arising out of or in connection with the acceptance
or administration of its duties under this Indenture and the Escrow Agreement,
including the costs and expenses of enforcing this Indenture and/or the Escrow
Agreement against the Company (including this Section 7.07) and defending itself
against any claim (whether asserted by the Company or any Holder of Notes or any
other Person) or liability in connection with the exercise or performance of any
of its powers or duties hereunder or under the Escrow Agreement, except to the
extent that such loss, damage, claim, liability or expense is due to its own
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through its own negligence or bad
faith.
The obligations of the Company under this Section 7.07 shall survive
the resignation or removal of the Trustee and the satisfaction and discharge of
this Indenture and the Escrow Agreement.
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To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal, premium,
if any, interest and Liquidated Damages, if any, on particular Notes. Such Lien
shall survive the satisfaction and discharge of this Indenture and the Escrow
Agreement.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2).
Section 7.08 Replacement of Trustee
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing upon 60 days notice and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company. The Company
may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a receiver, Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of Notes of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
Section 7.09 Successor Trustee by Merger, Etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 7.10 Eligibility; Disqualification
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and shall have (or in the case of a corporation included in a bank
holding company system, the related bank holding company shall have) a combined
capital and surplus of at least $100,000,000 as set forth in its most recent
published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).
Section 7.11 Preferential Collection of Claims Against the Company
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01 Option to Effect Defeasance or Covenant Defeasance
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 8.02 or Section 8.03 hereof
be applied to all Notes and Subsidiary Guarantees then outstanding upon
compliance with the conditions set forth below in this Article Eight.
Section 8.02 Legal Defeasance and Discharge
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Restricted Subsidiaries
will, subject to the satisfaction of the conditions set forth in Section 8.04,
be deemed to have been discharged from their respective obligations with respect
to all Notes and Subsidiary Guarantees then outstanding on the date the
conditions set forth below are satisfied ("Legal Defeasance"). For this purpose
such Legal Defeasance means that the Company and each Restricted Subsidiary will
be deemed to have paid and discharged the entire Indebtedness represented by the
Notes and any Subsidiary Guarantees outstanding, which will thereafter be deemed
to be "outstanding" only for the purposes of Section 8.05 and the other Sections
of this Indenture referred to in clauses (i) and (ii) of this Section 8.02, and
to have satisfied all their other obligations under such Notes, Subsidiary
Guarantees and this Indenture (and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
pursuant to this Indenture: (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on such Notes when such payments are due or on any
redemption date, as the case may be, solely from amounts deposited with the
Trustee as provided in Section 8.04, (ii) the Company's obligations with respect
to the Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 4.01 and 4.02
hereof, (iii) the rights, powers, trusts, duties, indemnities and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) this
Article 8.
Section 8.03 Covenant Defeasance
Upon the Company's exercise under Section 8.01 of the option
applicable to this Section 8.03, the Company and the Subsidiary Guarantors will
be released from their obligations under the covenants contained in Sections
4.03, 4.04, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16,
4.17, 4.18, 4.21, 5.01 and 5.02 and Article 10 with respect to the outstanding
Notes, on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes
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hereunder (it being understood that such Notes shall not be deemed outstanding
for financial accounting purposes). For this purpose, such Covenant Defeasance
means that, with respect to the outstanding Notes, the Company may omit to
comply with and will have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.01, but, except as specified above, the remainder of
this Indenture and such Notes, shall be unaffected thereby. In addition, upon
the Company's exercise under Section 8.01 of the option applicable to this
Section 8.03, Sections 6.01(e), 6.01(f) and 6.01(g) shall not constitute Events
of Default.
Section 8.04 Conditions to Defeasance or Covenant Defeasance
The following shall be the conditions to application of either Section
8.02 or Section 8.03:
(a) the Company shall have irrevocably deposited with the
Trustee, in trust, for the benefit of the Holders of Notes and without
retaining any legal interest corpus of such trust, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, interest and Liquidated Damages, if any, on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case
may be, together with all other amounts payable by the Company under the
Indenture and the Holders of Notes must have a valid, perfected exclusive
security interest in such trust and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date;
(b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company has
received from, or there has been published by, the United States Internal
Revenue Service a ruling or (ii) since the Issue Date, there has been a
change in the applicable U.S. federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel in the United States
shall confirm that, subject to customary assumptions and exclusions, the
Holders of the outstanding Notes will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of such Legal Defeasance
and will be subject to U.S. federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax
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purposes as a result of such Covenant Defeasance and will be subject to
such U.S. federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had
not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as Events of Default set
forth in Sections 6.01(h) and (i), at any time in the period ending on the
91st day after the date of such deposit (it being understood that this
condition shall not be satisfied until the expiration of such period);
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that, as of the date of such opinion and subject
to customary assumptions and exclusions (which assumptions and exclusions
shall not relate to the operation of Section 547 of the United States
Bankruptcy Code or any analogous New York State law provision or related
judicial decisions) after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, and that the Trustee has a perfected security interest in such
trust funds for the ratable benefit of the Holders of Notes;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders of Notes over the other creditors
of the Company with the intent of defeating, hindering, delaying or
defrauding any creditors of the Company or others;
(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel in the United States (which
Opinion of Counsel may be subject to customary assumptions and exclusions)
each stating that all conditions precedent provided for in, in the case of
the Officer's Certificate, clauses (a) through (g) and, in the case of the
Opinion of Counsel, clauses (a) (with respect to the validity and
perfection of the security interest), (b), (c), (e) and (f) of this Section
8.04 have been complied with; and
(i) the Trustee shall have received such other documents and
assurances as the Trustee shall reasonably require.
Section 8.05 Deposited Money and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions
Subject to the provisions of Section 8.06, all money and Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively
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for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 in
respect of the Notes then outstanding shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Company
or any of its Subsidiaries acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, interest and Liquidated
Damages, if any, but such money need not be segregated from other funds except
to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to Section 8.04 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Notes then outstanding.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time at the Company's
request any money or Government Securities held by it as provided in this
Article 8 which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.04(a)), are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to Company
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company or any of its Subsidiaries, in trust for the payment of the
principal of, premium, if any, interest or Liquidated Damages, if any, on any
Note and remaining unclaimed for one year after such principal, premium, if any,
interest and Liquidated Damages, if any, have become due and payable shall be
paid to the Company on its request or (if then held by the Company or any of its
Subsidiaries) shall be discharged from such trust; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company or any of its
Subsidiaries as trustee thereof, shall thereupon cease.
Section 8.07 Reinstatement
If the Trustee or Paying Agent is unable to apply any United States
dollars or Government Securities in accordance with Section 8.02 or Section
8.03, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and any Subsidiary Guarantor's obligations under
this Indenture, the Notes and the Subsidiary Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.02 or Section
8.03, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or Section
8.03, as the case may be; provided, however, that if the
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Company or any Subsidiary Guarantor makes any payment of principal of, premium,
if any, interest or Liquidated Damages, if any, on any Note following the
reinstatement of its obligations, the Company or any such Subsidiary Guarantor
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01 Without Consent of Holders
The Company and the Subsidiary Guarantors (when authorized by a
resolution of the Board of Directors and the boards of directors of the
Subsidiary Guarantors) and the Trustee may amend or supplement this Indenture,
the Notes or the Escrow Agreement without notice to or consent of any Holder of
Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(c) to provide for the assumption by a successor Person of the
obligations of the Company to the Holders of Notes under the Notes, this
Indenture, the Escrow Agreement and the Registration Rights Agreement in
connection with any transaction complying with Article 5 of this Indenture;
(d) to add further Subsidiary Guarantees with respect to the
Notes;
(e) to release Subsidiary Guarantors when permitted by the
Indenture;
(f) to secure the Notes;
(g) to add to the covenants of the Company and any Restricted
Subsidiary for the benefit of the Holders of Notes or to surrender any right or
power conferred upon the Company or any Restricted Subsidiary;
(h) to comply with any requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA as then in
effect; or
(i) to make any change that does not materially adversely affect
the legal rights of any Holder of Notes under this Indenture;
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provided, however, that the Company shall deliver to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 9.01. Subject to Section 9.06, upon the request of the Company
and the Subsidiary Guarantors, accompanied by a Board Resolution of the Company
and a board resolution of each Subsidiary Guarantor authorizing the execution of
any such amended or supplemental Indenture and upon receipt by the Trustee of
the documents described in Section 9.06, the Trustee shall join with the Company
and the Subsidiary Guarantors in the execution of any amended or supplemental
Indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained.
After an amendment or supplement under this Section 9.01 becomes effective, the
Company shall mail to the Holders of Notes a notice briefly describing the
amendment or supplement. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such amended or supplemental Indenture.
Section 9.02 With Consent of Holders
Except as provided below in this Section 9.02, this Indenture, the
Notes or the Escrow Agreement may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding and, subject to Sections 6.04 and 6.07, any existing Default or
Event of Default and its consequences under this Indenture (other than a Default
or Event of Default in the payment of principal of, premium, if any, interest or
Liquidated Damages, if any, on, the Notes) or compliance with any provision of
this Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes.
Upon the request of the Company and the Subsidiary Guarantors,
accompanied by a Board Resolution of the Company and a board resolution of each
Subsidiary Guarantor authorizing the execution of any such amendment, supplement
or waiver, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 9.06 hereof, the Trustee shall
join with the Company and the Subsidiary Guarantors in the execution of such
amendment, supplement or waiver and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amendment, supplement or waiver that adversely
affects its own rights, duties, liabilities or immunities under this Indenture
or otherwise.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Notes a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amendment, supplement or waiver.
Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in principal
amount of the Notes
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then outstanding may waive compliance in a particular instance by the Company
with any provision of this Indenture, the Notes or the Escrow Agreement.
However, without the consent of each Holder affected, an amendment, supplement
or waiver may not (with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the rate of or change the interest payment time on any Note
or alter the provisions with respect to the redemption of the Notes (other
than provisions relating to Sections 4.06 and 4.07);
(c) reduce the principal of or change the fixed maturity of the Notes;
(d) change currency of payment of the principal of, premium, if any,
interest on, Liquidated Damages, if any, or any other sums relating to the
Notes;
(e) modify any provision of Section 4.01, 6.04, 6.07 or 11.05;
(f) waive any Default or Event of Default in the payment of principal
of, premium, if any, or unpaid interest on, and Liquidated Damages, if any,
with respect to the Notes (except a rescission of acceleration of the Notes
by the Holders of at least a majority in aggregate principal amount of the
Notes and a waiver of the payment default that resulted from such
acceleration);
(g) make any change to Article 11 or Section 10.08 of this Indenture
or paragraph 11 of the Notes in a manner that materially adversely affects
the legal rights of any Holder of Notes;
(h) waive a redemption or repurchase payment with respect to any Note
(other than a payment required under Section 4.06 or 4.07);
(i) make any change in this Section 9.02; or
(j) release any Subsidiary Guarantor from its obligations under any
Subsidiary Guarantee, other than in accordance with this Indenture.
Notwithstanding the foregoing, any amendment, supplement or waiver to
Sections 4.06 or 4.07 will require the consent of the Holders of at least two-
thirds in aggregate principal amount of the Notes then outstanding if such
amendment, supplement or waiver would adversely affect the rights of Holders of
Notes .
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Section 9.03 Compliance With Trust Indenture Act
Every amendment to or supplement of this Indenture, the Subsidiary
Guarantees or the Notes shall be set forth in an amended or supplemental
Indenture that complies with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of Notes is a continuing consent by the Holder of such Notes
and every subsequent Holder of that Note or Notes or portion of that Note or
Notes that evidences the same debt as the consenting Holder's Note or Notes,
even if notation of the consent is not made on any Note. Subject to the
following paragraph, any such Holder of Notes or subsequent Holder may revoke
the consent as to such Holder's Notes or portion of such Notes by written notice
to the Trustee or the Company received before the date on which the amendment,
supplement or waiver becomes effective.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Notes entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders of Notes at such record date (or their duly designated
proxies), and only those persons, shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders of such Notes after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, in
accordance with its terms it shall bind every Holder of Notes, unless it makes a
change described in any of clauses (a) through (j) of Section 9.02. In that
case, the amendment, supplement or waiver shall bind each Holder of a Note who
has consented to it and every subsequent Holder of a Note or portion of a Note
that evidences the same debt as the consenting Holder's Note.
Section 9.05 Notation on or Exchange of Notes
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of the Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder of such Note. Alternatively, if the Company or the
Trustee so determines, the Company in exchange for the Note shall issue and the
Trustee shall, upon receipt of an Authentication Order in accordance with
Section 2.02, authenticate a new Note that reflects the changed terms. Failure
to make the appropriate notation or issue a new Note shall not affect the
validity and effect of such amendment, supplement or waiver.
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Section 9.06 Trustee to Sign Amendments, Etc.
The Trustee shall sign any amendment or supplemental indenture
authorized pursuant to this Article 9 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive,
if requested, an indemnity reasonably satisfactory to it and to receive and,
subject to Section 7.01, shall be fully protected in relying upon, in addition
to the documents required by Section 12.04, an Officer's Certificate and an
Opinion of Counsel as conclusive evidence that such amendment or supplemental
indenture is authorized or permitted by this Indenture, that it is not
inconsistent herewith, and that it will be valid and binding upon the Company in
accordance with its terms. The Company may not sign an amendment or
supplemental indenture until the Board of Directors approves it.
ARTICLE 10
SUBSIDIARY GUARANTEES
Section 10.01 Subsidiary Guarantees
Subject to the provisions of this Article 10, each Subsidiary
Guarantor, jointly and severally, hereby irrevocably unconditionally guarantees
to each Holder of a Note authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, that: (i) the principal of, premium, if
any, interest and Liquidated Damages, if any, 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 Offer, upon an Asset Sale Offer,
pursuant to the Escrow Agreement or otherwise, and interest on overdue
principal, premium, if any, (to the extent permitted by law) interest on any
interest, if any, and Liquidated Damages, if any, on the Notes and all other
obligations of the Company to Holders of Notes or the Trustee hereunder or under
the Notes (including fees, expenses or otherwise) 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 Offer,
upon an Asset Sale Offer, pursuant to the Escrow Agreement or otherwise and
(iii) the prompt payment of any and all costs and expenses (including reasonable
attorneys' fees) incurred by the Trustee or any Holder of Notes in enforcing any
rights hereunder or 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 this Indenture
or the Notes shall constitute an event of default under the Subsidiary
Guarantees, and shall entitle the Trustee or 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
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its obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, 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 Trustee, 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 Indenture), 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, interest and Liquidated Damages, if any, on the Notes and all other costs
provided for under this Indenture or as provided in Section 8.02.
If any Holder of Notes or the Trustee 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 the Trustee or such Holder of Notes, the Subsidiary Guarantors, to
the extent theretofore discharged, shall be reinstated in full force and effect.
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 and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 6 hereof 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 6 hereof, 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.
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Section 10.02 Execution and Delivery of Subsidiary Guarantees
To evidence its Subsidiary Guarantee set forth in Section 10.01
hereof, each of the Subsidiary Guarantors agrees that a notation of the
Subsidiary Guarantees substantially in the form included in Exhibit A hereto
shall be endorsed on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of the Subsidiary Guarantors by
an Officer of each of such Subsidiary Guarantors.
Each of the Subsidiary Guarantors agrees that the Subsidiary
Guarantees set forth in this Article 10 will remain in full force and effect and
apply to all the Notes, notwithstanding any failure to endorse on each Note a
notation of the Subsidiary Guarantees.
If an Officer whose facsimile signature is on a Subsidiary Guarantee
no longer holds that office at the time the Trustee authenticates the Note on
which the Subsidiary Guarantees are endorsed, the Subsidiary Guarantees shall be
valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantees
set forth in this Indenture on behalf of the Subsidiary Guarantors.
Section 10.03 Subsidiary Guarantors May Consolidate, Etc., on Certain Terms
Subject to Section 10.04, no Subsidiary Guarantor may consolidate or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), 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 Person formed by or surviving any
such consolidation or merger (if other than such Subsidiary Guarantor) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of such Subsidiary
Guarantor under the Subsidiary Guarantee, pursuant to a supplemental indenture
in form satisfactory to the Trustee; (ii) immediately after such transaction, no
Default or Event of Default exists; (iii) the Company and its Restricted
Subsidiaries would, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable Reference Period, be permitted to Incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio test set forth in Section
4.09(a); (iv) if required by the Trust Indenture Act, the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer complies with the
provisions of this Indenture; and (v) such Subsidiary Guarantor (if such
Subsidiary Guarantor is the surviving Person) shall have delivered a written
instrument in form satisfactory to the Trustee confirming its Subsidiary
Guarantee and its other obligations under this Indenture after giving effect to
such consolidation, merger or transfer. Notwithstanding the foregoing, any
Subsidiary Guarantor may merge into, consolidate with or transfer all or part of
its properties or assets to the Company or one or more Subsidiary Guarantors or
one or more Subsidiaries which become Subsidiary Guarantors which are Wholly
Owned Restricted Subsidiaries concurrently therewith.
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Section 10.04 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 Restricted 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, (ii) no Default or
Event of Default exists or would exist under this Indenture after giving effect
to such transaction, (iii) all obligations of such Subsidiary Guarantor under
any other Indebtedness of the Company or any of its Restricted Subsidiaries
shall have been terminated (including, without limitation, all Guarantees of any
such Indebtedness), (iv) all Liens on assets of such Restricted Subsidiary that
secure any other Indebtedness of the Company or any of its Restricted
Subsidiaries shall have been terminated, and (v) all obligations of the Company
and its Restricted 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 10.05 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 10 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 10, result in the obligations of such Subsidiary Guarantor under
the Subsidiary Guarantee of such Subsidiary Guarantor not constituting a
fraudulent transfer or conveyance.
Section 10.06 Application of Certain Terms and Provisions to the Subsidiary
Guarantors
(a) For purposes of any provision of this Indenture 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 in Section 1.01 shall apply to
such Subsidiary Guarantor as if references therein to the Company were
references to such Subsidiary Guarantor.
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(b) Any request, direction, order or demand which by any provision of
this Indenture is to be made by any Subsidiary Guarantor, shall be sufficient if
evidenced as described in Section 12.02 as if references therein to the Company
were references to such Subsidiary Guarantor.
(c) Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the Holders of
Notes to or on any Subsidiary Guarantor may be given or served as described in
Section 12.02 as if references therein to the Company were references to such
Subsidiary Guarantor.
(d) Upon any demand, request or application by any Subsidiary
Guarantor to the Trustee to take any action under this Indenture, such
Subsidiary Guarantor shall furnish to the Trustee such certificates and opinions
as are required in Section 12.04 hereof as if all references therein to the
Company were references to such Subsidiary Guarantor.
(e) In the case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article 10 shall in each case (unless the context
shall otherwise require) be construed as extending to and including such Paying
Agent.
Section 10.07 Release of Subsidiary Guarantees
Upon the sale or disposition of a Subsidiary Guarantor (or
substantially all of its assets) or the designation of a Subsidiary Guarantor as
an Unrestricted Subsidiary, in each case pursuant to and in compliance with the
terms of this Indenture, including but not limited to the provisions of Sections
4.07, 4.13, 4.14, 10.03 and 10.04, as applicable, such Subsidiary Guarantor will
be released from and relieved of its obligations under its Subsidiary Guarantee
upon execution and delivery of a supplemental indenture satisfactory to the
Trustee. Such supplemental indenture shall be accompanied by an Officers'
Certificate and an Opinion of Counsel, each stating that such supplemental
indenture and release of the Subsidiary Guarantee complies with the provisions
of this Indenture and that all conditions precedent to such supplemental
indenture and release of the Subsidiary Guarantee have been complied with.
Section 10.08 Subordination of Subsidiary Guarantees
The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee pursuant to this Article 10 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 Trustee and 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
Indenture, including Article 11 hereof. In the event that the Trustee receives
any Subsidiary Guarantor payment at a time when such payment is prohibited by
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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. In the
event that a Holder of Notes receives any Subsidiary Guarantor payment at a time
when such payment is prohibited by the foregoing sentence, the Subsidiary
Guarantor payment shall be paid over and delivered to the holders of the Senior
Indebtedness of such Subsidiary Guarantor remaining unpaid, to the extent
necessary to pay in full in cash or Cash Equivalents all such Senior
Indebtedness.
Each Holder of a Note by its acceptance thereof (a) agrees to and
shall be bound by the provisions of this Section 10.08, (b) authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary and appropriate to effectuate the subordination so provided, and (c)
appoints the Trustee as the Holder's attorney-in-fact for any and all such
purposes.
Section 10.09 Future Subsidiary Guarantors
The Company shall cause any Person that becomes a Subsidiary (other
than an Unrestricted Subsidiary) after the Issue Date (including a Subsidiary
that was previously an Unrestricted Subsidiary and which becomes a Restricted
Subsidiary) to promptly execute and deliver to the Trustee a supplemental
indenture in form and substance substantially similar to Exhibit C pursuant to
which such Subsidiary (other than an Unrestricted Subsidiary) shall become a
Subsidiary Guarantor under this Article 10 and shall Guarantee the prompt
payment in full and performance of all obligations of the Company to the Holders
of Notes and to the Trustee hereunder, under the Notes and under the Escrow
Agreement pursuant to the terms hereof and thereof. Concurrently with the
execution and delivery of such supplemental indenture, the Company shall deliver
to the Trustee an Opinion of Counsel to the effect that such supplemental
indenture has been duly authorized, executed and delivered by such Subsidiary
and that, subject to the application of bankruptcy, insolvency, moratorium,
fraudulent conveyance or transfer and other similar laws relating to creditors'
rights generally and to the principles of equity, whether considered in a
proceeding at law or in equity, the Subsidiary Guarantee of such Subsidiary
Guarantor is a legal, valid and binding obligation of such Subsidiary Guarantor,
enforceable against such Subsidiary Guarantor in accordance with its terms.
ARTICLE 11
SUBORDINATION
Section 11.01 Notes Subordinated to Senior Indebtedness
The Company covenants and agrees, and the Trustee and each Holder of
Notes by its acceptance thereof likewise covenant and agree, that all Notes
shall be issued subject to the provisions of this Article 11; 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
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premium, if any, interest and Liquidated Damages, if any, on the Notes will, to
the extent and in the manner set forth in this Article 11, 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 Indenture or
thereafter incurred.
Section 11.02 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, interest and Liquidated Damages, if any, on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Asset Sale Offer, a Change of Control Offer, pursuant to the Escrow
Agreement or otherwise, shall be made to the Holders of Notes (except that
Holders of Notes may receive payments made in Junior Securities or from the
defeasance trust described under Sections 8.04(a) and 8.05) 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
Trustee receives 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 Trustee
(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 Trustee).
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, interest and Liquidated
Damages, if any, 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 Trustee 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 Trustee 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).
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(b) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder of Notes when such payment is
prohibited by Section 11.02(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 Trustee 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 Trustee 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 Trustee shall be paid to the holders of Designated Senior
Indebtedness.
Section 11.03 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 and payments made from the defeasance trust described under
Sections 8.04(a) 8.05.
(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 the Trustee or any Holder of Notes at a time
when such payment or distribution is prohibited by Section 11.03(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 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.
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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 shall not be deemed a dissolution, winding-up, liquidation
or reorganization for the purposes of this Section 11.03 if such other Person
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions stated in Article 5.
Section 11.04 Subrogation
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 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, interest and
Liquidated Damages, if any, 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 or the Trustee on their behalf would be entitled except for the
provisions of this Article 11, and no payment over pursuant to the provisions of
this Article 11 to the holders of Senior Indebtedness by Holders of Notes or the
Trustee on their behalf shall, 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 11 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.
If any payment or distribution to which the Holders of Notes would
otherwise have been entitled but for the provisions of this Article 11 shall
have been applied, pursuant to the provisions of this Article 11, 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 11.05 Obligations of Company Unconditional
Nothing contained in this Article 11 or elsewhere in this Indenture or
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,
interest and Liquidated Damages, if any, 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 or the Trustee on their behalf
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article 11 of
the holders of the Senior
87
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Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article 11 shall restrict the right of the Trustee or 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 6 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 or the Trustee are
entitled to receive any direct or indirect payment from the Company of principal
of, premium, if any, interest or Liquidated Damages, if any, on the Notes.
Section 11.06 Notice to Trustee
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes pursuant to the provisions of this
Article 11. The Trustee shall not be charged with knowledge of the existence of
any event of default with respect to any Senior Indebtedness or of any other
facts which would prohibit the making of any payment to or by the Trustee unless
and until the Trustee shall have received notice in writing at its Corporate
Trust Office to that effect signed by an Officer of the Company, or by a holder
of Senior Indebtedness or trustee or agent therefor; and prior to the receipt of
any such written notice, the Trustee shall, subject to Article 7, be entitled to
assume that no such facts exist; provided that if the Trustee shall not have
received the notice provided for in this Section 11.06 at least two Business
Days prior to the date upon which by the terms of this Indenture any moneys
shall become payable for any purpose (including, without limitation, the payment
of the principal of, premium, if any, interest or Liquidated Damages, if any, on
any Note), then, regardless of anything herein to the contrary, the Trustee
shall have full power and authority to receive any moneys from the Company or
any Subsidiary Guarantor and to apply the same to the purpose for which they
were received, and shall not be affected by any notice to the contrary which may
be received by it on or after such prior date. Nothing contained in this
Section 11.06 shall limit the right of the holders of Senior Indebtedness to
recover payments as contemplated by Section 11.03. The Trustee shall be
entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article 11, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article 11, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
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Section 11.07 Reliance on Judicial Order or Certificate of Liquidating Agent
Upon any payment or distribution of assets or securities referred to
in this Article 11, the Trustee and 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 Trustee or 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 11.
Section 11.08 Trustee's Relation to Senior Indebtedness
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article 11 with respect to any Senior Indebtedness which may
at any time be held by it in its individual or any other capacity to the same
extent as any other holder of Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee or any Paying Agent of any of its rights as such
holder.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 11, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness. The Trustee shall not
be liable to any such holders if the Trustee shall in good faith mistakenly pay
over or distribute to Holders of Notes or to the Company or to any other person
cash, property or securities to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article 11 or otherwise.
Section 11.09 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 Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
The provisions of this Article 11 are intended to be for the benefit of, and
shall be enforceable directly by, the holders of Senior Indebtedness.
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Section 11.10 Holders of Notes Authorize Trustee to Effectuate Subordination of
Notes
Each Holder of Notes by its acceptance of such Notes authorizes and
expressly directs the Trustee on its or his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 11, and appoints the Trustee its or his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company or any Subsidiary Guarantor (whether in
bankruptcy, insolvency, receivership, reorganization or similar proceedings or
upon an assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of the Company or any Subsidiary
Guarantor, the filing of a claim for the unpaid balance of its Notes in the form
required in those proceedings.
Section 11.11 This Article Not to Prevent Event of Default
The failure to make a payment on account of principal of, premium, if
any, interest or Liquidated Damages, if any, on the Notes by reason of any
provision of this Article 11 shall not be construed as preventing the occurrence
of an Event of Default specified in clauses (a) or (b) of Section 6.01.
Section 11.12 Trustee's Compensation Not Prejudiced
Nothing in this Article 11 shall apply to amounts due to the Trustee
pursuant to other sections in this Indenture.
Section 11.13 No Waiver of Subordination Provisions
Without in any way limiting the generality of Section 11.09, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of Notes, without
incurring responsibility to the Holders of Notes and without impairing or
releasing the subordination provided in this Article 11 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.
90
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Section 11.14 Subordination Provisions Not Applicable to Collateral Held in
Trust for Holders of Notes; Payments May be Paid Prior to
Dissolution
All money and Government Securities deposited in trust with the
Trustee pursuant to and in accordance with Article 8 shall be for the sole
benefit of the Holders of Notes and shall not be subject to this Article 11.
Nothing contained in this Article 11 or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Section
11.02, from making payments of principal of, premium, if any, interest and
Liquidated Damages, if any, on the Notes, or from depositing with the Trustee
any moneys for such payments or from effecting a termination of the Company's
and the Subsidiary Guarantors' obligations under the Notes and this Indenture as
provided in Article 8, or (ii) the application by the Trustee of any moneys
deposited with it for the purpose of making such payments of principal of,
premium, if any, interest and Liquidated Damages, if any, on the Notes, to the
Holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have received
the written notice provided for in Section 11.06. The Company shall give prompt
written notice to the Trustee of any dissolution, winding-up, liquidation or
reorganization of the Company or any Subsidiary Guarantor.
Section 11.15 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 12
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the duties imposed by TIA (S) 318(c) shall
control.
Section 12.02 Notices
Any notice or communication by the Company, any Subsidiary Guarantor
or the Trustee to the other is 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 other's address:
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If to the Company or a Subsidiary Guarantor:
Kevco, Inc
1300 South University Drive
Suite 200
Fort Worth, Texas 76107
Attention: Jerry E. Kimmel
Telecopier No.: (817) 332-2765
with a copy of any notice given pursuant to Article 6 to:
Jackson Walker, LLP
777 Main Street
Suite 1800
Fort Worth, Texas 76102
Attention: Richard S. Tucker
Telecopier No.: (817) 334-7290
If to the Trustee:
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036-1532
Attention: Corporate Trust Division
Telecopier: (212) 852-1626/7
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
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 Register kept by the Registrar.
Any notice or communication shall also be so mailed to any Person described in
TIA (S) 313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders of Notes.
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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.
If the Company mails a notice or communication to Holders of Notes, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 12.03 Communication by Holders With Other Holders
Holders of Notes may communicate pursuant to TIA (S) 312(b) with
other Holders of Notes with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA (S) 312(c).
Section 12.04 Certificate and Opinion as to Conditions Precedent
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officer's Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been complied with.
Section 12.05 Statements Required in Certificate or Opinion
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
<PAGE>
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
Section 12.06 Rules By Trustee and Agents
The Trustee may make reasonable rules for action by or at a meeting of
Holders of Notes. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 12.07 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 12.08 No Recourse Against Others
No director, officer, employee, incorporator or stockholder of the
Company or any Restricted Subsidiary, as such, shall have any liability for any
obligations of the Company or any Restricted Subsidiary under the Notes, this
Indenture 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 12.09 Duplicate Originals
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
Section 12.10 Governing Law
The internal law of the State of New York shall govern and be used to
construe this Indenture, 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 New York
for purposes of this Indenture and agrees and consents that service of process
may be made upon it in any legal proceeding relating to this Indenture by any
means allowed under federal or New York 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.
<PAGE>
Section 12.11 No Adverse Interpretation of Other Agreements
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or its Subsidiaries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
Section 12.12 Successors
This Indenture 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 Indenture or its obligations hereunder except as
expressly permitted by Sections 5.01 and 5.02. Without limiting the generality
of the foregoing, this Indenture shall inure to the benefit of all Holders of
Notes from time to time. Nothing expressed or mentioned in this Indenture 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 Indenture
or any provision herein contained.
Section 12.13 Severability
In case any provision in this Indenture, the Notes 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 12.14 Counterpart Originals
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 12.15 Table of Contents, Headings, Etc.
The Table of Contents and Headings of the Articles and Sections of
this Indenture 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.
<PAGE>
THE COMPANY:
KEVCO, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------
Name: Jerry E. Kimmel
Title: Chairman, CEO and President
SUBSIDIARY GUARANTORS:
SCC ACQUISITION CORP.
By: /s/ Jerry E. Kimmel
-------------------------------------
Name: Jerry E. Kimmel
Title: President
KEVCO DELAWARE, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------
Name: Jerry E. Kimmel
Title: Chairman, CEO and President
SUNBELT WOOD COMPONENTS, INC.
By: /s/ Jerry E. Kimmel
-------------------------------------
Name: Jerry E. Kimmel
Title: Chairman and CEO
96
<PAGE>
CONSOLIDATED FOREST PRODUCTS,
INC.
By: /s/ Jerry E. Kimmel
-----------------------------------
Name: JERRY E. KIMMEL
---------------------------------
Title: CHAIRMAN & CEO
--------------------------------
BOWEN SUPPLY, INC.
By: /s/ Jerry E. Kimmel
-----------------------------------
Name: JERRY E. KIMMEL
---------------------------------
Title: CHAIRMAN OF THE BOARD
--------------------------------
ENCORE INDUSTRIES, INC.
By: /s/ Jerry E. Kimmel
-----------------------------------
Name: JERRY E. KIMMEL
---------------------------------
Title: CHAIRMAN OF THE BOARD
--------------------------------
TRUSTEE:
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By: /s/ G. F. Ganey
-----------------------------------
Name: G. F. GANEY
---------------------------------
Title: SENIOR VICE PRESIDENT
--------------------------------
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<PAGE>
EXHIBIT A
(Face of Note)
10(3/8)% [Series A] [Series B] Senior Subordinated Notes due 2007
CUSIP No. _________ $__________
KEVCO, INC., a Texas corporation, promises to pay to Cede & Co. or
registered assigns, the principal sum of _______________________________ Dollars
($_________), or such greater or lesser amount as may from time to time be
endorsed on Schedule A hereto, on December 1, 2007.
Interest Payment Dates: June 1 and December 1, commencing June 1, 1998
Record Dates: May 15 and November 15 (whether or not a Business Day)
Reference is hereby made to the further provisions of this Senior
Subordinated Note set forth on the following pages, which further provisions
shall for all purposes have the same effect as if set forth at this place.
Dated:_____________________________
KEVCO, INC.
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
A-1-1
<PAGE>
TRUSTEE CERTIFICATE OF
AUTHENTICATION
This is one of the
Notes referred to in the
within-mentioned Indenture
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:________________________________
(Authorized Signatory)
A-1-2
<PAGE>
(Back of Note)
10 3/8% [Series A] [Series B] Senior Subordinated Notes due 2007
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC") to the issuer or its agent for registration of transfer, exchange
or payment, and any certificate issued is registered in the name of Cede & Co.
or such other name as may be requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.]/1/
[THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE
SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), OR (B) IT
IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION
S UNDER THE SECURITIES ACT, OR (2) AGREES THAT IT WILL NOT, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY, IF REQUESTED BY THE COMPANY) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON
TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF
- ------------------
/1/ This paragraph shall be included only if the Note is a Global Note.
A-1-3
<PAGE>
THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.]/2/
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Kevco, Inc., a Texas corporation (the "Company"), promises
to pay interest on the principal amount of this Note at the rate and in the
manner specified below and shall pay the Liquidated Damages, if any, payable
pursuant to Section 5 of the Registration Rights Agreement referred to below.
Interest on the Notes will accrue at the rate of 10 3/8% per annum and will be
payable semi-annually in arrears on June 1 and December 1 in each year,
commencing on June 1, 1998, or if any such day is not a Business Day, the next
succeeding Business Day (each an "Interest Payment Date"), to Holders of record
on the immediately preceding May 15 and November 15, respectively.
Interest will be computed on the basis of a 360-day year of twelve 30-
day months. Interest on the Notes shall accrue from the most recent date to
which interest has been paid or duly provided for or, if no interest has been
paid or duly provided for, from the Issue Date of original issuance of the
Notes. To the extent lawful, the Company shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
principal at the applicable interest rate on the Notes plus one percent; it
shall pay interest on overdue installments of interest (without regard to
applicable grace periods) at the same rate, to the extent lawful, (i) if payment
is made during the period of five Business Days following the date on which such
interest was due, to the Persons who were to receive payment on the date such
interest was due or (ii) if payment is made after such period, to the Persons
who are Holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior to
the payment date.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) and Liquidated Damages, if any, to the Persons who
are registered Holders of Notes at the close of business on the record date next
preceding the Interest Payment Date, even if such Notes are cancelled after such
record date and on or before such Interest Payment Date. Principal, premium, if
any, interest and Liquidated Damages, if any, on the Notes shall be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York, or at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the
- ------------------
/2/ This paragraph shall be removed upon the exchange of Series A Notes for
Series B Notes in the Exchange Offer or upon the sale of the Series A
Notes under a Shelf Registration Statement pursuant to the Registration
Rights Agreement.
A-1-4
<PAGE>
register of Holders of Notes; provided that all payments with respect to Notes
the Holders of which have given wire transfer instructions to the Company and
the Trustee shall be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. The Company
shall pay principal, premium, if any, interest and Liquidated Damages, if any,
on the Notes in money of the United States that at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, the Trustee under the
Indenture will act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to any Holder of Notes. The Company or
any of its Subsidiaries may act as Paying Agent or Registrar.
4. Indenture. The Company issued the Notes under an Indenture dated as
of December 1, 1997 ("Indenture") among the Company, the Subsidiary Guarantors
and United States Trust Company of New York, as Trustee (the "Trustee"). The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of the Indenture. The Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and such Trust Indenture Act for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the Indenture and the Notes.
Terms not otherwise defined herein shall have the meanings assigned in the
Indenture. The Notes are general unsecured obligations of the Company limited
to $105,000,000 in aggregate principal amount.
5. Optional Redemption.
Except as set forth in the next paragraph, the Notes are not
redeemable at the Company's option prior to December 1, 2002. Thereafter, the
Notes will be subject to redemption for cash at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days
notice, at the redemption prices (expressed as percentages of principal amount)
if redeemed during the 12-month period commencing December 1 of the years
indicated below (subject to the right of Holders of Notes of record on an
interest record date to receive interest due on an Interest Payment Date that is
on or prior to such date of redemption), plus accrued and unpaid interest and
Liquidated Damages, if any, to the applicable redemption date:
Year Percentage
---- ----------
2002 105.188%
2003 103.458%
2004 101.729%
2005 and thereafter 100.000%
Notwithstanding the foregoing, at any time prior to December 1, 2000,
the Company may on any one or more occasions redeem up to an aggregate 35% of
the original aggregate principal
A-1-5
<PAGE>
amount of the Notes at a redemption price of 110.375% of the principal amount of
the Notes (subject to the right of Holders of Notes of record on an interest
record date to receive interest due on an Interest Payment Date that is on or
prior to such date of redemption), together with accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with the Net Proceeds of one
or more Public Equity Offerings; provided that at least 65% of the aggregate
principal amount of the Notes originally outstanding remain outstanding
immediately after such redemption; and provided, further, that such redemption
shall occur within 90 days of the date of the closing of any such Public Equity
Offering.
6. Mandatory Redemption.
Except as set forth in Section 3.08 of the Indenture and as provided
in paragraph 7 below, the Company is not required to make mandatory redemption
or sinking fund payments with respect to the Notes.
7. Repurchase at Option of Holders.
(a) If there is a Change of Control, the Company shall be required to
offer to purchase all or any part (equal to $1,000 or an integral multiple
thereof) of each Holder's Notes at a purchase price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase. Holders of Notes that are
subject to an offer to purchase will receive an offer to purchase from the
Company prior to any related purchase date, and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
appearing below.
(b) If the Company consummates any Asset Sale, the Company shall be
required, under certain circumstances, to apply the Excess Proceeds thereof to
an offer to all Holders of Notes to purchase the maximum principal amount of
Notes that may be purchased out of the Excess Proceeds at an offer price in cash
equal to 100% of the principal amount of the Notes, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture. Holders of Notes that are
subject to an offer to purchase will receive an offer to purchase from the
Company prior to any related purchase date, and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
appearing below.
8. Denominations, Transfer, Exchange. The Notes are in face
denominations of $1,000 and integral multiples of $1,000. The Notes may be
transferred and exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. Neither the
Company nor the Registrar will be required to issue, register the transfer of,
or exchange (i) any Note or portion of a Note selected for redemption or
tendered pursuant to an offer, except the unredeemed portion of any Note being
redeemed in part or (ii) any Notes during the period between (a) beginning on
the date the
A-1-6
<PAGE>
Trustee receives a notice of a redemption from the Company and ending at the
close of business on the date the Notes to be redeemed are selected by the
Trustee or (b) an interest record date and ending at the close of business on
the next succeeding Interest Payment Date.
9. Subordination. The Notes and the Subsidiary Guarantees are
subordinated in right of payment, to the extent and in the manner provided in
Article 11 and Section 10.08 of the Indenture, to the prior payment in full of
all Senior Indebtedness. The Company agrees, and each Holder of Notes by
accepting a Note consents and agrees, to the subordination provided in the
Indenture and authorizes the Trustee to give it effect.
10. Persons Deemed Owners. Prior to due presentment to the Trustee for
registration of the transfer of this Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name this Note is registered as
its absolute owner for the purpose of receiving payment of principal of and
interest on this Note and for all other purposes whatsoever, whether or not this
Note is overdue, and neither the Trustee, any Agent nor the Company shall be
affected by notice to the contrary. The registered Holder of a Note shall be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture, the Notes, the Subsidiary Guarantees and the Escrow Agreement may be
amended or supplemented with the written consent of the Holders of Notes of at
least a majority in principal amount of the then outstanding Notes, and any
existing Default or Event of Default (other than a Default or Event of Default
relating to the payment of principal, premium, if any, interest or Liquidated
Damages, if any, except a payment default resulting from an acceleration that
has been rescinded) or compliance with any provision of the Indenture, the
Notes, the Subsidiary Guarantees or the Escrow Agreement may be waived with the
written consent of the Holders of Notes of at least a majority in principal
amount of the then outstanding Notes. Without the consent of any Holder of
Notes, the Indenture, the Notes or the Escrow Agreement may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of Certificated Notes, to
provide for the assumption of the Company's or a Subsidiary Guarantor's
obligations to Holders of Notes in case of a merger or consolidation, to provide
for additional Subsidiary Guarantors, to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not
materially adversely affect the legal rights of any such Holder under the
Indenture, or to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act or to allow any Restricted Subsidiary to guarantee the Notes.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest on, or Liquidated Damages with respect
to, the Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Company to comply with the provisions of
Sections 3.08, 4.06, 4.07, 4.21, 5.01 or 5.02 of the Indenture; (iv) failure by
the Company for 30 days after written notice from the Trustee or the Holders of
at least 25% in principal amount of the then
A-1-7
<PAGE>
outstanding Notes to comply with any other covenant or agreement (except as
provided in clause (i), (ii) and (iii) above) in the Indenture or herein, (v)
except as permitted by the Indenture, 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; (vi) 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 Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or
is created after the Issue Date, which default (a) is caused by a failure to pay
principal when due at final stated maturity (a "Payment Default") or (b) 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 or the maturity of which has been so accelerated, aggregates
$10,000,000 or more; (vii) failure by the Company or any of its Restricted
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; or (viii) certain events of bankruptcy or insolvency with
respect to the Company or any Restricted Subsidiary. If any Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, with
respect to the Company or any Restricted Subsidiary, all outstanding Notes will
become due and payable without further action or notice. Holders of Notes may
not enforce the Indenture or the Notes except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal, premium, if any, interest or
Liquidated Damages, if any) if it determines that withholding notice is in their
interest. The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
13. Trustee Dealings With the Company. Subject to the provisions of the
Indenture, the Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee.
14. No Recourse Against Others. No director, officer, employee,
incorporator or stockholder of the Company or any Restricted Subsidiary, as
such, shall have any liability for any obligations of the Company or any
Subsidiary Guarantor under the Notes, the Indenture 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
A-1-8
<PAGE>
waiver and release are part of the consideration for the issuance of the Notes
and Subsidiary Guarantees.
15. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transfer Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of the date of the Indenture, between the
Company and the parties named on the signature pages thereof (the "Registration
Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Kevco, Inc.
1300 South University Drive
Suite 200
Fort Worth, Texas 76107
Attention: Ellis L. McKinley, Jr.
Telecopier No.: (817) 332-2765
A-1-9
<PAGE>
[FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEE]
SUBSIDIARY GUARANTEE
The Subsidiary Guarantors listed below (hereinafter referred to as the
"Subsidiary Guarantors," which term includes any successors or assigns under the
hereinafter defined Indenture and any additional Subsidiary Guarantors), jointly
and severally have irrevocably and unconditionally guaranteed to each Holder of
a Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns (i) the due and punctual payment of the principal of,
premium, if any, interest and Liquidated Damages, if any, on the 10 3/8% Senior
Subordinated Notes due December 1, 2007 (the "Notes") of Kevco, Inc., a Texas
corporation (the "Company"), whether at stated maturity, by acceleration, call
for redemption, upon a Change of Control Offer, upon an Asset Sale Offer,
pursuant to the Escrow Agreement or otherwise, the due and punctual payment of
interest on the overdue principal, and premium, if any, and (to the extent
permitted by law) interest on any interest, if any, and Liquidated Damages, if
any, on the Notes, and the due and punctual performance of all other obligations
of the Company to the Holders of Notes or the Trustee under the Notes or the
Indenture, dated as of December 1, 1997, among the Company, the Subsidiary
Guarantors and United States Trust Company of New York, as Trustee (the
"Indenture"), all in accordance with the terms set forth in Article 10 of the
Indenture, (ii) in case of any extension of time of payment or renewal of any
Notes or any such other obligations, that the same will 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 an offer
to purchase or otherwise, and (iii) the payment of any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder of Notes in enforcing any rights under the Notes or the Indenture.
The obligations of the Subsidiary Guarantors to the Holders of Notes
and to the Trustee pursuant to this Subsidiary Guarantee and the Indenture are
expressly set forth in Article 10 of the Indenture and reference is hereby made
to such Indenture for the precise terms of this Subsidiary Guarantee.
No director, officer, employee, incorporator or stockholder of any
Subsidiary Guarantor, as such, shall have any liability for any obligations of
the Company or any Restricted Subsidiary under the Notes, the Indenture or
hereunder 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.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Subsidiary Guarantors and their respective
successors and assigns until full and final payment of all of the Company's
obligations under the Notes and the Indenture and shall inure to the benefit of
the successors and assigns of the Trustee and the Holders of Notes, and, in the
event
A-1-10
<PAGE>
of any transfer or assignment of rights by any Holder of Notes or the Trustee,
the rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the terms
and conditions hereof. This is a Guarantee of payment and not of collectibility.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
The obligations of the Subsidiary Guarantors under their Subsidiary
Guarantees shall be limited to the extent necessary to insure that it does not
constitute a fraudulent conveyance under applicable law.
Each Subsidiary Guarantor covenants (to the extent it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of the Indenture or its Subsidiary
Guarantee; and each Subsidiary Guarantor (to the extent it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
THE TERMS OF ARTICLE 10 OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
Capitalized terms used herein and not otherwise defined herein shall
have the same meanings given them in the Indenture unless otherwise indicated.
SUBSIDIARY GUARANTORS:
SCC ACQUISITION CORP.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
A-1-11
<PAGE>
KEVCO DELAWARE, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
SUNBELT WOOD COMPONENTS, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
CONSOLIDATED FOREST PRODUCTS, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
BOWEN SUPPLY, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
A-1-12
<PAGE>
ENCORE INDUSTRIES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
A-1-13
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _____________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date:_____________ Your Name:___________________________________________________
(Print your name as it appears on the face of this Note)
Your Signature:______________________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee:_________________________________________
A-1-14
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by
the Company pursuant to Section 4.06 or 4.07 of the Indenture, check the box
below:
[_] Section 4.06 [_] Section 4.07
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.06 or 4.07 of the Indenture, state the amount you
elect to have purchased (if all, write "ALL"): $___________
Date:_____________ Your Name:___________________________________________________
(Print your name as it appears on the face of this Note)
Your Signature:______________________________________________
(Sign exactly as your name appears on the face of this Note)
Social Security or Tax Identification No.:___________________
Signature Guarantee:_________________________________________
A-1-15
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN GLOBAL NOTES/3/
The following exchanges of a part of this Global Note for interests in
another Global Note or for Certificated Notes, or exchanges of a part of another
Global Note or Certificated Note for an interest in this Global Note, have been
made:
<TABLE>
<S> <C> <C> <C> <C>
Principal Amount of Signature of
Amount of Decrease Amount of Increase in This Global Note Authorized Officer of
in Principal Amount Principal Amount of Following Such Trustee or Note
Date of Exchange of this Global Note this Global Note Decrease (or Increase) Custodian
</TABLE>
- ----------------------------
/3/ This schedule should be included only if the Note is issued in global form.
A-1-16
<PAGE>
EXHIBIT B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION
OF TRANSFER OF CERTIFICATED NOTES
(Pursuant to Section 2.06(b) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036-1532
Attention: Corporate Trust Division
Re: 10 3/8% Senior Subordinated Notes due 2007 of Kevco, Inc.
Reference is hereby made to the Indenture, dated as of December 1,
1997 (the "Indenture"), among Kevco, Inc., as issuer (the "Company"), the
Subsidiary Guarantors identified therein and United States Trust Company of New
York, as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to $_________ principal amount of Notes which are
evidenced by a Certificated Note (CUSIP No. ___________) registered in the name
of __________________(the "Transferor"). The Transferor has requested a transfer
of such Certificated Note to a Person who will take delivery thereof in the form
of an equal principal amount of Notes evidenced by one or more Certificated
Notes, which Notes, immediately after such transfer, are to be delivered to the
transferor at the address set forth below.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith (the "Surrendered Notes"), the Holder of
such Surrendered Notes hereby certifies that:
[CHECK ONE]
[_] the Surrendered Notes are being surrendered for registration in the
name of the Transferor;
or
[_] the Surrendered Notes are being transferred to the Company or its
Subsidiaries;
or
B-1-1
<PAGE>
[_] the Surrendered Notes are being transferred pursuant to and in
accordance with Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Notes are being transferred to
a Person that the Transferor reasonably believes is purchasing the
Surrendered Notes for its own account, or for one or more accounts
with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in
a transaction meeting the requirements of Rule 144A;
or
[_] the Surrendered Notes are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an exemption
from registration in accordance with Rule 903 or 904 under the
Securities Act, provided that the transferor understands that any
Notes issued pursuant to Regulation S under the Securities Act may
only be transferred in accordance with the provisions of Regulation S;
or
[ ] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A,
Rule 144, Rule 903 or Rule 904, and the Transferor hereby further
certifies that the Notes are being transferred in compliance with the
transfer restrictions applicable to the Surrendered Notes and in
accordance with the requirements of the exemption claimed, which
certification is supported by an Opinion of Counsel, provided by the
transferor or the transferee (a copy of which the Transferor has
attached to this certification) in form reasonably acceptable to the
Company and to the Registrar, to the effect that such transfer is in
compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States. The
Holder of the Surrendered Notes further certifies that it has delivered, or will
cause to be delivered, to each Person to whom the Surrendered
B-1-2
<PAGE>
Notes or an interest therein are transferred, a notice substantially to the
effect of the legend set forth in Section 2.06(g) of the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBank Montgomery Securities, Inc., as the
initial purchasers of such Notes being transferred. Terms used in this
certificate and not otherwise defined in the Indenture have the meanings set
forth in Rule 144A under the Securities Act.
_____________________________________
[Insert Name of Transferor]
By:__________________________________
Name:
Title:
Dated:_______________________________
cc: Kevco, Inc.
B-1-3
<PAGE>
EXHIBIT B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION
OF TRANSFER FROM GLOBAL NOTE TO CERTIFICATED NOTE
(Pursuant to Section 2.06(c) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036-1532
Attention: Corporate Trust Division
Re: 10 3/8% Senior Subordinated Notes due 2007 of Kevco, Inc.
Reference is hereby made to the Indenture, dated as of December 1,
1997 (the "Indenture"), among Kevco, Inc., as issuer (the "Company"), the
Subsidiary Guarantors identified therein and United States Trust Company of New
York, as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to $_______ principal amount of Notes which are
evidenced by a Global Note (CUSIP No. _________) registered in the name of the
nominee of the Depositary for the account, directly or indirectly, of
____________________________ (the "Transferor"). The Transferor has requested a
transfer of such beneficial interest in the Notes to a Person who will take
delivery thereof in the form of an equal principal amount of Notes evidenced by
one or more Certificated Notes, which Notes, immediately after such transfer,
are to be delivered to the transferor at the address set forth below.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith (the "Surrendered Notes"), the Holder of
such Surrendered Notes hereby certifies that:
[CHECK ONE]
[_] the Surrendered Notes are being surrendered for registration in the
name of the beneficial owner of such Notes, without transfer;
or
[_] the Surrendered Notes are being transferred pursuant to and in
accordance with Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Notes are being transferred to
a Person that the Transferor reasonably believes is purchasing the
Surrendered Notes for its own account, or for one or more accounts
with respect to
B-2-1
<PAGE>
which such Person exercises sole investment discretion, and such
Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a transaction meeting
the requirements of Rule 144A;
or
[_] the Surrendered Notes are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an exemption
from registration in accordance with Rule 903 or 904 under the
Securities Act, provided that the transferor understands that any
Notes issued pursuant to Regulation S under the Securities Act may
only be transferred in accordance with the provisions of Regulation S;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A,
Rule 144, Rule 903 or Rule 904, and the Transferor hereby further
certifies that the Notes are being transferred in compliance with the
transfer restrictions applicable to the Surrendered Notes and in
accordance with the requirements of the exemption claimed, which
certification is supported by an Opinion of Counsel, provided by the
transferor or the transferee (a copy of which the Transferor has
attached to this certification) in form reasonably acceptable to the
Company and to the Registrar, to the effect that such transfer is in
compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States. The
Holder of the Surrendered Notes further certifies that it has delivered, or will
cause to be delivered, to each Person to whom the Surrendered Notes or an
interest therein are transferred, a notice substantially to the effect of the
legend set forth in Section 2.06(g) of the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBank
B-2-2
<PAGE>
Montgomery Securities, Inc., the initial purchasers of such Notes being
transferred. Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Rule 144A under the Securities Act.
_____________________________________
[Insert Name of Transferor]
By:__________________________________
Name:
Title:
Dated:_______________________________
_____________________________________
_____________________________________
[Address of Transferor]
cc: Kevco, Inc.
B-2-3
<PAGE>
EXHIBIT B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM CERTIFICATED NOTE TO GLOBAL NOTE
(Pursuant to Section 2.06(e) of the Indenture)
United States Trust Company of New York
114 West 47th Street, 25th Floor
New York, New York 10036-1532
Attention: Corporate Trust Division
Re: 10 3/8% Senior Subordinated Notes due 2007 of Kevco, Inc.
Reference is hereby made to the Indenture, dated as of December 1,
1997 (the "Indenture"), among Kevco, Inc., as issuer (the "Company"), the
Subsidiary Guarantors identified therein and United States Trust Company of New
York, as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
This letter relates to $_________ principal amount of Notes which are
evidenced by a Certificated Note (CUSIP No. ___________) registered in the name
of _____________________ (the "Transferor"). The Transferor has requested a
transfer of such Certificated Note to a Person who will take delivery thereof in
the form of a beneficial interest in a Global Note.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith (the "Surrendered Notes"), the Holder of
such Surrendered Notes hereby certifies that:
[CHECK ONE]
[_] the Surrendered Notes are being transferred for registration in the
name of the nominee of the Depositary for the account, directly or
indirectly, of the Transferor, without transfer;
or
[_] the Surrendered Notes are being transferred pursuant to and in
accordance with Rule 144A under the Securities Act of 1933, as amended
(the "Securities Act"), and, accordingly, the Transferor hereby
further certifies that the Surrendered Notes are being transferred to
a Person that the Transferor reasonably believes is purchasing the
Surrendered Notes for its own account, or for one or more accounts
with respect to which such Person exercises sole investment
discretion, and such Person and each
B-3-1
<PAGE>
such account is a "qualified institutional buyer" within the meaning
of Rule 144A, in each case in a transaction meeting the requirements
of Rule 144A;
or
[_] the Surrendered Notes are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
[_] the Surrendered Notes are being transferred pursuant to an exemption
from registration in accordance with Rule 903 or 904 under the
Securities Act, provided that the transferor understands that any
Notes issued pursuant to Regulation S under the Securities Act may
only be transferred in accordance with the provisions of Regulation S;
or
[_] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A,
Rule 144, Rule 903 or Rule 904, and the Transferor hereby further
certifies that the Notes are being transferred in compliance with the
transfer restrictions applicable to the Surrendered Notes and in
accordance with the requirements of the exemption claimed, which
certification is supported by an Opinion of Counsel, provided by the
transferor or the transferee (a copy of which the Transferor has
attached to this certification) in form reasonably acceptable to the
Company and to the Registrar, to the effect that such transfer is in
compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States. The
Holder of the Surrendered Notes further certifies that it has delivered, or will
cause to be delivered, to each Person to whom the Surrendered Notes or an
interest therein are transferred, a notice substantially to the effect of the
legend set forth in Section 2.06(g) of the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBank Montgomery Securities, Inc., as the
initial purchaser of such Notes being transferred. Terms used
B-3-2
<PAGE>
in this certificate and not otherwise defined in the Indenture have the meanings
set forth in Rule 144A under the Securities Act.
_____________________________________
[Insert Name of Transferor]
By:__________________________________
Name:
Title:
Dated:_______________________________
cc: Kevco, Inc.
B-3-3
<PAGE>
EXHIBIT C
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
____________, ____ between ___________________ (the "New Subsidiary Guarantor"),
a Subsidiary of Kevco, Inc., a Texas corporation (the "Company"), and United
States Trust Company of New York, as trustee under the indenture referred to
below (the "Trustee"). Capitalized terms used herein and not defined herein
shall have the meanings ascribed to them in the Indenture (as defined below).
WITNESSETH:
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an Indenture (the "Indenture"), dated as of December 1, 1997, providing
for the issuance of an aggregate principal amount of $105,000,000 of 10 3/8%
Senior Subordinated Notes due 2007 (the "Notes");
WHEREAS, Section [10.09 OR 10.03] of the Indenture provides that under
certain circumstances the Company may cause certain of its Subsidiaries to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiaries shall unconditionally Guarantee all of the Company's
obligations under the Indenture and the Notes pursuant to a Subsidiary Guarantee
on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Indenture.
2. INDENTURE PROVISION PURSUANT TO WHICH SUBSIDIARY GUARANTEE IS
GIVEN. This Supplemental Indenture is being executed and delivered pursuant to
Section [10.09 OR 10.03] of the Indenture.
3. AGREEMENT TO GUARANTEE. The New Subsidiary Guarantor hereby
agrees, jointly and severally with all other Subsidiary Guarantors, to
irrevocably and unconditionally guarantees that (i) the principal of, premium,
if any, interest and Liquidated Damages, if any, 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 Offer, upon an Asset Sale Offer,
pursuant to the
C-1
<PAGE>
Escrow Agreement or otherwise, and interest on overdue principal, premium, if
any, (to the extent permitted by law) interest on any interest, if any, and
Liquidated Damages, if any, on the Notes and all other obligations of the
Company to Holders of Notes or the Trustee under the Indenture or under the
Notes (including fees, expenses or otherwise) will be promptly paid in full or
performed, all in accordance with the terms 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 Offer,
upon an Asset Sale Offer, pursuant to the Escrow Agreement or otherwise and
(iii) the prompt payment of any and all costs and expenses (including reasonable
attorneys' fees) incurred by the Trustee or any Holder of Notes in enforcing any
rights under the Indenture or under the Notes, on the terms and subject to the
conditions set forth in Article 10 of the Indenture and to be bound by all other
applicable provisions of the Indenture applicable to a Restricted Subsidiary
and/or Subsidiary Guarantor thereunder.
4. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES
(a) To evidence its Subsidiary Guarantee, the New Subsidiary
Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form set forth in Exhibit A to the Indenture shall be
endorsed by an officer of such New Subsidiary Guarantor on each Note
authenticated and delivered by the Trustee after the date hereof.
(b) Notwithstanding the foregoing, the New Subsidiary Guarantor
hereby agrees that its Subsidiary Guarantee shall remain in full force and
effect notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
(c) If an officer whose signature is on this Supplemental Indenture
or on the notation of the Subsidiary Guaranty no longer holds that office at the
time the Trustee authenticates the Note on which a Subsidiary Guarantee is
endorsed, the Subsidiary Guarantee shall be valid nevertheless.
(d) The New Subsidiary Guarantor hereby agrees that its Subsidiary
Guarantee shall be unconditional, regardless of the validity, regularity or
enforceability of the Notes or the Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of Notes with respect to
any provisions hereof or thereof, the recovery of any judgement 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 guarantor.
(e) The New Subsidiary Guarantor covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of the Indenture or its Subsidiary
Guarantee; and the New Subsidiary Guarantor (to the extent that it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not
C-2
<PAGE>
hinder, delay or impede the execution of any power granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
5. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder of any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company or any Subsidiary Guarantor under
the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental
Indenture 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 the Subsidiary Guarantees.
6. NEW YORK LAW TO GOVERN. The internal law of the State of New
York shall govern and be used to construe this Supplemental Indenture.
7. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
8. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not effect the construction hereof.
9. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Subsidiary
Guarantor.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated:____________________ (NAME OF NEW SUBSIDIARY GUARANTOR)
By:_______________________________________________
Name:
Title:
C-3
<PAGE>
Dated:____________________ UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:_______________________________________________
Name:
Title:
C-4
<PAGE>
EXHIBIT 11.1
KEVCO, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PRO FORMA SEPTEMBER 30,
-------------------- --------------------
YEAR ENDED DECEMBER
31,
-------------------- PRO FORMA
1996 1995 1994 1997 1996
------ ------ ------ -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Primary earnings
Net income (1)....................... $8,932 $4,430 $3,396 $ 6,084 $ 6,744
Shares
Average number of common shares
outstanding......................... 5,429 4,395 4,395 6,811 4,395
Conversion of options issued and
outstanding......................... 102 49 49 105 439
Other shares (2)..................... -- 502 502 -- 264
------ ------ ------ -------- --------
Weighted average number of common
shares outstanding as adjusted...... 5,531 4,946 4,946 6,916 5,098
====== ====== ====== ======== ========
Primary earnings per common share...... $ 1.61 $ 0.90 $ 0.69 $ 0.88 $ 1.32
====== ====== ====== ======== ========
</TABLE>
Earnings per share is computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding.
Common share equivalents are computed using the treasury stock method. Under
the treasury stock method, market price is used to determine the number of
common share equivalents.
(1) Net income for the years ended December 31, 1996, 1995 and 1994 and the
nine months ended September 30, 1996 has been adjusted to reflect a
provision for income taxes, which gives effect to the change in the
Company's income tax status to a C corporation concurrently with the
consummation of the Company's initial public offering. (See Note 1 to the
consolidated financial statements of Kevco included in the Prospectus for
which this forms an exhibit.)
(2) Amount reflects the assumed issuance of Common Stock at the initial public
offering price per share, less underwriting discount, to generate
sufficient cash to fund the distribution of undistributed earnings
previously taxed at the stockholder lever. (See Note 1 to the consolidated
financial statements of Kevco included in the Prospectus for which this
forms an exhibit.)
<PAGE>
EXHIBIT 12.1
KEVCO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -----------------
1996 1995 1994 1993 1992 1997 1996
------- ------ ------ ------ ------ -------- --------
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income
taxes................. $14,407 $7,262 $5,567 $2,755 $2,048 $ 10,140 $ 10,877
Fixed charges:
Interest expense and
amortization of debt
discount on all
indebtedness.......... 2,209 1,692 627 425 334 2,530 1,626
Portion of rent under
long-term operating
leases representative
of an interest
factor................ 1,280 880 525 490 439 1,272 1,187
------- ------ ------ ------ ------ -------- --------
Total fixed charges...... 3,489 2,572 1,152 915 773 3,802 2,813
Income before income
taxes and fixed
charges................. 17,896 9,834 6,719 3,670 2,821 13,942 13,690
------- ------ ------ ------ ------ -------- --------
Ratio of earnings to
fixed charges........... 5.1 3.8 5.8 4.0 3.6 3.7 4.9
======= ====== ====== ====== ====== ======== ========
</TABLE>
1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 21, 1997, except for Note 13 as to which the date is
June 30, 1997, on our audits of the consolidated financial statements of
Kevco, Inc. as of December 31, 1996 and 1995 and for each of the two years in
the period ended December 31, 1996. We also consent to the reference to our
firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
December 30, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated March 24, 1995, on our audit of the financial statements of
Kevco, Inc. for the year ended December 31, 1994. We also consent to the
reference to our firm under the caption "Experts."
/s/ Rylander, Clay & Opitz, L.L.P.
Fort Worth, Texas
December 30, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Kevco, Inc. of our report dated February
18, 1997 relating to the consolidated financial statements of Shelter
Components Corporation as of December 31, 1996 and 1995 and for the two years
then ended, which appears in such Prospectus. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Indianapolis, Indiana
December 29, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 7, 1995, on our audit of the consolidated statements
of income, shareholders' equity and cash flows of Shelter Components
Corporation and subsidiaries for the year ended December 31, 1994. We also
consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
South Bend, Indiana
December 30, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 14, 1997, except for Note K which is February 28,
1997, on our audits of the consolidated financial statements of Bowen Supply,
Inc. and Subsidiary as of December 31, 1996 and 1995 and for the years then
ended. We also consent to the reference to our firm under the caption
"Experts."
/s/ Dougherty McKinnon & Luby
Columbus, Georgia
December 30, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated November 8, 1996, except for Note 9 as to which the date is
February 27, 1997, on our audits of the financial statements of Consolidated
Forest Products, L.L.C. as of September 29, 1996 and October 1, 1995 and for
the year ended September 29, 1996 and the period December 2, 1994 to October 1,
1995. We also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Fort Worth, Texas
December 30, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 28, 1995, on our audit of the consolidated financial
statements of Service Supply Systems, Inc. and Subsidiary for the year ended
December 31, 1994. We also consent to the reference to our firm under the
caption "Experts."
/s/ Rumsey & Huckaby, P.C.
Cordele, Georgia
December 30, 1997
