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EXHIBIT 2.1
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of July 14, 1999
(this "Agreement"), is made by and between Wingate Partners II, L.P., a Delaware
limited partnership ("Purchaser"), and Kevco, Inc., a Texas corporation (the
"Company"). Unless otherwise indicated, capitalized terms used herein are used
as defined in Section 1.1.
W I T N E S S E T H
WHEREAS, the Company is engaged in the business of wholesale
distribution and manufacturing of building products to the manufactured housing
and recreational vehicle industries;
WHEREAS, concurrently with the execution of this Agreement,
the Company and its lenders under that certain Second Amended and Restated
Credit Agreement, dated as of December 1, 1997 as heretofore amended (the
"Credit Agreement") have executed an amendment and restatement of the Credit
Agreement revising certain of the covenants and agreements contained therein
(the "Credit Amendment");
WHEREAS, upon the terms and subject to the conditions
hereinafter set forth, the Company desires to issue and sell 2,700,000 shares
(the "Shares") of the Company's voting common stock, par value $0.01 per share
("Stock"), to Purchaser, and Purchaser desires to purchase and acquire from the
Company the Shares;
WHEREAS, upon the terms and subject to the conditions
hereinafter set forth, the Company desires to grant warrants in the forms
attached hereto as Exhibits A-1, A-2, and A-3 (each a "Nonvoting Warrant" and
collectively the "Nonvoting Warrants") to purchase 675,000 shares, 772,727
shares, and 295,455 shares, respectively (collectively, the "Nonvoting Warrant
Shares") of a newly created class of Nonvoting Stock (as defined below) to
Purchaser, and Purchaser desires to purchase and acquire from the Company the
Nonvoting Warrants;
WHEREAS, upon the terms and subject to the conditions
hereinafter set forth, the Company desires to issue and sell a note in the
principal amount of $17 million (the "Tranche A Note") in the form attached
hereto as Exhibit B to Purchaser, and Purchaser desires to purchase and acquire
from the Company the Tranche A Note;
WHEREAS, upon the terms and subject to the conditions
hereinafter set forth, the Company desires to issue and sell a note in the
principal amount of $6.5 million (the "Tranche B Note" and together with the
Tranche A Note, the "Notes") in the form attached hereto as Exhibit C to
Purchaser, and Purchaser desires to purchase and acquire from the Company the
Tranche B Note;
WHEREAS, the Company's Charter provides solely for the
issuance of Stock and does not provide for the issuance of Nonvoting Stock or
Preferred Stock;
WHEREAS, upon the terms and subject to the conditions
hereinafter set forth, the Company will undertake to amend and restate its
Charter as provided for in the TBCA and in Section 6.5 hereof in the form
attached hereto as Exhibit D (the "Amendment") to provide
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for a class of nonvoting common stock, par value $0.01 per share ("Nonvoting
Stock"), a class of blank check preferred stock, par value $0.01 per share
("Preferred Stock"), and two series of preferred stock, one designated "Series A
10 3/8% Convertible Pay-in-Kind Voting Preferred Stock" (the "Series A Preferred
Stock") and one designated "Series B 10 3/8% Convertible Pay-in-Kind Nonvoting
Preferred Stock (the "Series B Preferred Stock" and together with the Series A
Preferred Stock, the "Convertible Preferred Stock") ;
WHEREAS, the closing of the Credit Amendment and this
Agreement are conditioned upon one another and will occur concurrently; and
WHEREAS, prior to the execution of this Agreement, the Company
has received the Nasdaq Confirmation and, pursuant to the requirements of the
Nasdaq Confirmation, is mailing concurrently with the execution of this
Agreement a notice to its shareholders of the Transactions contemplated hereby
pursuant to the Nasdaq Confirmation (the "Nasdaq Notice").
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants, and agreements hereinafter set
forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions.
"Acquisition Proposal" has the meaning provided therefor in
Section 6.3.
"Affiliate" means, as to any Person, any Person which,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For the purposes of this definition, "control" means the
possession of the power to direct or cause the direction of management and
policies of such Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Agreement" has the meaning provided therefor in the preamble
hereof.
"Amendment" has the meaning provided in the recitals hereto.
"Benefit Plans" has the meaning provided therefor in Section
4.7(a).
"Board of Directors" means the board of directors of the
Company.
"Business Combination" means any transaction constituting a
"business combination" for purposes of the TBCA Business Combination Provisions
or Article Nine of the Charter.
"Charter" means the Articles of Incorporation of the Company.
"Closing" has the meaning provided therefor in Section 3.1.
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"Closing Date" has the meaning provided therefor in Section
3.1.
"COBRA" has the meaning provided therefor in Section 4.7(d).
"Code" has the meaning provided therefor in Section 4.7(a).
"Commission" means the U.S. Securities and Exchange
Commission.
"Commission Documents" has the meaning provided therefor in
Section 4.4.
"Commonly Controlled Entity" has the meaning provided therefor
in Section 4.7(b).
"Company" has the meaning provided therefor in the preamble
hereof.
"Company Proxy Statement" has the meaning provided therefor in
Section 6.5.
"Company Stock Options" has the meaning provided therefor in
Section 4.2(a).
"Confidentiality Agreement" has the meaning provided therefor
in Section 7.1.
"Convertible Preferred Stock" has the meaning provided in the
recitals hereto.
"Credit Agreement" has the meaning provided in the recitals
hereto.
"Credit Amendment" has the meaning provided in the recitals
hereto.
"Dain Rauscher" has the meaning provided therefor in Section
4.12.
"Demand Registration" has the meaning provided therefor in
Section 11.1(b).
"Disclosure Schedule" has the meaning provided therefor in
Article IV.
"DLJ" has the meaning provided therefor in Section 4.12.
"Environmental Law" has the meaning provided therefor in
Section 4.11(e).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Governmental Body" means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether federal,
state, or local, or any agency or instrumentality thereof, or any court or
arbitrator (public or private).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
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"Indenture" means that certain Indenture, dated December 1,
1997, by and among the Company and SCC Acquisition Corp., Kevco Delaware, Inc.,
Sunbelt Wood Components, Inc., Bowen Supply, Inc., Encore Industries, Inc., and
United States Trust Company of New York relating to the Company's $105,000,000
10 3/8% Senior Subordinated Notes due December 1, 2007.
"Indemnified Party" has the meaning provided therefor in
Section 10.2.
"Indemnifying Party" has the meaning provided therefor in
Section 10.2.
"Independent Directors" has the meaning provided therefor in
Section 7.5.
"Inspectors" has the meaning provided therefor in Section
11.4(a)(v).
"Law" means any federal, state, or local law (including common
law), statute, code, ordinance, rule, regulation, or other requirement.
"Legal Proceeding" means any judicial, administrative, or
arbitral action, suit, proceeding (public or private), claim, or governmental
proceeding.
"Lien" means any lien, pledge, mortgage, deed of trust,
security interest, claim, lease, charge, option, right of first refusal,
easement, or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
third party right or agreement to vote, encumbrance, or any other restriction or
limitation whatsoever other than restrictions imposed under applicable
securities laws.
"Losses" has the meaning provided therefor in Section 10.1(a).
"Managing Underwriter" has the meaning provided therefor in
Section 11.2(a).
"Material Adverse Effect" means any event, circumstance,
condition, fact, effect, or other matter that has had or could reasonably be
expected to have a material adverse effect on the assets, financial condition,
or operations of the Company and its Subsidiaries taken as a whole.
"Material Contracts" has the meaning provided therefor in
Section 4.13(b).
"NASD" means the National Association of Securities Dealers,
Inc. or, if the context so requires, the Nasdaq Stock Market, Inc.
"Nasdaq Confirmation" means confirmation by the NASD that the
Transactions may be undertaken without prior approval by the Company's
shareholders under NASD rules unless a material controversy involving
shareholders arises with regard to the Transactions contemplated by this
Agreement and the NASD requires the Company to convene a shareholders' meeting
prior to Closing to obtain approval as required by NASD Rule 4460 or otherwise.
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"Nasdaq Denial" means notice by the NASD that the Company is
required by the NASD to convene a shareholders' meeting to obtain approval of
the Transactions and/or to elect directors pursuant to NASD Rule 4460 or
otherwise (other than a post-closing shareholders' meeting as required solely to
adopt the Amendment).
"Nasdaq Notice" has the meaning provided therefor in the
recitals hereto.
"Nonvoting Stock" has the meaning provided therefor in the
recitals hereto.
"Nonvoting Warrants" have the meaning provided therefor in the
recitals hereto.
"Nonvoting Warrant Shares" has the meaning provided therefor
in the recitals hereto.
"Notes" has the meaning provided therefor in the recitals
hereto.
"Notes Purchase Price" has the meaning provided therefor in
Section 2.2.
"Pension Plan" has the meaning provided therefor in Section
4.7(a).
"Permits" has the meaning provided therefor in Section 4.10.
"Person" means any individual, corporation, limited liability
company, partnership, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental Body, or other entity.
"Preferred Stock" has the meaning provided therefor in
recitals hereto.
"Public Equity Offering" means an underwritten public offering
of shares of Stock or Nonvoting Stock pursuant to an effective registration
statement under the Securities Act or comparable Law of any other jurisdiction.
"Purchase Price" has the meaning provided therefor in Section
2.2.
"Purchaser" has the meaning provided therefor in the preamble
hereof.
"Purchaser Documents" has the meaning provided therefor in
Section 5.2(a).
"Records" has the meaning provided therefor in Section
11.4(a)(v).
"Registrable Shares" means shares of Stock or Nonvoting Stock
acquired by Purchaser or its Affiliates pursuant to this Agreement (including by
exercise of the Nonvoting Warrants, exchange or conversion of the Notes or
conversion of the Convertible Preferred Stock) and all other shares of Stock and
Nonvoting Stock acquired from time to time by Purchaser or its Affiliates and
any securities issued or issuable with respect to any such shares of Stock or
Nonvoting Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, share exchange, merger, consolidation,
reorganization, Business Combination, or otherwise. As to any particular
Registrable Shares, such securities
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shall cease to be Registrable Shares when (i) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act (or under the applicable Laws of the relevant jurisdiction) and
such securities shall have been disposed of in accordance with the plan of
distribution set forth in such registration statement, (ii) such securities
shall have been distributed in accordance with Rule 144 of the Securities Act,
or (iii) such securities shall have been otherwise transferred, new certificates
therefor not bearing a legend restricting further transfer shall have been
delivered in exchange therefor by the Company and subsequent disposition of such
shares shall not require registration or qualification under the Securities Act
or any other applicable Law.
"registration statement" has the meaning provided therefor in
the Section 11.1(c).
"Securities" means the Shares, the Notes, and the Nonvoting
Warrants (including any shares issuable upon the exercise of the Nonvoting
Warrants, exchange or conversion of the Notes or conversion of the Convertible
Preferred Stock).
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Seller Documents" has the meaning provided therefor in
Section 4.3.
"Series A Preferred Stock" has the meaning provided in the
recitals hereto.
"Series B Preferred Stock" has the meaning provided in the
recitals hereto.
"Shareholder" means Jerry E. Kimmel.
"Shareholder Designees" means the Shareholder, if he is a
director of the Company, and any other director of the Company elected or
appointed at the designation of the Shareholder.
"Shareholders Meeting" has the meaning provided therefor in
Section 6.5.
"Share Purchase Price" has the meaning provided therefor in
Section 2.2.
"Shares" has the meaning provided therefor in the recitals
hereto.
"Significant Subsidiary" means any subsidiary of the Company
that would constitute a Significant Subsidiary within the meaning of Rule 1-02
of Regulation S-X of the Commission.
"Special Committee" means a committee of the Board of
Directors composed solely of the Independent Directors and the Shareholder
Designees then in office; provided, however, that such committee shall be
constituted such that a majority of its members shall always be Independent
Directors.
"Stock" has the meaning provided therefor in the recitals
hereto.
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"Subsidiary" means any Person of which the Company owns,
directly or indirectly, greater than 50% of the voting securities generally
entitled to vote to elect the board of directors (or any equivalent body).
"Superior Proposal" has the meaning provided therefor in
Section 6.3.
"taxes" has the meaning provided therefor in Section 4.8(c).
"TBCA" means the Texas Business Corporation Act, as the same
may be amended from time to time.
"TBCA Business Combination Provisions" means Part Thirteen,
Articles 13.01 through 13.08, inclusive, of the TBCA.
"Tranche A Note" has the meaning provided in the recitals
hereto.
"Tranche B Note" has the meaning provided in the recitals
hereto.
"Transactions" means the (i) purchase of the Securities
(including the issuance of the Nonvoting Warrant Shares upon the exercise of the
Nonvoting Warrants), (ii) exchange or conversion of each of the Notes (whether
for Convertible Preferred Stock, Stock or Nonvoting Stock) and the Convertible
Preferred Stock in accordance with the terms thereof, (iii) payment of interest
on the Notes (including interest paid through the issuance of shares of Series B
Preferred Stock) and (iv) payment of dividends on the Convertible Preferred
Stock (including by way of an increase in the liquidation preference thereof)
and all the other transactions contemplated hereby, including, without
limitation, approval and filing with appropriate authorities of the Amendment.
"Transaction Proxy Statement" has the meaning provided
therefor in Section 12.1(e).
"Welfare Plan" has the meaning provided therefor in Section
4.7(a).
ARTICLE II
SALE AND PURCHASE OF THE SECURITIES
2.1 Sale and Purchase of the Securities. In reliance upon the
representations, warranties, covenants, and agreements contained herein and upon
the terms and subject to the conditions hereinafter set forth at the Closing,
the Company shall issue and sell to Purchaser, and Purchaser shall purchase and
acquire from the Company, the Securities.
2.2 Amount and Form of Consideration. The consideration to be
paid by Purchaser to the Company in consideration of (i) the Shares and the
Nonvoting Warrant exercisable for 675,000 Nonvoting Warrant Shares shall be an
aggregate amount in cash equal to U.S. $13,500,000 (the "Share Purchase Price")
and (ii) the Notes and the Nonvoting Warrants exercisable for 772,727 Nonvoting
Warrant Shares and 295,455 Nonvoting Warrant Shares, respectively, shall be an
aggregate amount in cash equal to U.S. $23,500,000 (the "Notes Purchase Price"
and, together with the Share Purchase Price, the "Purchase Price").
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ARTICLE III
THE CLOSING
3.1 Closing Date. Except as hereinafter provided, the closing
of the sale of the Securities (the "Closing") shall take place at the offices of
Weil, Gotshal & Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas 75201,
on the first business day following the date on which all of the conditions
contained in Articles VIII and IX have been satisfied or waived, as applicable,
or at such other place and at such other time and date as may be mutually agreed
upon by Purchaser and the Company. The date of the Closing is referred to herein
as the "Closing Date."
3.2 Proceedings at Closing. All proceedings to be taken and
all documents to be executed and delivered by the Company in connection with the
consummation of the transactions contemplated at the Closing shall be reasonably
satisfactory in form and substance to Purchaser and its counsel, and all
proceedings to be taken and all documents to be executed and delivered by
Purchaser in connection with the consummation of the transactions contemplated
at the Closing shall be reasonably satisfactory in form and substance to the
Company and its counsel. All proceedings to be taken and all documents to be
executed and delivered by all parties at the Closing shall be deemed to have
been taken and executed simultaneously, and no proceedings shall be deemed taken
nor any documents executed or delivered until all have been taken, executed, and
delivered.
3.3 Deliveries by the Company to Purchaser. At the Closing,
the Company shall deliver, or shall cause to be delivered, to Purchaser (i)
certificates representing the Shares to be purchased by Purchaser, (ii) the
Notes, and (iii) the Nonvoting Warrants, all duly executed.
3.4 Deliveries by Purchaser to the Company. At the Closing,
Purchaser shall deliver to the Company a confirmation of the wire transfer of
immediately available funds in an amount equal to the Purchase Price to an
account or accounts specified by the Company to Purchaser prior to the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth under the heading "General Matters" in the
Disclosure Schedule, dated the date hereof and delivered concurrently herewith
(the "Disclosure Schedule"), the Company hereby represents and warrants to
Purchaser as of the date hereof as follows:
4.1 Organization, Standing and Corporate Power. Each of the
Company and each Significant Subsidiary is an entity duly organized, validly
existing, and in good standing under the laws of the jurisdiction in which it is
organized and has the requisite power and authority to carry on its business as
now being conducted. Each of the Company and each Significant Subsidiary is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary except as would
not, individually or in the aggregate, have a Material Adverse Effect. In all
material respects, the minute books of the
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Company and each Significant Subsidiary contain accurate records of all meetings
and accurately reflect all other actions taken by the shareholders, partners,
the boards of directors (or other governing bodies), and all committees of the
boards of directors (or other governing bodies) of the Company and such
Significant Subsidiaries. Complete and accurate copies of the minute books,
bylaws, the stock register and the charter and comparable organizational
documents of the Company and each Significant Subsidiary, as amended to the date
hereof, have been made available by the Company to Purchaser.
4.2 Capital Structure.
(a) The authorized capital stock of the Company consists of
100,000,000 shares of Stock. At the close of business on July 14, 1999,
6,856,437 shares of Stock were issued and outstanding, and 371,464 shares of
Stock were reserved for issuance pursuant to outstanding options to purchase
shares of Stock which have been granted to directors, officers, or employees of
the Company or others ("Company Stock Options"). Except as set forth above, at
the close of business on July 14, 1999, no shares of capital stock or other
equity securities of the Company were issued, reserved for issuance, or
outstanding. All outstanding shares of capital stock of the Company are, and all
shares which may be issued pursuant to any outstanding Company Stock Options
will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except as set forth in
Section 4.2 of the Disclosure Schedule, no bonds, debentures, notes, or other
indebtedness of the Company or any Subsidiary having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the shareholders of the Company or any Subsidiary may vote
are issued or outstanding. Except as disclosed in Section 4.2 of the Disclosure
Schedule, all the outstanding shares of capital stock or other ownership
interests of each Subsidiary have been validly issued and are fully paid and
nonassessable and are owned by the Company, by one or more Subsidiaries, or by
the Company and one or more such Subsidiaries, free and clear of all Liens.
Except as set forth above or in Section 4.2 of the Disclosure Schedule, neither
the Company nor any Subsidiary has any outstanding option, warrant,
subscription, or other right, agreement, or commitment which (i) obligates the
Company or any Subsidiary to issue, sell or transfer, repurchase, redeem, or
otherwise acquire or vote any shares of the capital stock of the Company or any
Subsidiary, (ii) restricts the transfer of shares of stock of the Company or any
Subsidiary, or (iii) grants the right to participate in any equity appreciation
of the Company or any Subsidiary.
(b) When issued in accordance with the terms of this
Agreement, and if applicable in accordance with the terms of the Notes, the
Convertible Preferred Stock, and the Nonvoting Warrants, the Shares, the
Convertible Preferred Stock, the Stock, the Nonvoting Stock, and the Nonvoting
Warrant Shares will be duly authorized, validly issued, fully paid, and
non-assessable, will not be issued in violation of any preemptive rights and
will be free and clear of any and all taxes or Liens.
4.3 Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and each other
agreement, document, instrument, or certificate contemplated by this Agreement
to be executed by the Company in connection with the consummation of the
Transactions contemplated hereby and thereby (all such agreements, documents,
instruments, and certificates required to be executed by the Company, including
the Amendment, being hereinafter referred to, collectively, as the
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"Seller Documents") and, subject to the terms and conditions of the Nasdaq
Confirmation and the approval of its shareholders as set forth in Section 6.5
with respect to the Amendment, to consummate the Transactions contemplated by
this Agreement and the Seller Documents. The execution and delivery of this
Agreement and the Seller Documents by the Company and the consummation by the
Company of the Transactions contemplated hereby and thereby have been (or at the
time of execution will be) duly authorized by all necessary corporate action on
the part of the Company, subject, in the case of the Nasdaq Confirmation, to the
terms and conditions thereof and in the case of the Amendment, to the approval
of its shareholders as set forth in Section 6.5. This Agreement has been (and
the Seller Documents will be) duly executed and delivered by the Company and,
assuming this Agreement and the Seller Documents to be executed by the parties
hereto other than the Company, as applicable, constitute the valid and binding
agreements of such other parties, each constitutes the legal, valid, and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium, or similar Laws now or hereafter in
effect relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Except as disclosed in Section 4.3 of the Disclosure
Schedule, the execution and delivery of this Agreement does not (and the Seller
Documents will not), and the consummation of the Transactions contemplated by
this Agreement and the Seller Documents and compliance with the provisions
hereof and thereof will not, (i) conflict with any of the provisions of the
Charter or Bylaws of the Company or the comparable documents of any Subsidiary,
(ii) subject to the governmental filings and other matters referred to in the
following sentence, conflict with, result in a breach of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation, or acceleration of any obligation or loss of a
material benefit under, or require the consent of any Person under, any
indenture or other agreement, permit, concession, franchise, license, or similar
instrument or undertaking to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their assets
is bound or affected except as would not, individually or in the aggregate, have
a Material Adverse Effect, or (iii) subject to the governmental filings and
other matters referred to in the following sentence, contravene any Law of any
state or of the United States or any political subdivision thereof or therein,
or any order, writ, judgment, injunction, decree, determination, or award
currently in effect. Except as disclosed in Section 4.3 of the Disclosure
Schedule, no consent, approval, or authorization of, or declaration or filing
with, or notice to, any Person which has not been received or made is required
by or with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement and the Seller Documents by the
Company or the consummation by the Company of the Transactions contemplated
hereby and thereby, except for (i) the filing of premerger notification and
report forms under the HSR Act, if any, (ii) the filing with the Commission of
(x) the Company Proxy Statement relating to the approval by the shareholders of
the Company of the Amendment and (y) such reports under the Exchange Act as may
be required in connection with this Agreement and the Transactions contemplated
by this Agreement, (iii) the filing of the Amendment with the Texas Secretary of
State and appropriate documents, if any, with the relevant authorities of other
states in which the Company is qualified to do business, (iv) filings that if
not made would not, individually or in the aggregate, have a Material Adverse
Effect or prevent the Transactions contemplated hereby, (v) in case of the
Amendment, approval of the Company's shareholders, and (vi) the mailing of the
Nasdaq Notice.
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4.4 Commission Documents. (a) Except as disclosed in Section
4.4 of the Disclosure Schedule, the Company has filed all required reports,
schedules, forms, statements, and other documents with the Commission since
January 1, 1997 (such reports, schedules, forms, statements, and other documents
are hereinafter referred to as the "Commission Documents"); (b) as of their
respective dates, the Commission Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the Commission promulgated thereunder
applicable to such Commission Documents, and none of the Commission Documents as
of such dates contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and (c) the consolidated financial statements of the
Company included in the Commission Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of
Regulation S-X) and fairly present, in all material respects, the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments).
4.5 Absence of Certain Changes or Events. Except as disclosed
in the Commission Documents filed and publicly available prior to the date of
this Agreement or in Section 4.5 of the Disclosure Schedule and except for the
Transactions contemplated by this Agreement, since the date of the most recent
audited financial statements included in the Commission Documents, the Company
and its Subsidiaries have conducted their business only in the ordinary course,
and there has not been (a) any declaration, setting aside, or payment of any
dividend or other distribution (whether in cash, stock, or property) with
respect to any of the Company's or any Subsidiary's outstanding capital stock or
equity interests, (b) any split, combination, or reclassification of any of the
Company's or any Subsidiary's outstanding capital stock (or equity interests) or
any issuance or the authorization of any issuance of any capital stock or other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock, (c) (x) any granting by the Company or any of its
Subsidiaries to any executive officer or other employee of the Company or any of
its Subsidiaries of any material increase in compensation, except in the
ordinary course of business consistent with prior practice or as was required
under employment agreements in effect as of the date of the most recent audited
financial statements included in the Commission Documents, (y) any granting by
the Company or any of its Subsidiaries to any such executive officer or other
employee of any material increase in severance or termination pay, except in the
ordinary course of business consistent with prior practice or as was required
under any employment, severance, or termination agreements in effect as of the
date of the most recent audited financial statements included in the Commission
Documents or (z) any entry by the Company or any of its Subsidiaries into any
material employment, severance, or termination agreement with any such executive
officer or other employee, or (d) any change in accounting methods, principles
or practices by the Company or any of its Subsidiaries materially affecting its
assets, liabilities, or businesses, except insofar as may have been required by
a change in generally accepted
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accounting principles. The Company has available to it a borrowing capacity of
at least $24.2 million as provided for in Section 4.09(b)(vii) of the Indenture.
4.6 Absence of Changes in Benefit Plans. Except as disclosed
in the Commission Documents or in Section 4.6 of the Disclosure Schedule, since
the date of the most recent audited financial statements included in the
Commission Documents, there has not been any adoption or amendment in any
material respect by the Company or any of its Subsidiaries of any collective
bargaining agreement or any Benefit Plan or waiver of any significant right in
respect thereof. Except as disclosed in the Commission Documents or in Section
4.6 of the Disclosure Schedule, there exist no material employment, consulting,
severance, termination or indemnification agreements, arrangements, or
understandings between the Company or any of its Subsidiaries and any current or
former employee, officer or director of the Company or any of its Subsidiaries.
4.7 Benefit Plans.
(a) Each "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) (hereinafter a "Pension Plan"), "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA) (hereinafter a "Welfare Plan"), and
each other plan, arrangement, or policy (written or oral) relating to stock
options, stock purchases, compensation, deferred compensation, severance, fringe
benefits, or other employee benefits, in each case maintained or contributed to,
or required to be maintained or contributed to, by the Company and its
Subsidiaries for the benefit of any present or former officers, employees,
agents, directors or independent contractors of the Company or any of its
Subsidiaries (all the foregoing being herein called "Benefit Plans") has been
administered in accordance with its terms. The Company, its Subsidiaries and all
the Benefit Plans are in material compliance with the applicable provisions of
ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), all other
applicable Laws and all applicable collective bargaining agreements.
(b) Except as disclosed in Section 4.7(b) of the Disclosure
Schedule, none of the Company or any other Person that together with the Company
is treated as a single employer under Section 414(b), (c), (m), or (o) of the
Code (each a "Commonly Controlled Entity") has incurred any liability to a
Pension Plan covered by Title IV of ERISA (other than for contributions not yet
due) or to the Pension Benefit Guaranty Corporation (other than for the payment
of premiums not yet due) which liability has not been fully paid as of the date
hereof.
(c) Except as disclosed in Section 4.7(c) of the Disclosure
Schedule, no Commonly Controlled Entity is required to contribute to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has
withdrawn from any multiemployer plan where such withdrawal has resulted or
would result in any "withdrawal liability" (within the meaning of Section 4201
of ERISA) that has not been fully paid.
(d) Except as set forth in Section 4.7(d) of the Disclosure
Schedule, none of the Benefit Plans provide for post-employment life or health
insurance, benefits, or coverage for any participant or any beneficiary of a
participant, except as may be required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), and at the expense of the
participant or the participant's beneficiary.
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(e) Except as set forth in Section 4.7(e) of the Disclosure
Schedule, neither the execution and delivery of this Agreement, the Seller
Documents, the Credit Amendment nor the consummation of the transactions
contemplated hereby or thereby will (i) result in any payment becoming due to
any employee (current, former, or retired) of the Company or any Subsidiary,
(ii) increase any benefits otherwise payable under any Benefit Plan or
employment, consulting, severance, or termination agreements, arrangements, or
understandings between the Company or any Subsidiary and any of their current or
former employees, officers, or directors, or (iii) result in the acceleration of
the time of payment or vesting of any such benefits under any such plan,
agreement, arrangement, or understanding.
4.8 Taxes. Except as disclosed in Section 4.8 of the
Disclosure Schedule,
(a) Each of the Company and its Subsidiaries has filed all tax
returns and reports required to be filed by it or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired, except to the extent that such failures to file or to have extensions
granted that remain in effect individually and in the aggregate would not have a
Material Adverse Effect. All tax returns filed by the Company and each of its
Subsidiaries are complete and accurate except to the extent that such failure to
be complete and accurate would not have a Material Adverse Effect. The Company
and each of its Subsidiaries has paid (or the Company has paid on the
Subsidiaries' behalf) all taxes shown as due on such returns, and the most
recent financial statements contained in the Commission Documents reflect an
adequate reserve for all taxes payable by the Company and its Subsidiaries for
all taxable periods and portions thereof accrued through the date of such
financial statements.
(b) No deficiencies for any taxes have been proposed,
asserted, or assessed against the Company or any of its Subsidiaries that are
not adequately reserved for, except for deficiencies that individually or in the
aggregate would not have a Material Adverse Effect, and, except as set forth on
Section 4.8 of the Disclosure Schedule, no requests for waivers of the time to
assess any such taxes have been granted or are pending. The federal income tax
returns of the Company and each of its Subsidiaries consolidated in such returns
have been examined by and settled with the United States Internal Revenue
Service, or the statute of limitations on assessment or collection of any
federal income taxes due from the Company or any of its Subsidiaries has
expired, through such taxable years as are set forth in Section 4.8 of the
Disclosure Schedule.
(c) As used in this Agreement, "taxes" shall include all
federal, state, local and foreign income, property, premium, sales, excise,
employment, payroll, withholding, and other taxes, tariffs, or governmental
charges of any nature whatsoever and any interest, penalties, and additions to
taxes relating thereto.
4.9 No Excess Parachute Payments; Section 162(m) of the Code.
(a) Except as disclosed in Section 4.9 of the Disclosure
Schedule, any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the Transactions contemplated by this
Agreement or the Seller Documents by any employee, officer, or director of the
Company or any of its Affiliates who is a "disqualified individual" (as such
term is defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance, or termination agreement, other compensation arrangement,
or
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Benefit Plan currently in effect would not be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
(b) Except as disclosed in Section 4.9 of the Disclosure
Schedule, the disallowance of a deduction under Section 162(m) of the Code for
employee remuneration will not apply to any amount paid or payable by the
Company or any Subsidiary under any contract, Benefit Plan, program,
arrangement, or understanding currently in effect.
4.10 Compliance with Applicable Laws. Except as disclosed in
Section 4.10 of the Disclosure Schedule, each of the Company and its
Subsidiaries has in effect all federal, state, local, and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses, notices,
permits, and rights ("Permits") necessary for it to own, lease, or operate its
properties and assets and to carry on its business as now conducted except where
the failure would not, individually or in the aggregate, have a Material Adverse
Effect, and there has occurred no material default under any such Permit. Except
as disclosed in the Commission Documents or in Section 4.10 of the Disclosure
Schedule, the Company and its Subsidiaries are in compliance with all applicable
Laws of any Governmental Body applicable to the business except where such
noncompliance would not, individually or in the aggregate, have a Material
Adverse Effect. Except as disclosed in the Commission Documents, as of the date
of this Agreement, to the knowledge of the Company, no investigation by any
Governmental Body with respect to the Company or any of its Subsidiaries is
pending or threatened.
4.11 Environmental Matters.
(a) Except as set forth in the Commission Documents or in
Section 4.11 of the Disclosure Schedule, since January 1, 1997 (i) the Company
has not received any written notice from any Person stating that the Company or
its Subsidiaries may be a potentially responsible party under Environmental Law
with respect to any actual or alleged environmental contamination; (ii) neither
the Company nor its Subsidiaries nor, to the Company's knowledge, any
Governmental Body is conducting or has conducted any environmental remediation
or environmental investigation which could reasonably be expected to result in
liability for the Company or its Subsidiaries under Environmental Law; and (iii)
the Company and its Subsidiaries have not received any request for information
under Environmental Law from any Governmental Body with respect to any actual or
alleged environmental contamination, except, in each case, for notices,
environmental remediation, and investigations and requests for information which
would not, individually or in the aggregate, have a Material Adverse Effect.
(b) Except as set forth in the Commission Documents or in
Section 4.11 of the Disclosure Schedule since January 1, 1998, the Company and
its Subsidiaries have not received any written notice from any Person stating or
alleging that the Company or its Subsidiaries may have violated any
Environmental Law, or that the Company or its Subsidiaries has caused or
contributed to any environmental contamination that is reasonably likely to
require investigation or remediation or that has caused personal injury under
Environmental Law, except, in each case, for statements and allegations of
violations and statements and allegations of responsibility for remediation and
personal injury which would not, individually or in the aggregate, have a
Material Adverse Effect.
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(c) The Company has not knowingly withheld from Purchaser any
material environmental investigation, study, audit, test, review, or other
analysis in the possession of the Company or its Subsidiaries conducted in
relation to the business of the Company or any Subsidiary or any property or
facility now or previously owned, operated, or leased by the Company or any
Subsidiary; and the Company has not knowingly withheld from Purchaser any
consent decree, consent order, or similar document issued by a Governmental Body
pursuant to Environmental Laws, which is in force and to which it is a party
relating to any property currently owned, leased, or operated by the Company or
its Subsidiaries.
(d) The Transactions contemplated by this Agreement do not
trigger any obligation or duty on the part of the Company or any Subsidiary to
file any notice with or obtain any approval from any Governmental Body having
jurisdiction over environmental or health and safety matters.
(e) "Environmental Law" means all applicable Laws, judgments,
decrees, and orders relating to pollution, the preservation of the environment,
and the release of material into the environment.
4.12 Brokers. Except with respect to Donaldson, Lufkin &
Jenrette Securities Corp. ("DLJ") and Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated ("Dain Rauscher"), all negotiations relative to this
Agreement and the Transactions contemplated hereby have been carried out by the
Company directly with Purchaser, without the intervention of any Person on
behalf of the Company in such manner as to give rise to any valid claim by any
Person against Purchaser, the Company or any Subsidiary for a finder's fee,
brokerage commission, or similar payment. The Company has provided Purchaser
with true and complete copies of the agreements between the Company and DLJ, and
the Company has no other agreements or understandings (written or oral) with
respect to such services.
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4.13 Material Contracts.
(a) Except as described in Section 4.13 of the Disclosure
Schedule or in any Commission Document, neither the Company nor any of its
Subsidiaries is a party to any written or oral:
(i) material employment or consulting contract with
an employee or former employee, director, agent, consultant, or similar
representative;
(ii) contract for the future purchase of, or payment
for, supplies or products to be sold to customers, or for the
performance of services by a third person which supplies services to
the Company or any of its Subsidiaries, involving in excess of $200,000
in the aggregate for all transactions under such contract;
(iii) contract to sell or supply products to be sold
to customers or to perform services in excess of $200,000 in the
aggregate for all such transactions under such contract; or
(iv) material contract with any manufacturer's
representative, distributor, or other sales agent.
(b) Each of the agreements, contracts, and other instruments,
documents and undertakings listed or required to be listed in Section 4.13 of
the Disclosure Schedule ("Material Contracts") is valid and enforceable in
accordance with its terms, except to the extent that the invalidity or
enforceability will not have a Material Adverse Effect; the Company and each
Subsidiary is, and to the Company's knowledge all other parties thereto are, in
compliance with the provisions thereof in all material respects; neither the
Company nor any Subsidiary is, and to the Company's knowledge no other party
thereto is, in default in the performance, observance or fulfillment of any
material obligation, covenant, or condition contained therein; and no event has
occurred which with or without the giving of notice or lapse of time, or both,
would constitute a default of a material provision thereunder. Neither the
Company nor any Subsidiary has received any notice that any party to any
Material Contract has terminated or intends to terminate any such contract.
4.14 Voting Requirements. The affirmative vote of a majority
of the outstanding shares of Stock entitled to vote thereon at a shareholders
meeting with respect to the approval of the Amendment is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve the Amendment.
4.15 Disclaimer. Except for the representations and warranties
set forth in this Article IV, the Company makes no other representations or
warranties of any kind or character, expressed, implied, or statutory, in
respect of the Company or any Subsidiary. All such other representations and
warranties are disclaimed.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company as of
the date hereof as follows:
5.1 Organization and Good Standing. Purchaser is a limited
partnership, duly organized, validly existing, and in good standing under the
laws of its state of organization.
5.2 Authorization; Enforceability.
(a) Purchaser has the power to execute and deliver this
Agreement and each other agreement, document, instrument, or certificate
contemplated by this Agreement or to be executed by Purchaser in connection with
the consummation of the transactions contemplated hereby and thereby (all of
such agreements, documents, instruments, and certificates required to be
executed by Purchaser being hereinafter referred to, collectively, as the
"Purchaser Documents"), and to perform fully its obligations hereunder and
thereunder.
(b) The execution, delivery and performance by Purchaser of
this Agreement and each of the Purchaser Documents has been duly authorized by
all necessary partnership or other action on the part of Purchaser.
(c) This Agreement has been, and each of the Purchaser
Documents will be, on or prior to the Closing Date, duly executed and delivered
by Purchaser and (assuming the due authorization, execution, and delivery by the
other parties hereto) this Agreement constitutes, and each of the Purchaser
Documents when so executed and delivered will constitute, the legal, valid, and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, and similar Laws affecting creditors' rights generally
and to general principles of equity (whether considered in a proceeding in
equity or at law).
5.3 Consents of Third Parties. No consent, waiver, approval,
or authorization of, or declaration or filing with, or notification to, any
Person is required on the part of Purchaser in connection with the execution and
delivery of this Agreement or the Purchaser Documents, the consummation by
Purchaser of the Transactions contemplated hereby and thereby, or the compliance
by Purchaser with any of the provisions hereof or thereof, except as may be
required by Purchaser in connection with any confidentiality agreement by which
it is bound and except for compliance with the applicable requirements of the
Exchange Act and the HSR Act, to the extent applicable. The execution and
delivery by Purchaser of this Agreement and Purchaser Documents, the
consummation by Purchaser of the Transactions contemplated hereby and thereby,
and the compliance by Purchaser with any of the provisions hereof or thereof
will not conflict with, or result in the breach of, any provision of the
certificate of limited partnership or limited partnership agreement or other
organizational documents of Purchaser.
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5.4 Litigation. There is no Legal Proceeding pending, or to
the knowledge of Purchaser, threatened against Purchaser that questions the
validity of this Agreement or any action to be taken by Purchaser in connection
with this Agreement.
5.5 Brokers. Except for such Persons who will be paid a
finder's fee, brokerage commission, or similar payment at the Closing, all
negotiations relative to this Agreement and the Transactions contemplated hereby
have been carried out by Purchaser directly with the Company, without the
intervention of any Person on behalf of Purchaser or its Affiliates in such
manner as to give rise to any valid claim by any Person against Purchaser, the
Company, any Subsidiary, the Shareholder, or any of their Affiliates for a
finder's fee, brokerage commission, or similar payment.
5.6 Securities Matters.
(a) Purchaser understands and acknowledges that the Securities
have not been registered under the Securities Act, or the securities laws of any
state or foreign jurisdiction and, unless so registered, may not be offered,
sold, transferred, or otherwise disposed of except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and any applicable securities laws of any state or foreign
jurisdiction.
(b) Purchaser is an "accredited investor" (as defined in Rule
501(a) of Regulation D under the Securities Act).
(c) Purchaser (i) has knowledge and experience in financial
and business matters such that it is capable of evaluating the merits and risks
of purchasing the Securities, and (ii) is able to bear the economic risk of an
investment in the Securities for an indefinite period of time, including the
risk of a complete loss of any such investment.
(d) Purchaser is acquiring the Securities for its own account
for investment purposes and not with a view to, or for offer or sale for the
Company in connection with, the distribution or resale thereof.
(e) Purchaser understands and agrees that the Securities are
being sold in a transaction not involving any public offering within the meaning
of the Securities Act, and that the Securities may not be offered, sold, or
otherwise transferred to, or for the account or benefit of, any Person except as
permitted in the following sentence. Purchaser agrees, on its own behalf and on
behalf of any accounts for which Purchaser is acting, that if Purchaser should
sell or otherwise transfer any Securities, it will do so only (i) pursuant to an
exemption from the registration requirements of the Securities Act (if
available) or if the Securities Act does not apply or (ii) pursuant to an
effective registration statement under the Securities Act, and Purchaser further
agrees to provide to any Person purchasing any of the Securities from it a
notice advising such purchaser that resales of the Securities are restricted as
stated herein.
(f) The Purchaser understands that the Securities purchased
pursuant to this Agreement will be in unregistered form only and that any
certificates delivered to it in respect of the Securities will bear a legend
substantially to the following effect:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
PURCHASED PURSUANT TO A SECURITIES PURCHASE AGREEMENT DATED AS
OF JULY 14, 1999, BETWEEN THE COMPANY AND WINGATE PARTNERS II,
L.P. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED, OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
5.7 Financing. Purchaser has available to it, and on the
Closing Date will have, all funds necessary to consummate the Transactions
contemplated by this Agreement, including, without limitation, the payment of
the Purchase Price to the Company.
5.8 HSR Act. The consummation of the Transactions contemplated
by this Agreement do not require any filings to be made pursuant to the HSR Act.
5.9 Accrued Interest on the Notes. Purchaser has no current
intention to convert any accrued interest or principal on the Notes into
Convertible Preferred Stock. Purchaser will make the determination whether or
not it will convert such accrued interest or principal into Convertible
Preferred Stock at the time such interest is accrued (in the case of interest
(and in accordance with Article VI of the Notes) in the case of principal) based
upon the facts and circumstances at such time, including, without limitation,
the financial condition of the Company.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1 Public Statements. From and after the date hereof and
until the Closing, the Company hereby covenants and agrees that before the
Company shall release any information concerning this Agreement or the
Transactions contemplated hereby and which is intended for or may result in
public dissemination thereof, the Company shall so advise and cooperate with
Purchaser and shall not release such information without Purchaser's consent
(which consent shall not be unreasonably withheld or delayed), unless such
information is otherwise publicly available or the release thereof is required
by Law.
6.2 Consents and Conditions. From and after the date hereof
and until the Closing, the Company hereby covenants and agrees that the Company
will use its best commercially reasonable efforts (a) to obtain any required
governmental consents to the Transactions contemplated hereby required to be so
obtained by it, (b) to cause each of the conditions precedent set forth in
Article VIII or IX to be satisfied, and (c) to comply with the requirements, if
applicable, of Rule 14f-1 under the Exchange Act.
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6.3 No Shop Provision. Except as provided for in this
Agreement from and after the date hereof until the earlier of the Closing Date
or the date on which this Agreement shall have been terminated in accordance
with the provisions of Article XII, neither the Company nor any officer,
director, agent, or representative of the Company will, nor will they authorize
or permit any investment banker, attorney, accountant, consultant, advisor or
other representative retained by any of the foregoing in any manner, directly or
indirectly, to, (a) effect or seek, or offer (including by way of providing
information) or propose (whether publicly or otherwise) to effect, (i) any
issuance or sale of any shares of the Company's capital stock or securities
convertible into or exercisable for capital stock other than issuances pursuant
to the exercise of options outstanding on the date hereof and disclosed in
Section 4.2 of the Disclosure Schedule; (ii) any tender or exchange offer or
merger or other business combination involving the Company or any Subsidiary;
(iii) any recapitalization, restructuring, liquidation, dissolution, or other
extraordinary transaction with respect to the Company or any Subsidiary; or (iv)
any solicitation of proxies (as such terms are used in the proxy rules of the
Commission) or consents to vote any shares of the Company's capital stock
(except as required by Section 6.5 or 12.1(e)) (each, an "Acquisition Proposal")
or (b) enter into any discussions or arrangements with any third party (or
provide any information to any third party) with respect to any Acquisition
Proposal; provided, however, that if the Board of Directors determines in good
faith, after consultation with outside legal counsel to the Company, that the
failure to perform any of the foregoing acts would be inconsistent with the
Board of Directors' fiduciary duties under applicable Law, the Company may in
response to such Acquisition Proposal (which must be a Superior Proposal),
furnish information in respect of the Company and its Subsidiaries pursuant to a
confidentiality agreement and participate in negotiations and enter into
agreements regarding such Acquisition Proposal. The Company will promptly inform
Purchaser as to the fact that information is to be provided and the identity of
the third-party purchaser after receipt of any Acquisition Proposal and will
keep Purchaser informed of the status and details of any such Acquisition
Proposal. The term "Superior Proposal" means any bona fide Acquisition Proposal,
which proposal was not solicited by the Company nor any officer, director,
agent, or representative of the Company or any investment banker, attorney,
accountant, consultant, advisor or other representative retained by any of the
foregoing after the date of this Agreement, made by a third party on terms that
the Board of Directors determines in good faith to be more favorable to the
Company and its shareholders than the Transactions contemplated by this
Agreement (based on advice of the Company's financial advisor that the value of
the consideration provided for in such proposal is superior to the value of the
consideration provided for herein). Furthermore, nothing contained in this
Section 6.3 shall prohibit the Company or its Board of Directors from disclosing
to the Company's shareholders a position in respect of a tender or exchange
offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under
the Exchange Act or from making such disclosure to the Company's shareholders as
may be required by applicable Law.
6.4 Further Actions. From time to time after the Closing Date,
the Company agrees to execute and deliver such documents and instruments and
take such other actions as may reasonably be required to carry out the intent of
this Agreement and to consummate the Transactions contemplated hereby. In the
event that at any time on or after the date hereof the acquisition by Purchaser
or its Affiliates of the Shares, the Notes, the Convertible Preferred Stock, the
Stock issuable upon conversion thereof, the Nonvoting Warrant Shares, or the
right to acquire the Nonvoting Warrant Shares hereunder, would result
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in a Change of Control (as defined in the Indenture), the Company agrees that
without any action by either the Company or Purchaser the number of shares of
Stock owned by Purchaser and its Affiliates shall automatically be reduced by
exchange of such number of shares of Stock for shares of the Company's Nonvoting
Stock or if the Amendment has not been adopted, the right to receive Nonvoting
Stock concurrently with any such Amendment creating such Nonvoting Stock, to the
extent, and only to the extent, necessary to avoid such occurrence.
6.5 Charter Amendment; Reservation of Stock. Within 60 days
after the Closing Date, the Company will file with the Commission a proxy
statement and all other proxy materials (the "Company Proxy Statement") and
commence such other actions necessary in accordance with applicable Law and its
Charter and Bylaws to convene a meeting of its shareholders to consider and vote
upon the approval of the Amendment (the "Shareholders Meeting"). Concurrently
herewith, the Company has, through its Board of Directors, recommended to its
shareholders approval of the Amendment. In connection with the Shareholders
Meeting, the Company (i) will use its commercially reasonable best efforts to
have cleared by the Commission and will thereafter mail to its shareholders as
promptly as practicable the Company Proxy Statement, (ii) will use its
commercially reasonable best efforts to obtain the necessary approvals by its
shareholders of the Amendment, and (iii) will otherwise comply in all material
respects with all legal requirements applicable to such Shareholders Meeting. In
the event that (1) the Company has not filed the Company Proxy Statement with
the Commission within 60 days after the Closing Date or (2) either of the
following conditions have occurred: (A) the Shareholders Meeting shall not have
been held within 120 days after the filing of the Company Proxy Statement with
the Commission or (B) (i) at the Shareholders Meeting all of the shares of Stock
acquired by Purchaser pursuant to this Agreement shall have been voted in favor
of approval of the Amendment, (ii) there shall not have been in effect as of the
date of such meeting any Law or injunction or other order of any Governmental
Body restraining or preventing the Shareholder from voting any shares of Stock
as to which he possessed the power to vote in favor of approval of the
Amendment, and (iii) the Amendment shall not have been approved in accordance
with applicable Law and the Charter and Bylaws of the Company, then the Company
shall pay to Purchaser as liquidated damages for such failure and not as a
penalty an aggregate of $1 million; provided, however, that the Company shall
not be required to pay liquidated damages in an aggregate amount in excess of $1
million pursuant to this Section 6.5 and Section 12.1(e). From and after the
date hereof (or in the case of the Nonvoting Stock and the Convertible Preferred
Stock the date of the Amendment), the Company shall take all necessary action to
at all times have authorized and reserved for issuance the number of shares of
Stock, Nonvoting Stock and Convertible Preferred Stock needed to provide for the
issuance of the Nonvoting Warrant Shares and any Convertible Preferred Stock,
Stock, or Nonvoting Stock issuable upon the exchange or conversion of the Notes
and the Convertible Preferred Stock, as the case may be.
6.6 Conduct of the Company. From the date hereof until the
Closing Date, the Company and its Subsidiaries shall conduct their business in
the ordinary course, consistent with past practices, and shall use their
commercially reasonable efforts to preserve intact their business organizations
and relationships with third parties and to keep available the services of their
present officers, employees, and business associates. Without limiting the
generality of the foregoing, other than in the ordinary course of business,
consistent with past practices, or as set forth on Section 6.6 of the Disclosure
Schedule, as specifically contemplated by this
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Agreement or with the written consent of Purchaser (which such consent shall not
be unreasonably withheld), from the date hereof until the Closing Date, the
Company will not, and will not permit any of its Subsidiaries to:
(a) declare, set aside, or pay any dividend (other than
regular quarterly dividends) or other distribution with respect to any shares of
capital stock of the Company, or enter into any agreement or understanding with
respect to any repurchase, redemption, or other acquisition by the Company or
any Subsidiary of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or any Subsidiary;
(b) amend the charter or Bylaws or other governing documents
or any outstanding security of the Company or any Subsidiary;
(c) incur, assume, or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money;
(d) create or assume by the Company or any Subsidiary any Lien
on any assets other than Liens which, individually or in the aggregate, do not
have and could not reasonably be expected to have a Material Adverse Effect;
(e) make any loan, advance, or capital contribution to or
invest in any Person;
(f) cause or willfully permit any damage, destruction, or
other casualty loss (whether or not covered by insurance) affecting the business
or assets of the Company or any Subsidiary which, individually or in the
aggregate, has had or could reasonably be expected to have a Material Adverse
Effect;
(g) other than in the ordinary course of business consistent
with past practice, enter into any transaction, commitment, contract, or
agreement by the Company or any Subsidiary relating to their assets or
businesses (including the acquisition or disposition of any assets) or
relinquish any contract or other right, in either case, that constitutes or
would constitute a Material Contract or, individually or in the aggregate, have
had or could reasonably be expected to have a Material Adverse Effect;
(h) pay, discharge, or satisfy any material claims,
liabilities, or other obligations (whether absolute, accrued, asserted or
unasserted, contingent, or otherwise) other than the payment, discharge, or
satisfaction in the ordinary course of business, consistent with past practices
of liabilities reflected or reserved against in the consolidated financial
statements of the Company or incurred since the most recent date in the ordinary
course of business, consistent with past practices;
(i) change any method of accounting or accounting practice by
the Company or any Subsidiary, except for any such change required by reason of
a concurrent change in generally accepted accounting principles in the United
States, consistently applied;
(j) (A) grant any severance or termination pay to any
director, officer, or employee of the Company or any Subsidiary, (B) enter into
any employment, deferred
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compensation, or other similar agreement (or any amendment to any such existing
agreement) with any director, officer, or employee of the Company or any
Subsidiary, (C) increase the benefits payable under any existing severance or
termination pay policies or employment agreements or (D) increase the
compensation, bonus, or other benefits payable to any director, officer, or
employee of the Company or any Subsidiary; or
(k) authorize any of, or commit or agree to take any of, the
foregoing actions except as otherwise permitted by this Agreement.
6.7 Shareholder Litigation. From the date hereof and until the
earlier of the Closing or the termination of this Agreement, the Company agrees
that in connection with any litigation which may be brought against the Company
or its directors relating to the Transactions contemplated hereby, the Company
will keep Purchaser, and any counsel which Purchaser may retain, informed of the
course of such litigation, to the extent Purchaser is not otherwise a party
thereto, and the Company agrees that it will consult with Purchaser prior to
entering into any settlement or compromise of any such shareholder litigation.
6.8 Directors.
(a) Subject to Section 6.8(b), the parties hereto intend that
concurrently with the Closing, Purchaser will designate two individuals to serve
on the Board of Directors, and the Shareholder will designate two individuals
who are currently directors of the Company to continue to serve on the Board of
Directors as his designees. The Company shall take all action necessary to cause
(i) the Shareholder's designees to continue to serve their terms on the Board of
Directors, (ii) Purchaser's designees to be elected or appointed to the Board of
Directors, including, without limitation, seeking and accepting resignations of
incumbent directors and (iii) the election of such designees to comply with the
"continuing director" requirements contained in the definition of "Change of
Control" as set forth in Section 1.01 of the Indenture. The Company will use its
commercially reasonable efforts to cause individuals designated by Purchaser to
constitute the same percentage as such individuals represent on the Board of
Directors of each committee of the Board of Directors, each board of directors
of any Subsidiary, and each committee of each such board, except as may be
otherwise required by any applicable Law or the rules of any exchange or
quotation system on which shares of the Company's capital stock are listed or
quoted.
(b) If at the time of the Closing or any time thereafter, an
Independent Director is appointed to the Board of Directors pursuant to the
requirements of Section 7.5, Purchaser shall be entitled to designate one (1)
additional director beyond those provided for in Section 6.8(a), to the Board of
Directors and the Company shall take all actions necessary to cause (i) this
designee to be appointed concurrently with such Independent Director; provided
that the foregoing right shall be exercised by Purchaser on only one (1)
occasion and (ii) the election of such designees to comply with the "continuing
director" requirements contained in the definition of "Change of Control" as set
forth in Section 1.01 of the Indenture.
(c) The Company's obligations to appoint designees to the
Board of Directors shall be subject to Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions
required pursuant to Section 14(f) and Rule 14f-1, if applicable, in order to
fulfill its obligations under this Section 6.8.
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(d) The rights of Purchaser or its Affiliates to appoint
directors under this Section 6.8 shall be in addition to and not reduced by any
directors appointed by the holders of the Notes and/or the Convertible Preferred
Stock in accordance with the terms thereof.
(e) Notwithstanding the provisions of Article 2.34C of the
TBCA, the Company agrees that it will fill directorships available by reason of
an increase in the number of directors only in accordance with and only to the
extent authorized by the requirements of this Agreement.
6.9 NASD Matters. From and after the date hereof the Company
shall use its best commercially reasonable efforts to fulfill the requirements
of the Nasdaq Confirmation and shall not, without the written consent of
Purchaser, withdraw, amend or otherwise revise the Nasdaq Notice unless, upon
the advice of the Company's counsel, required to do so by Law or the rules of
the NASD. The Company shall, promptly after its receipt of a Nasdaq Denial or
any other oral or written communication with the NASD (but in any event within
two business days), deliver to Purchaser a true, correct, and complete copy of
any Nasdaq Denial or any other written communication with the NASD or, if not in
writing, provide Purchaser with written notice of the Nasdaq Denial or oral
communication with the NASD, including a reasonably detailed description of the
material terms thereof.
ARTICLE VII
COVENANTS OF PURCHASER
7.1 Confidentiality. Except as otherwise permitted by the
Board of Directors (or any committee thereof) or as contemplated hereby and
except with respect to information provided by Purchaser to any person assigned
rights under Section 13.8, from and after the date hereof and until the Closing,
Purchaser hereby covenants and agrees that it will treat as confidential, keep
secret, and not use in the course of its business any Evaluation Material (as
defined in the letter agreement dated July 1998 by and between Purchaser and
DLJ, on behalf of the Company (the "Confidentiality Agreement")), and that the
Evaluation Material shall be held in the strictest confidence by Purchaser in
accordance with, and pursuant to, the Confidentiality Agreement and, in the
event that the Transactions contemplated hereby are not consummated, shall be
returned or destroyed in accordance with, and pursuant to, the Confidentiality
Agreement. The Company hereby waives compliance by Purchaser and its Affiliates
with, and releases Purchaser and its Affiliates from, the standstill and other
provisions of the third full paragraph on page 3 of the Confidentiality
Agreement to the extent necessary to permit the consummation of the Transactions
contemplated by this Agreement.
7.2 Public Statements. From and after the date hereof and
until the Closing, Purchaser hereby covenants and agrees that before it shall
release any information concerning this Agreement or the Transactions
contemplated hereby and which is intended for public dissemination thereof,
Purchaser shall so advise and cooperate with the Company and shall not release
such information without the Company's consent (which consent shall not be
unreasonably withheld or delayed), unless such information is otherwise publicly
available or the release thereof is required by Law.
7.3 Consents and Conditions. From and after the date hereof
and until the Closing, Purchaser hereby covenants and agrees that Purchaser will
(a) cooperate in all respects
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with the Company (including, without limitation, by providing all necessary
information concerning Purchaser for disclosure) in connection with any filing
by the Company pursuant to the requirements, if applicable, of Rule 14f-1 under
the Exchange Act and (b) use its commercially reasonable efforts (i) to obtain
any required governmental consents to the Transactions contemplated hereby
required to be obtained by it and (ii) to cause each of the conditions precedent
set forth in Article VIII or IX to be satisfied.
7.4 Further Actions. From time to time after the Closing Date,
Purchaser agrees to execute and deliver such instruments and take such other
actions as may reasonably be required to carry out the intent of this Agreement
and to consummate the Transactions contemplated hereby. In the event that at any
time on or after the date hereof the acquisition by Purchaser or its Affiliates
of the Shares, the Notes, the Convertible Preferred Stock, the Stock issuable
upon conversion thereof, the Nonvoting Warrant Shares, or the right to acquire
the Nonvoting Warrant Shares hereunder, would result in a Change of Control (as
defined in the Indenture), Purchaser agrees that without any action by either
the Company or Purchaser the number of shares of Stock owned by Purchaser and
its Affiliates shall automatically be reduced by exchange of such number of
shares of Stock for Nonvoting Shares or if the Amendment has not been adopted,
the right to receive Nonvoting Shares concurrently with such Amendment to the
extent, and only to the extent, necessary to avoid such occurrence.
7.5 Independent Directors. For a period of five years
following the Closing Date, Purchaser shall, and shall cause its Affiliates to,
use their respective commercially reasonable efforts (including, without
limitation, by nominating and voting all shares of Stock then beneficially owned
by them) to ensure that at least two individuals not affiliated with Purchaser
or its assigns and who do not have any other relationship that would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director (such individuals, the "Independent Directors") are nominated and
elected to the Board of Directors. For avoidance of doubt, no director
designated by Purchaser pursuant to Section 6.8 shall be considered an
Independent Director. In the event of the death, disability, resignation, or
removal of an Independent Director, Purchaser shall, and shall cause its
Affiliates to, use their respective commercially reasonable efforts to cause a
replacement Independent Director to be nominated and elected to the Board of
Directors.
7.6 Matters Requiring Approval of the Special Committee. For a
period of five years following the Closing Date, none of Purchaser or any of its
Affiliates shall cause or, to the extent of its ability to do so, permit the
Company, directly or indirectly, to enter into or engage in (i) a Business
Combination with respect to which Purchaser or any of its Affiliates would have
been considered an "affiliated shareholder" for purposes of Article Nine of the
Charter or the TBCA Business Combination Provisions (without giving effect to
the approval, if any, by the Board of Directors of the purchase by Purchaser or
any of its Affiliates of any shares of Stock for purposes of Article Nine of the
Charter or the TBCA Business Combination Provisions) or (ii) any other
transaction with Purchaser or any of its Affiliates that would result in a
change in the exercise price or number of shares purchasable under the Nonvoting
Warrants, in each case, pursuant to Section 6(c) thereof or the Notes, in each
case, pursuant to Section 6.4(c) thereof or the Convertible Preferred Stock
pursuant to Section (B)(e)(iii)(C) of Article Four of the Amendment, unless (a)
such Business Combination or other transaction shall have been approved, in
addition to any vote required by the Charter or Law, by a Special
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Committee (and such Special Committee shall have been advised if it deems
appropriate by independent counsel and financial advisors) and (b) such Special
Committee shall have received an opinion in writing from a nationally recognized
investment banking firm stating that the transaction is fair, from a financial
perspective, to the shareholders of the Company not affiliated with Purchaser;
provided, however that the foregoing shall not apply to the (i) issuance of the
Nonvoting Warrant Shares upon the exercise of the Nonvoting Warrants, (ii)
exchange or conversion of the Notes (whether for Convertible Preferred Stock,
Stock or Nonvoting Stock) or the Convertible Preferred Stock in accordance with
the terms thereof, (iii) payment of interest on the Notes in accordance with
Section 2.1 of the Notes, or (iv) payment of dividends on the Convertible
Preferred Stock in accordance with Section B(c) of Article Four of the
Amendment.
7.7 Charter Amendment. Purchaser agrees to vote all shares of
Stock acquired by it pursuant to this Agreement then held by it, and shall cause
any assignee of any such shares of Stock to vote any shares of Stock then held
by any such assignee, in favor of the Amendment.
ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
The obligation of Purchaser to consummate the purchase of the
Securities from the Company as contemplated hereby on the Closing Date is
subject to the satisfaction or waiver on each such date by Purchaser of the
following conditions:
8.1 Accuracy of Representations and Warranties. Each of the
representations and warranties of the Company contained herein (other than
Section 4.13) shall be true and correct on and as of the Closing Date with the
same force and effect as though the same had been made on and as of the Closing
Date other than such representations and warranties made as of another date.
8.2 Performance of Covenants. The Company shall have performed
and complied, in all material respects, with the covenants and provisions of
this Agreement required to be performed or complied with by it between the date
hereof and the Closing Date.
8.3 Hart-Scott-Rodino. All applicable waiting periods, if any,
in respect of the Transactions contemplated by this Agreement under the HSR Act
shall have expired or been terminated.
8.4 Litigation; Other Events.
(a) No preliminary or permanent injunction or other order of
any court restraining or prohibiting the consummation of the Transactions
contemplated hereby shall be in effect.
(b) Except with respect to those items listed in Section
8.4(b) of the Disclosure Schedule as the same exist on the date hereof and
without giving effect to adverse developments in such matters between the date
hereof and the Closing Date, there shall not be pending any inquiry by any
Governmental Body or Legal Proceeding which, individually or in
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the aggregate, could reasonably be expected to have a Material Adverse Effect or
to materially adversely effect or delay the Closing.
(c) There shall not be pending any inquiry by any Governmental
Body or Legal Proceeding that seeks, nor any Law that would have the effect, to:
(i) challenge, restrain, prohibit or delay the sale
or purchase of the Securities, the Convertible Preferred Stock, or the
Nonvoting Warrant Shares pursuant to this Agreement or any of the
Transactions contemplated hereby or obtain damages as a result thereof;
(ii) make the sale or purchase of the Securities, the
Convertible Preferred Stock, or the Nonvoting Warrant Shares pursuant
to this Agreement or any of the Transactions contemplated hereby
illegal or in violation of any duty;
(iii) impose or result in material limitations on the
ability of Purchaser or any of its Affiliates to exercise full rights
of ownership of the Securities, the Convertible Preferred Stock, or the
Nonvoting Warrant Shares purchased by it hereunder or any of the
Transactions contemplated hereby, including, without limitation, the
right to vote the Shares purchased by it hereunder (and the Series A
Preferred Stock, or the underlying Stock, issued upon conversion of the
Tranche A Note) on all matters properly presented to the shareholders
of the Company as contemplated by the Amendment; or
(iv) impose upon Purchaser or the Company, directly
or indirectly, the restraints or conditions set forth in the TBCA
Business Combinations Provisions or in Article Nine of the Charter or
similar restraints or conditions.
(d) Neither the Company nor any of its Subsidiaries shall be a
party to any Legal Proceeding against the Company or any of its Subsidiaries
relating to any bankruptcy, insolvency, reorganization, moratorium or similar
law relating to creditors' rights.
8.5 Board Approval. The Transactions shall have been approved
(which approval shall not have been withdrawn or modified) by the Board of
Directors for purposes of Article Nine of the Charter and the TBCA Business
Combination Provisions, and resolutions to such effect certified by an
authorized officer of the Company shall have been delivered to Purchaser.
8.6 Directors. The individuals designated by Purchaser shall
have been duly appointed or nominated and elected to the Board of Directors as
provided for in Section 6.8 and Purchaser shall have received the written
resignation of those directors of the Company designated by Purchaser as
necessary to fulfill the requirements of Section 6.8.
8.7 Senior Debt. The Company and its lenders shall
concurrently close the transactions contemplated by the Credit Amendment.
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8.8 Securities. The Company shall have delivered to Purchaser
certificates representing the Shares, the Nonvoting Warrants, and the Notes in
the forms attached hereto as Exhibits A-1 and A-2, B, and C, each duly executed.
8.9 Monitoring and Oversight Agreement; Financial Advisory
Agreement. The Company and Wingate Management Limited, L.L.C. shall have entered
into the Monitoring and Oversight Agreement and the Financial Advisory
Agreement, in the forms attached hereto as Exhibits E and F, duly executed.
8.10 Shareholder Meeting. The Company shall not have been
required by the NASD to convene a shareholders' meeting to obtain approval of
the Transactions pursuant to NASD Rule 4460 or otherwise, other than a
post-closing shareholders' meeting solely to adopt the Amendment.
8.11 Bylaw Amendment. The Company shall have duly adopted in
accordance with the Company's Charter and the TBCA the amendments to the
Company's Bylaws set forth as Exhibit G hereto.
8.12 Termination of Shareholder Employment Agreement and
Execution of Consulting Agreement. The Employment Agreement dated October 1,
1996, between the Company and the Shareholder shall have been terminated and
cease to have any force or effect and the Company and the Shareholder shall have
entered into a consulting agreement in the form attached as Exhibit H hereto.
ARTICLE IX
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to consummate the issuance and
sale of the Securities to Purchaser contemplated hereby on the Closing Date is
subject to the satisfaction or waiver by the Company of the following
conditions:
9.1 Accuracy of Representations and Warranties. Each of the
representations and warranties of Purchaser contained herein shall be true and
correct as of the Closing Date with the same force and effect as though the same
had been made on and as of the Closing Date.
9.2 Performance of Covenants. Purchaser shall have performed
and complied, in all material respects, with the covenants and provisions in
this Agreement required herein to be performed or complied with by it between
the date hereof and the Closing Date.
9.3 Hart-Scott-Rodino. All applicable waiting periods, if any,
in respect of the Transactions contemplated by this Agreement under the HSR Act
shall have expired or been terminated.
9.4 Litigation; Other Events.
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(a) No preliminary or permanent injunction or other order of
any court restraining or prohibiting the consummation of the Transactions
contemplated hereby shall be in effect.
(b) There shall not be pending any inquiry by any Governmental
Body or Legal Proceeding that seeks, nor any Law that would have the effect, to:
(i) challenge, restrain, prohibit or delay the sale
and purchase of the Securities, the Convertible Preferred Stock, or the
Nonvoting Warrant Shares pursuant to this Agreement or any of the
Transactions contemplated hereby or obtain damages as a result thereof;
(ii) make the sale or purchase of the Securities, the
Convertible Preferred Stock, or the Nonvoting Warrant Shares pursuant
to this Agreement or any of the Transactions contemplated hereby
illegal or in violation of any duty;
(iii) impose or result in material limitations on the
ability of Purchaser or any of its Affiliates to exercise full rights
of ownership of the portion of the Securities, the Convertible
Preferred Stock, or the Nonvoting Warrants purchased by it hereunder,
or any of the Transactions contemplated hereby including, without
limitation, the right to vote the Shares (and the Series A Preferred
Stock, or the underlying Stock, issued upon the conversion of the
Tranche A Note) on all matters properly presented to the shareholders
of the Company as contemplated by the Amendment; or
(iv) impose upon Purchaser or the Company, directly
or indirectly, the restraints or conditions set forth in the TBCA
Business Combinations Provisions or in Article Nine of the Charter or
similar restraints or conditions.
9.5 Purchase Price. Purchaser shall have simultaneously paid,
in accordance with the terms hereof, the Purchase Price.
ARTICLE X
INDEMNIFICATION AND RELATED MATTERS
10.1 Indemnification.
(a) The Company hereby agrees to indemnify and hold Purchaser,
its Affiliates and the officers, directors, employees, partners, and agents
thereof, harmless (on an after-tax basis) from and against any and all claims,
judgments, causes of action, liabilities, obligations, damages, losses,
deficiencies, costs, penalties, interest, and expenses (including, without
limitation, the reasonable fees and expenses of counsel) (collectively,
"Losses") arising out of, based upon, attributable to, or resulting from:
(i) any inaccuracy of any representation, any breach
of warranty or nonfulfillment of any agreement or covenant on the part
of the Company contained in this Agreement or any Seller Document; and
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(ii) all claims, actions, suits, proceedings,
investigations, demands, and assessments incident to any of the
foregoing.
(b) Purchaser hereby agrees to indemnify and hold the Company
harmless (on an after-tax basis) from and against any and all Losses arising out
of, based upon, attributable to, or resulting from:
(i) any inaccuracy of any representation, any breach
of warranty or nonfulfillment of any agreement or covenant on the part
of Purchaser contained in this Agreement or any Purchaser Document; and
(ii) all claims, actions, suits, proceedings,
investigations, demands, and assessments incident to the foregoing.
Notwithstanding the foregoing provisions of Section
10.1(a)(ii), Purchaser shall not be entitled to any claims for fees and expenses
of counsel in respect of any action, suit, or proceeding by Purchaser against
the Company, unless and until such action, suit, or proceeding has been
determined by a final, nonappealable order or judgment of a court of competent
jurisdiction in favor of Purchaser.
Notwithstanding the foregoing provisions of Section
10.1(b)(ii), the Company shall not be entitled to any claims for fees and
expenses of counsel in respect of any action, suit, or proceeding by the Company
against Purchaser, unless and until such action, suit, or proceeding has been
determined by a final, nonappealable order or judgment of a court of competent
jurisdiction in favor of the Company.
10.2 Procedures for Indemnification.
(a) Whenever a claim shall arise for indemnification under
Section 10.1, with the exception of claims for litigation expenses in respect of
litigation as to which a notice of claim, as provided in this Section 10.2, has
previously been given, which expenses shall be funded on an ongoing basis, the
party entitled to indemnification (the "Indemnified Party") shall promptly
notify the party from which indemnification is sought (the "Indemnifying Party")
of such claim and, when known, the facts constituting the basis for such claim;
provided, however, that in the event of any claim for indemnification hereunder
resulting from or in connection with any claim or legal proceeding by a third
party, the Indemnified Party shall give such notice thereof to the Indemnifying
Party not later than ten business days prior to the time any response to the
asserted claim is required, if possible, and in any event within five business
days following receipt of notice thereof. Failure to give timely notice or to
include any specified information in any notice required by this Section 10.2
will not affect the rights or obligations of any party hereunder except and only
to the extent that, as a result of such failure, any party which was entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise damaged as a result of such
failure. In the event of any such claim for indemnification resulting from or in
connection with a claim or legal proceeding by a third party, the Indemnifying
Party may, at its sole cost and expense, assume the defense thereof using
counsel who is reasonably satisfactory to the Indemnified Party; provided,
however, that the Indemnifying Party shall first have agreed in writing that it
does not and will not contest its responsibility for indemnifying the
Indemnified
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Party in respect of Losses attributable to such claim or proceeding; and
provided, however, that if the defendants in any such actions include both the
Indemnified Party and the Indemnifying Party and the Indemnified Party shall
have reasonably concluded that there may be legal defenses or rights available
to it which have not been waived and are in actual or potential conflict with
those available to the Indemnifying Party, the Indemnified Party shall have the
right to select one law firm to act as separate counsel, on behalf of such
Indemnified Party, at the expense of the Indemnifying Party. Subject to the
second proviso of the immediately preceding sentence, if an Indemnifying Party
assumes the defense of any such claim or legal proceeding, the Indemnifying
Party shall be entitled to select counsel and take all steps necessary in the
defense thereof; provided, however, that no settlement shall be made without the
prior written consent of the Indemnified Party, which consent shall not be
unreasonably withheld (and if the Indemnified Party shall withhold its consent
to any monetary settlement proposed by the Indemnifying Party and which the
other party to the action has indicated it is prepared to accept, the
Indemnified Party shall in no event be deemed for purposes of this Agreement to
have suffered Losses in connection with such claim or proceeding in excess of
the proposed amount of such settlement); and provided, further, that subject to
the second proviso of the immediately preceding sentence, the Indemnified Party
may, at its own expense, participate in any such proceeding with the counsel of
its choice without any right of control thereof. So long as the Indemnifying
Party is in good faith defending such claim or proceeding, the Indemnified Party
shall not compromise or settle such claim without the prior written consent of
the Indemnifying Party, which consent shall not be unreasonably withheld. If the
Indemnifying Party does not assume the defense of any such claim or litigation
in accordance with the terms hereof, the Indemnified Party may defend against
such claim or litigation in such manner as it may deem appropriate, including,
without limitation, settling such claim or litigation (after giving prior
written notice of the same to the Indemnifying Party and obtaining the prior
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld) on such terms as the Indemnified Party may deem
appropriate, and the Indemnifying Party will promptly indemnify the Indemnified
Party in accordance with the provisions of this Section 10.2. Notwithstanding
the foregoing, at any time after the Indemnifying Party has failed to discharge
its liability for legal and other expenses pursuant to this Section 10.2, which
failure shall not have been cured, or at any time the Indemnifying Party is
subject to a bankruptcy case pursuant to Chapter 7 or Chapter 11 of the U.S.
Bankruptcy Code, if the Indemnified Party shall propose to settle a claim as to
which it intends to seek indemnity, it shall provide the Indemnifying Party with
21 days' written notice of such proposed settlement, and the Indemnifying Party
shall, within such period either (i) consent to the terms of the proposed
settlement or (ii) provide the Indemnified Party with (A) a written notice of
objection to the proposed settlement, with a statement of reason, (B) reasonable
evidence that the financial condition of the Indemnifying Party is sufficient to
permit it to pay a judgment for the full amount being sought by the third party
claimant (or, at the Indemnified Party's request, a letter of credit in such
amount) and (C) an undertaking to satisfy any such judgment.
(b) Notwithstanding anything to the contrary herein contained,
in the event the Company is an Indemnifying Party, the Company may settle any
third-party claim against an Indemnified Party as long as it obtains an
unconditional release from such third party for the benefit of such Indemnified
Party.
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ARTICLE XI
REGISTRATION AND OTHER SHAREHOLDER RIGHTS
11.1 Demand Registration.
(a) Upon receipt by the Company at any time following the
second anniversary of the Closing Date of a written request from Purchaser for
registration of the resale of any Registrable Shares, the Company shall use
commercially reasonable efforts to cause a registration statement to be filed
under the Securities Act, and any other applicable Laws, within 60 days after
the receipt of such request. The Company shall use commercially reasonable
efforts to cause any such registration statement to become effective and to
maintain the effectiveness of such registration statement until (x) the date all
Registrable Shares have been sold pursuant thereto or (y) 180 days after the
effective date of such registration statement. The term "registration statement"
means a registration statement filed under the Securities Act, or any similar
disclosure document, filing, or listing particulars utilized in connection with
a Public Equity Offering.
(b) Purchaser shall be permitted to make four requests
pursuant to the provisions of Section 11.1(a), provided that no request will be
(i) allowed unless the Company and the security offering shall at that time
satisfy the eligibility requirements for use of Form S-1 or any successor form
and (ii) counted against this limit unless, it has become effective and remained
effective for a period of at least 30 days; provided, however, that if, within
180 days after it has become effective, an offering of Registrable Shares
pursuant to a registration is interfered with by any stop order, injunction, or
other order or requirement of the Commission or other Governmental Body, such
registration will be deemed not to have been effected and will not count as a
Demand Registration. A registration that is undertaken by the Company in
response to a valid request made by Purchaser pursuant to this Section 11.1
shall be referred to herein as a "Demand Registration." Notwithstanding the
foregoing provisions of this Section 11.1(b), the Company shall not be required
to register any Registrable Shares pursuant this Section 11.1(b) at any time (i)
within 120 days of the effective date of any registration statement filed as a
result of the exercise of any demand registration rights by Purchaser or any
other shareholder of the Company, or (ii) in the event that the Company has
registered shares of any class of its capital stock pursuant to any demand
registration rights on more than two occasions in the preceding 12 months.
(c) The Company shall pay all registration expenses incurred
with respect to Section 11.1(a) (other than customary underwriting and broker
commissions), including, without limitation, the reasonable fees and
disbursements of one (but only one) legal firm or counsel to represent Purchaser
in the case of a Demand Registration.
(d) The offering of Registrable Shares pursuant to a Demand
Registration shall be in the form of a "firm commitment" underwritten offering.
The Board of Directors shall select the investment banking firm or firms to
manage the underwritten offering; provided, however, that such selection shall
be subject to the consent of Purchaser, which consent shall not be unreasonably
withheld or delayed.
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11.2 Incidental or "Piggyback" Registration Rights.
(a) If the Company or any holder of shares of Stock or
Nonvoting Stock proposes to sell shares of Stock or Nonvoting Stock in a Public
Equity Offering, the Company shall give written notice, at least 15 days prior
to the filing of a registration statement related to such Public Equity Offering
(other than a registration statement relating solely to employee benefit plans
or to effect any acquisition or combination with another Person), of such
proposed Public Equity Offering to Purchaser which notice shall offer to
Purchaser and its Affiliates the opportunity to include in such Public Equity
Offering such number of Registrable Shares as Purchaser and its Affiliates may
request. Within 20 days after receipt of such notice, Purchaser and its
Affiliates shall, subject to the following sentence, have the right by notifying
the Company in writing to require the Company to include in the registration
statement relating to such Public Equity Offering such number of Registrable
Shares as Purchaser or its Affiliates may request. Notwithstanding the
foregoing, (x) if at any time the managing underwriter or underwriters of such
Public Equity Offering (the "Managing Underwriter") shall advise the Company in
writing that, in its opinion, the total number of shares proposed to be sold in
such Public Equity Offering (including the total number of Registrable Shares
that Purchaser and its Affiliates have requested to be sold in such Public
Equity Offering and the total number of shares of Stock or Nonvoting Stock, as
the case may be, requested to be included by any other selling shareholder
entitled to sell shares in such Public Equity Offering) exceeds the maximum
number of shares which the Managing Underwriter believes may be sold without
materially adversely affecting the price, timing or distribution of the Public
Equity Offering, then the Company will be required to include in such Public
Equity Offering only that number of shares which the Managing Underwriter
believes may be sold without causing such adverse effect in the following order:
(i) all the shares that the Company proposes to sell in such Public Equity
Offering, (ii) all the shares that are proposed to be sold by any shareholder of
the Company who is exercising a demand registration right, if such Public Equity
Offering is being made pursuant to such demand and (iii) shares of Purchaser and
its Affiliates and all other shares that are proposed to be sold by any
shareholder of the Company exercising a so-called "piggyback" registration right
on a pro rata basis in an aggregate number which is equal to the difference
between the maximum number of shares that may be distributed in such Public
Equity Offering as determined by the Managing Underwriter and the number of
shares to be sold in such Public Equity Offering pursuant to clauses (i) and
(ii) above, and (iv) any other shares of Stock or Nonvoting Stock requested to
be included in such Public Equity Offering.
(b) The Company will have the right to postpone or withdraw
any registration statement relating to a Public Equity Offering described under
this Section 11.2 prior to the effective date of such registration statement
without obligation to Purchaser or its Affiliates. The Company shall pay all
registration expenses of Purchaser and its Affiliates (other than customary
underwriting and broker commissions) in the case of any and all registrations
governed by this Section 11.2.
11.3 Suspension. In connection with any proposed registration
of Registrable Shares pursuant to Section 11.1 or 11.2, during any consecutive
365-day period, the Company shall be entitled to postpone the filing of or to
suspend availability of a registration statement for up to two
60-consecutive-day periods if (i) at the time the Company receives a request for
a Demand Registration, the Company or any Subsidiary is engaged in
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confidential negotiations or other confidential business activities, disclosure
of which would be required in such registration statement (but would not be
required if such registration statement were not filed), and the Board of
Directors determines in good faith that such disclosure would be materially
detrimental to the Company and its shareholders or would have a material adverse
effect on any such confidential negotiations or other confidential business
activities, (ii) prior to receiving such request, the Board of Directors were to
have determined to effect a Public Equity Offering for the Company's account and
the Company had taken substantial steps (including, but not limited to,
selecting a managing underwriter for such offering) and is proceeding with
reasonable diligence to effect such offering, or (iii) the Company shall furnish
to Purchaser a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company and its shareholders for such registration to be
pursued at such time; provided, however, that any suspension under clause (iii)
shall not exceed 60 days.
11.4 Preparation and Filing.
(a) Whenever the Company seeks to effect the registration of
any Registrable Shares in accordance with the provisions of Section 11.1 or
11.2, the Company shall:
(i) prepare and file with the Commission or other
applicable Governmental Body a registration statement with respect to
such Registrable Shares and use its commercially reasonable efforts to
cause such registration statement to promptly become and, subject to
Section 11.3, remain effective for the period set forth in subsection
(ii) below and promptly notify Purchaser (x) when such registration
statement becomes effective, (y) when any amendment to such
registration statement becomes effective and (z) of any request by the
Commission or other applicable Governmental Body for any amendment or
supplement to such registration statement or any prospectus relating
thereto or for additional information;
(ii) prepare and file with the Commission or other
applicable Governmental Body such amendments and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act, and any other
applicable Laws, with respect to the sale or other disposition of all
securities covered by such registration statement for a period of not
less than 180 days after the effective date of such registration
statement (or such shorter period to the extent necessary to permit the
completion of the sale or distribution of such securities within such
period);
(iii) furnish to Purchaser, prior to filing a
registration statement, copies of such registration statement as
proposed to be filed and thereafter, such number of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and financial statements, reports, and proxy
statements mailed to shareholders of the Company as Purchaser may
reasonably request in order to facilitate the disposition of the
Registrable Shares being sold;
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(iv) use its commercially reasonable efforts to
register or qualify, not later than the effective date of any filed
registration statement, the Registrable Shares covered by such
registration statement under the securities or "blue sky" laws of such
jurisdictions as Purchaser reasonably requests; provided, however, that
the Company will not be required to (A) qualify to do business as a
foreign corporation or as a dealer in any jurisdiction where it is not
so qualified, (B) subject itself to taxation in any jurisdiction where
it is not subject to taxation, (C) consent to general service of
process in any jurisdiction where it is not subject to general service
of process or (D) take any action that would subject it to service of
process in suits other than those arising out of the offer or sale of
the Registrable Shares covered by the registration statement;
(v) make available, upon reasonable notice and during
business hours, for inspection by the managing underwriter(s) for the
Registrable Shares (and one counsel representing such managing
underwriter(s)) (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents, agreements and properties
of the Company and its Subsidiaries and Affiliates as shall be
reasonably necessary to enable them to exercise their due diligence
responsibilities ("Records") and cause the Company's officers,
directors, and employees to supply all information reasonably requested
by any such Inspectors in connection with the registration statement;
provided, however, that, unless the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in the
registration statement or the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, the Company shall not be required to provide any
information under this subparagraph (v) if (A) the Company believes,
after consultation with counsel for the Company, that to do so would
cause the Company to forfeit an attorney-client privilege that was
applicable to such information or (B) if either (1) the Company has
requested and been granted from the Commission confidential treatment
of such information contained in any filing with the Commission or
documents provided supplementally or otherwise or (2) the Company
reasonably determines in good faith that such Records are confidential
and so notifies the Inspectors in writing unless prior to furnishing
any such information with respect to (A) or (B) such holder of
Registrable Shares requesting such information agrees to enter into a
confidentiality agreement in a form reasonably acceptable to the
Company; and, provided, further, that each holder of Registrable Shares
agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate
action and to prevent disclosure of the Records deemed confidential;
(vi) obtain a comfort letter from the Company's
independent public accountants dated within five business days prior to
the effective date of the registration statement (and as of such other
dates as the managing underwriter(s) for the Registrable Shares may
reasonably request) in customary form and covering such matters of the
type customarily covered by such comfort letters as such managing
underwriter(s) reasonably request;
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(vii) obtain an opinion of counsel dated the
effective date of the registration statement (and as of such other
dates as the managing underwriter(s) for the Registrable Shares may
reasonably request) in customary form and covering such matters of the
type customarily covered by such opinions as counsel designated by such
managing underwriter(s) reasonably request;
(viii) during the period when the registration
statement is required to be effective, notify Purchaser of the
happening of any event as a result of which the prospectus included in
the registration statement contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and the
Company will forthwith prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to Purchaser of such
Registrable Shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(ix) in the case of an underwritten offering, enter
into an underwriting agreement containing customary terms, including
such indemnity and contribution provisions as the managing
underwriter(s) customarily require or may reasonably require;
(x) cause such Registrable Shares to be listed for
trading on the primary securities exchange or quotation system upon
which the Stock is then listed or traded; and
(xi) otherwise use its commercially reasonable
efforts to comply with all applicable rules and regulations of the
Commission, and other applicable Governmental Bodies, and make
available to its security holders, as soon as reasonably practicable,
an earnings statement covering a period of 12 months, beginning within
three months after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act.
(b) Purchaser shall timely furnish to the Company such
information (including affidavits) regarding the distribution of such
Registrable Shares as the Company may from time to time reasonably request. The
Company may exclude from such registration the securities of Purchaser or its
Affiliates if it or they fail to furnish such information within 10 days after
such request; provided, however, that the Company's registration statement
relating to such offering is effective within 60 days after the expiration of
such 10-day period.
(c) Purchaser agrees that upon the receipt of any notice from
the Company of the happening of any event of the kind described in paragraph
(a)(viii) above, it will forthwith discontinue disposition of Registrable Shares
pursuant to the registration statement covering such Registrable Shares until
Purchaser's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (a)(viii) above. If the Company gives any such notice,
the Company shall use commercially reasonable efforts to keep any such
registration statement pursuant to a Demand Registration effective for that
number of additional days equal to the number of days during the period from and
including the date of the giving of such notice
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pursuant to paragraph (a)(viii) above to and including the date on which copies
of such supplemented or amended prospectus are made available to Purchaser.
11.5 Indemnification. In connection with the filing of a
registration statement providing for the registration of any Registrable Shares
pursuant to Section 11.1 or 11.2, the Company shall indemnify and hold harmless
Purchaser and its Affiliates, to the extent customary and reasonable, pursuant
to indemnification and contribution provisions to be entered into by the Company
at the time of filing of such registration statement. Purchaser and its
Affiliates shall indemnify the Company and its directors and officers and each
Person who controls the Company (within the meaning of the Securities Act or the
Exchange Act) against any and all Losses resulting from any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, prospectus, or any preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission is made in reliance upon and in strict
conformity with information furnished in writing to the Company by Purchaser for
use in such registration statement; provided, however, that the obligation to
indemnify will be several and not joint and several, among such sellers of
Registrable Shares, and the liability of each such seller of Registrable Shares
will be in proportion to, and provided further that such liability will be
limited to, the net amount received by such seller from the sale of Registrable
Shares pursuant to such registration statement; further provided, that such
seller of Registrable Shares shall not be liable in any such case to the extent
that prior to the filing of any such registration statement or prospectus or
amendment thereof or supplement thereto, such seller has furnished in writing to
the Company information expressly for use in such registration statement or
prospectus or amendment thereof or supplement thereto which corrected or made
not misleading information previously furnished to the Company.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated by:
(a) the written agreement of Purchaser and the Company;
(b) Purchaser or the Company on or after August 15, 1999,
unless the Company receives a written notice from Purchaser of its election not
to terminate this Agreement pursuant to Section 12.1(e), in which case on or
after November 15, 1999, if the Closing has not occurred prior to such date;
(c) Purchaser or the Company in the event of a material breach
by the other party of this Agreement, which breach is not cured within five days
after receipt of written notice thereof by the breaching party from the
non-breaching party;
(d) Purchaser or the Company if there shall have been entered
a final, non-appealable order or injunction by any Governmental Body against
either party hereto that prohibits the consummation of the Transactions
contemplated hereby or any material part hereof;
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(e) Purchaser within ten business days after its receipt from
the Company of any Nasdaq Denial or written notice thereof; provided, however,
that if Purchaser does not elect to terminate this Agreement by delivering a
written notice of such election to the Company pursuant to this Section 12.1(e),
then the Company shall, within 60 days after receipt of notice from Purchaser
that it does not elect to so terminate this Agreement, file with the Commission
a proxy statement and all other proxy materials (the "Transaction Proxy
Statement") and commence such other actions as are necessary in accordance with
applicable Law and its Charter and Bylaws to convene a meeting of its
shareholders to consider and vote upon the approval of the Transactions and in
connection with such shareholders meeting the Company (i) will use its
commercially reasonable best efforts to have cleared by the Commission and will
thereafter mail to its shareholders as promptly as practicable the Transaction
Proxy Statement, (ii) will use its commercially reasonable best efforts to
obtain the necessary approvals by its shareholders of the Transactions, and
(iii) will otherwise comply in all material respects with all legal requirements
applicable to such shareholders meeting; provided, further, that in the event
that either (1) the Company has not filed the Transaction Proxy Statement within
60 days after notice of non-termination from Purchaser or (2) either of the
following conditions have occurred: (A) such shareholders meeting shall not have
been held within 120 days after the filing of the Transaction Proxy Statement or
(B) (i) there shall not have been in effect as of the date of such meeting any
Law or injunction or other order of any Governmental Body restraining or
preventing the Shareholder from voting any shares of Stock, as to which he
possesses the power to vote, in favor of approval of the Transactions, and (ii)
the Transactions shall not have been approved in accordance with applicable Law
and the Charter and Bylaws of the Company, then the Company shall pay to
Purchaser as liquidated damages for such failure and not as a penalty an
aggregate of $1 million (it being understood that the Company shall not be
required to pay liquidated damages in an aggregate amount in excess of $1
million pursuant to this Section 12.1(e) and Section 6.5); or
(f) Purchaser or the Company, upon the Company entering into a
definitive agreement in connection with an Acquisition Proposal pursuant to
Section 6.3.
12.2 Liabilities After Termination. Upon any termination of
this Agreement pursuant to Section 12.1, except as provided in Section 13.4(b),
no party hereto shall thereafter have any further liability or obligation
hereunder; provided, however, that no such termination shall relieve any party
hereto of any liability for any intentional breach of this Agreement prior to
the date of such termination.
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ARTICLE XIII
MISCELLANEOUS
13.1 Survival of Representations and Warranties. The parties
hereto hereby agree that the representations and warranties contained in this
Agreement (other than those contained in Section 4.13 which shall not survive
the execution and delivery of this Agreement) shall survive the execution and
delivery of this Agreement and the Closing until 18 months from the Closing
Date. For the avoidance of doubt, the parties hereto agree that no inaccuracy of
any representation, no breach of warranty or non-fulfillment of any agreement or
covenant contained in Section 4.13 shall give either of the parties hereto any
right, claim, demand, or cause of action in respect thereof.
13.2 Entire Agreement. This Agreement (together with the
Exhibits attached hereto and the Confidentiality Agreement) contains, and is
intended as, a complete statement of all of the terms and the arrangements
between the parties hereto with respect to the matters provided for herein, and
supersedes any previous agreements and understandings between the parties hereto
with respect to those matters.
13.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
agreements made in and to be wholly performed in such state.
13.4 Expenses; Fees.
(a) The Company shall, concurrently with the Closing, (i)
reimburse Purchaser for all reasonable out-of-pocket expenses (including,
without limitation, fees and disbursements of its financial advisor, counsel,
accountants, and other experts) incurred by or on behalf of Purchaser in
connection with the Transactions contemplated by this Agreement, and the Credit
Amendment and each of the other documents and instruments contemplated by this
Agreement and such other agreements and (ii) pay Purchaser or an Affiliate of
Purchaser designated by Purchaser a cash fee in the amount of $1,000,000 for
financial advisory and other similar services rendered in connection with this
Agreement and the Credit Amendment. Purchaser estimates that its total expenses
under (i) above will not exceed $1,250,000 and that in the event its expenses
are contemplated to be in excess thereof, Purchaser shall notify the Company in
writing.
(b) If the Company or Purchaser terminates this Agreement
pursuant to Section 12.1(f), the Company shall promptly, upon demand therefor,
reimburse Purchaser for all out-of-pocket expenses (including, without
limitation, fees and disbursements of its financial advisor, counsel,
accountants, and other experts) incurred by or on behalf of Purchaser in
connection with the transactions contemplated by this Agreement, the Credit
Amendment and each of the other documents and instruments contemplated by this
Agreement and such other agreements; provided, however, that without the consent
of the Company (which consent shall not be unreasonably withheld) Purchaser
shall not be entitled to reimbursement for any such out-of-pocket expenses in
excess of $1,250,000 pursuant to this Section 13.4(b).
(c) Except as otherwise provided, the Company shall bear all
of the expenses (including, without limitation, fees and disbursements of its
financial advisor, counsel,
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accountants, and other experts) incurred by or on behalf of the Company in
connection with the preparation, negotiation, execution, delivery, and
performance of this Agreement and the Credit Amendment, each of the other
documents and instruments executed in connection with or contemplated by this
Agreement and the Credit Amendment, and the consummation of the transactions
contemplated hereby and thereby. The Company has estimated that its total
expenses until the Closing, provided that the Company has not received the
Nasdaq Denial, will not exceed $4,810,000 and that in the event its expenses are
contemplated to be in excess thereof the Company shall notify Purchaser in
writing. The Company agrees that in no event shall the Company pay any costs or
any expenses of Richard Nevins (other than costs or expenses incurred in his
capacity as a member of the Board of Directors under the Company's normal
reimbursement policy for directors).
13.5 Headings. The article and section headings of this
Agreement are for reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement. Unless the context otherwise
requires, all references to Articles and Sections are to Articles and Sections
of this Agreement.
13.6 Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or by overnight mail, or four days after being mailed by registered
mail, return receipt requested, to a party at the following address:
If to the Company, to:
Kevco, Inc.
1300 South University, Suite 200
Fort Worth, Texas 76107
Attention: Jerry E. Kimmel
Facsimile: (817) 332-2765
with a copy to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Byron F. Egan
Facsimile: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Facsimile: (212) 225-3999
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If to Purchaser, to:
Wingate Partners II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
Attention: Mr. Frederick B. Hegi, Jr.
Mr. James A. Johnson
Facsimile: (214) 871-8799
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: Mary R. Korby
Facsimile: (214) 746-7777
13.7 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
13.8 Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns. Except as expressly otherwise provided in Article X and
except with respect to the rights of the Shareholder granted under Section 6.8,
nothing in this Agreement shall create or be deemed to create any third party
beneficiary rights in any Person not party to this Agreement. No assignment of
this Agreement or of any rights or obligations hereunder may be made by any
party (by operation of law or otherwise) without the prior written consent of
each of the other parties hereto and any attempted assignment without such
required consents shall be void; provided, however, that Purchaser may assign
its right hereunder to purchase all or any portion of any of the Securities
and/or the right to receive the Nonvoting Warrant Shares, the Convertible
Preferred Stock, the Stock, or any portion of the Nonvoting Warrant Shares to
such Persons as previously disclosed in writing to and approved by the Company
prior to the date hereof; further provided, that (i) no such assignment shall
relieve Purchaser of its obligations hereunder, (ii) any such assignee shall
have executed and delivered to the Company an agreement satisfactory to the
Company which shall provide that such assignee will become a party to this
Agreement and be bound by all of the obligations of Purchaser hereunder as if
such assignee were "Purchaser" hereunder, and (iii) any such assignee shall have
delivered to the Company on or before the Closing Date the representations and
warranties set forth in Section 5.6.
13.9 Amendments. This Agreement may be amended, supplemented
or modified, and any provision hereof may be waived, only pursuant to a written
instrument making specific reference to this Agreement signed by each of the
parties hereto.
13.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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13.11 Company Disclosure Schedule. Any disclosure under one
section of the Disclosure Schedule shall be deemed disclosure under all sections
of the Disclosure Schedule. Disclosure of any matter in the Disclosure Schedule
shall not constitute an expression of a view that such matter is material or is
required to be disclosed pursuant to this Agreement.
13.12 Time. The parties hereto agree that time is of the
essence in the performance of this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WINGATE PARTNERS II, L.P.
By: Wingate Management Company II, L.P.,
its general partner
By: Wingate Management Limited, L.L.C.,
its general partner
By: /s/ FREDERICK B. HEGI, JR.
----------------------------------------
Frederick B. Hegi, Jr.
Principal
KEVCO, INC.
By: /s/ JERRY E. KIMMEL
----------------------------------------
Name: JERRY E. KIMMEL
--------------------------------------
Title: Chairman, President & CEO
-------------------------------------
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EXHIBIT A-1
NONVOTING WARRANT
FOR 675,000 NONVOTING WARRANT SHARES
45
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
WERE PURCHASED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT DATED AS
OF JULY 14, 1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P.
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND SECTION 3 OF
THIS WARRANT.
No. of Nonvoting Shares: 675,000 Shares Warrant No. ____
WARRANT
To purchase Nonvoting Common Stock of
KEVCO, INC.
July ___, 1999
THIS WARRANT CERTIFIES THAT, for value received, the
registered holder hereof, Wingate Partners II, L.P., a Delaware limited
partnership ("Wingate"), or its registered assigns, is entitled to purchase
from Kevco, Inc., a Texas corporation (the "Company"), at any time and from
time to time after the date hereof (the "Initial Issue Date") and on or before
5:00 p.m. Central Time, on the Expiration Date (as hereinafter defined) 675,000
shares of the Nonvoting Common Stock (as hereinafter defined) at the Basic
Purchase Price (as hereinafter defined), subject to the terms, conditions, and
adjustments as hereinafter provided in Section 6.
Section 1. Definitions and References. Unless otherwise specified,
references herein to sections, subsections, and similar subdivisions refer to
the sections, subsections, and subdivisions of this Warrant. For all purposes
of this Warrant, the following terms shall have the meanings hereinafter
indicated:
"Affiliate" with respect to a party to this Agreement shall
mean any Person that directly or indirectly (through one or more intermediaries
or otherwise) controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used in respect of any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement, or otherwise.
"Amendment" shall mean the Amendment to the Company's
Articles of Incorporation required by the Purchase Agreement to create the
Nonvoting Common Stock, a
46
class of preferred stock designated "Series A 103/8% Convertible Pay-in-Kind
Voting Preferred Stock" and a class of preferred stock designated "Series B
103/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" (collectively, the
"Convertible Preferred Stock").
"Basic Purchase Price" shall mean the price of $5.50 per
share of the Nonvoting Common Stock.
"Board of Directors" shall mean the board of directors of the
Company.
"Business Day" shall mean a day on which commercial banks are
open for business with the public in New York, New York.
"Commission" shall mean the Securities and Exchange
Commission and any other similar or successor agency of the federal government
then administering the Securities Act or the Exchange Act.
"Common Stock" shall mean the voting common stock, par value
$.01 per share, of the Company ("Voting Common Stock"), and, after the adoption
of the Amendment the nonvoting common stock, par value $.01 per share, of the
Company ("Nonvoting Common Stock") and any capital stock into which such Common
Stock thereafter may be changed or converted.
"Common Stock Equivalents" shall mean (without duplication
with any other Common Stock or Common Stock Equivalents) rights, warrants,
options, convertible securities or convertible indebtedness, exchangeable
securities or exchangeable indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock, and any
stock appreciation rights or similar rights to payment based upon the value of
the Company's common equity, whether at the time or upon the occurrence of some
future event including all shares of Common Stock issuable in respect of this
Warrant and in respect of the Purchase Agreement and the documents and
instruments executed in connection with the Purchase Agreement and the
transactions contemplated thereby to the extent not issued and outstanding.
"Composite Tape" shall mean, with respect to any security,
the reporting by the National Association of Securities Dealers (or any
successor reporting mechanism) of all trades of such security occurring on all
exchanges on which such security is traded.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any similar or successor federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in
effect at the time in question.
"Expiration Date" shall mean the fifth anniversary of the
Initial Issue Date.
"Fully-Diluted Common Stock" shall mean, at any time, the
then outstanding shares of Common Stock of the Company plus (without
duplication) all shares of Common Stock issuable, whether at such time or upon
passage of time or the occurrence of future events, upon the exercise,
conversion, or exchange of all then-outstanding Common Stock Equivalents
(including, for purposes of such calculation, "phantom" shares of equivalent
value to any stock appreciation or equivalent equity-based payment right).
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"Holder" shall mean the initial holder of this Warrant, and
any Person to whom this Warrant, or any portion thereof, is subsequently
transferred of record, together with the registered holder(s) of any Warrant
Shares into which this Warrant (or any subsequent Warrant) is subsequently
converted.
"Independent Directors" shall mean any director of the
Company not affiliated with Wingate or its assigns or Jerry E. Kimmel and who
does not have any other relationship (including any relationship, contractual
or otherwise, with Wingate, its assigns or Jerry E. Kimmel) that would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
"Kimmel Designees" shall mean Jerry E. Kimmel, if he is a
director of the Company, and any other director of the Company elected or
appointed at the designation of Jerry E. Kimmel.
"Market Price" shall mean, with respect to any Common Stock,
on a per share basis and as of any date, an amount equal to the average, for
each of the ten (10) consecutive Trading Days immediately prior to such date,
of the closing prices for a share of Voting Common Stock on such Trading Day as
reported on the Composite Tape (as reported in The Wall Street Journal or, if
not reported thereby, any other authoritative source). If no price can be
determined under the foregoing, then the "Market Price" shall be deemed to be
the fair market value thereof, as determined by the Special Committee in good
faith as of a date which is within fifteen (15) days preceding the date as of
which the determination is to be made.
"NASDAQ" shall mean the NASDAQ Stock Market.
"Notes" shall mean collectively the $17.0 million and $6.5
million principal amount Series A and Series B Senior Subordinated Convertible
Exchangeable Notes issued by the Company pursuant to the Purchase Agreement.
"Other Warrants" shall mean collectively the warrant to
acquire 772,727 shares of Nonvoting Common Stock and the warrant to acquire
295,455 shares of Nonvoting Common Stock.
"Person" shall mean any individual, partnership, limited
liability company, joint venture, corporation, trust, unincorporated
organization, or other entity.
"Plans" shall mean any plan existing on the date hereof or
adopted by the Company after the date hereof providing for the issuance of
Common Stock or other options or rights to purchase stock, warrants or other
securities.
"Preferred Stock" shall mean collectively the Company's (i)
Series A 10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par value
$0.01 per share, and (ii) Series B 10 3/8% Convertible Pay-in-Kind Nonvoting
Preferred Stock, par value $0.01 per share.
"Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of July 14, 1999, by and between the Company and
Wingate.
"Purchase Price" shall mean, as of any date, the Basic
Purchase Price as adjusted pursuant to Section 6.
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"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time in question.
"Special Committee" shall mean a committee of the Board of
Directors composed solely of the Independent Directors and the Kimmel Designees
then in office; provided, however, that such committee shall be constituted
such that a majority of its members shall always be Independent Directors.
"Subsidiary" shall mean, with respect to any Person, any
other Person at least a majority of whose outstanding shares of capital stock
or other equity interests (having ordinary voting power for the election of
directors or comparable managers of such other Person) are owned, directly or
indirectly, by that Person.
"Trading Day" shall mean any day on which NADSAQ is open for
trading, or if the shares of Voting Common Stock are not quoted on NASDAQ, any
day on which the principal national securities exchange or national quotation
system on which the shares of Voting Common Stock are listed, admitted to
trading or quoted is open for trading.
"transfer", as used in Section 3, shall mean any disposition
of this Warrant, any Warrant Shares, or of any interest therein, which would
constitute a sale of or an offer to sell such Warrant or Warrant Shares within
the meaning of the Securities Act.
"Warrant" or "Warrants" shall mean this Warrant and any
Warrant or Warrants issued upon transfer hereof, including all amendments to
any such Warrants and together with all Warrants issued in exchange, transfer
or replacement of any thereof.
"Warrant Shares" shall mean all shares of Common Stock
purchased or purchasable by the registered Holders of the Warrants upon the
exercise thereof, provided that such shares of Common Stock shall be deemed to
include all other shares of Common Stock issued or issuable in connection
therewith, whether as a result of stock dividends, exchanges, stock splits,
reverse stock splits, recapitalizations, mergers, consolidations, or otherwise.
Section 2. Ownership of this Warrant.
(a) Ownership. The Company may deem and treat the Person in whose name
this Warrant is registered as the Holder and owner hereof for all purposes,
notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company, and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in Section 3. The Company shall maintain, at its office or agency in
Fort Worth, Texas (or at such other office or agency of the Company as the
Company shall designate from time to time by notice to the registered holder of
this Warrant), a register for the Warrants, in which the Company shall record
the name and address of the Person in whose name each Warrant has been issued,
as well as the name and address of each transferee and each prior owner of such
Warrant. Within five (5) Business Days after any Holder shall by notice request
the same, the Company will deliver to such Holder a certificate, signed by one
of its authorized officers, listing the name and address of every other Holder
of Warrants of this series, as such information appears in such register and in
the stock transfer books of the Company at the close of business on the day
before such certificate is signed.
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(b) Term. This Warrant shall be void after 5:00 p.m. Central Time on
the Expiration Date.
Section 3. Exchange, Transfer and Replacement.
(a) Exchange. This Warrant is exchangeable, upon the surrender hereof
by the registered Holder to the Company at its office or agency provided for in
Section 2, for new Warrants of like tenor, representing in the aggregate the
right to purchase the number of shares of the Nonvoting Common Stock
purchasable hereunder or in the aggregate with any other Warrants tendered
herewith, each of such new Warrants to represent the right to purchase such
number of shares of the Nonvoting Common Stock as shall be designated by said
registered Holder at the time of such surrender, not to exceed the aggregate
shares of Nonvoting Common Stock purchasable on the exercise of all such
tendered Warrants.
(b) Transfer. This Warrant and all rights hereunder are transferable,
in whole or in part, but only upon the register provided for in Section 2 and
only upon satisfaction of the conditions set forth in this Warrant, by the
registered Holder hereof, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant with the assignment form attached
hereto duly completed, at said office or agency of the Company. No sale,
transfer, or other disposition of this Warrant or the Warrant Shares issuable
hereunder will be made without registration under the Securities Act and
applicable state securities laws or pursuant to exemptions therefrom. The
Company may, as a condition to any such transfer, require an opinion of counsel
reasonably satisfactory to it that such transfer complies with all applicable
federal and state securities laws.
(c) Replacement. Upon receipt by the Company at its office or agency
provided for in Section 2 of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor, in replacement of this Warrant; provided
that, if Wingate, Armbuck & Co., H C Crown Corp. or any of their respective
Affiliates shall be the registered holder hereof, an agreement of indemnity (in
form reasonably satisfactory to the Company) by such registered Holder shall be
sufficient for all purposes of this Section 3.
(d) Cancellation and Taxes. This Warrant shall be promptly cancelled
by the Company upon the surrender hereof in connection with any exchange,
transfer or replacement pursuant to this Section 3. The Company shall pay all
taxes and other expenses and charges payable in connection with the
preparation, execution and delivery of Warrants pursuant to this Section 3,
excluding, however, any thereof imposed on or measured by the overall net
income of the Holder of this Warrant or any other Person by any jurisdiction in
which such Holder or such other Person is located.
(e) Legend. All Warrants issued upon transfer hereof, including all
amendments to any such Warrants shall be imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
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THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS WARRANT WERE PURCHASED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT DATED
AS OF JULY 14, 1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P. NEITHER
THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW AND
SECTION 3 OF THIS WARRANT.
Section 4. Exercise of This Warrant.
(a) Procedure for Exercise.
(i) In order to exercise this Warrant in whole or in part,
the registered Holder hereof shall complete a subscription form in the form
attached hereto and deliver to the Company at its office or agency provided for
in Section 2 such subscription form, this Warrant and the aggregate Purchase
Price of the shares of the Nonvoting Common Stock then being purchased;
provided that any single exercise of this Warrant not made in whole must be for
a minimum of 5,000 Warrant Shares.
(ii) Such Purchase Price shall be paid to the Company in
lawful money of the United States by company check of Wingate or an Affiliate
of Wingate, or, if the Holder is other than Wingate or an Affiliate of Wingate,
by certified check drawn as a banking institution chartered by the government
of the United States or any state thereof or wire transfer of funds.
(iii) The exercise of this Warrant shall be deemed to have
been effected and the Purchase Price and the number of shares of the Nonvoting
Common Stock issuable in connection with such exercise shall be determined as
of the close of business on the Business Day on which the last to be delivered
of such completed subscription form and all other items required to be
delivered in connection with such exercise by the registered Holder hereof
pursuant to this Section 4 shall have been delivered at the requisite office or
agency of the Company. Upon receipt of such form and other items, the Company
shall, as promptly as practicable, and in any event within five (5) Business
Days thereafter, issue such shares of Nonvoting Common Stock and execute or
cause to be executed and delivered to the registered Holder hereof a
certificate or certificates representing the aggregate number of shares of the
Nonvoting Common Stock specified in such form. The Holder shall be deemed to be
a shareholder of the Company for all purposes upon receipt of such form and
other items, notwithstanding the fact that certificates representing such
Nonvoting Common Stock have not been issued. If this Warrant shall have been
exercised only in part, the Company shall, at its expense at the time of
delivery of such stock certificate or certificates, deliver to the registered
Holder hereof a new Warrant evidencing the rights of such Holder to purchase
the remaining shares of the Nonvoting Common Stock covered by this Warrant. The
Company shall pay all taxes (other than any taxes imposed on or measured by the
overall net income of such Holder in any jurisdiction in which such Holder is
located) and other expenses and charges payable in
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connection with the preparation, execution and delivery of stock certificates
pursuant to this Section 4.
(b) Character of Warrant Shares. All shares of the Nonvoting Common
Stock issuable upon the exercise of this Warrant shall, when issued and paid
for in accordance with such Warrant, be duly authorized, validly issued, fully
paid, and nonassessable.
Section 5. Payment of Taxes. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Warrant Shares or of other securities or property
deliverable upon exercise of the Warrants evidenced by this Warrant
representing such shares or securities (other than income taxes imposed on
Holders); provided that the Company shall not be required to pay any such tax
or other charge that may be imposed in connection with any transfer involved in
the issue of any certificate for Warrant Shares or other securities or
property, or payment of cash, to any Person other than the Holder who
surrendered a Warrant upon exercise, and in case of any such tax or charge, the
Company shall not be required to issue any security or property or pay any cash
until such tax or charge has been paid or it has been established to the
Company's satisfaction that no such tax or charge is payable.
Section 6. Share Adjustment Provisions; Adjustment of Purchase Price.
The Purchase Price from time to time in effect under this Warrant, and the
number of Warrant Shares subject to purchase hereunder, shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.
(a) Common Stock Splits. Upon any subdivision by the Company on or
after the Initial Issue Date of all of its outstanding shares of Common Stock
into a greater number of shares or upon any issuance by the Company on or after
such date of a greater number of shares of Common Stock in a pro rata exchange
for all of its outstanding shares of Common Stock, then in each case from and
after the record date for such subdivision or exchange the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be increased in
proportion to such increase in the number of outstanding shares of Common
Stock, and the Purchase Price then in effect shall be correspondingly
decreased. Upon any pro rata reduction by the Company on or after the Initial
Issue Date of its outstanding shares of Common Stock as a whole or upon any
issuance by the Company after such date of a lesser number of shares of Common
Stock in a pro rata exchange for all of its outstanding shares of Common Stock,
then in each case from and after the record date for such reduction or exchange
the number of Warrant Shares purchasable upon the exercise of this Warrant
shall be decreased in proportion to such reduction in the number of outstanding
shares of Common Stock, and the Purchase Price shall be correspondingly
increased.
(b) Common Stock Dividends. Upon any declaration and payment by the
Company on or after the Initial Issue Date of a dividend upon Common Stock
payable in Common Stock, then in each case from and after the record date for
the payment of such stock dividend, the number of Warrant Shares purchasable
upon the exercise of this Warrant shall be increased in proportion to the
increase in the number of outstanding shares of Common Stock through such stock
dividend, and the Purchase Price shall be correspondingly decreased.
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(c) Other Issues. Upon any issuance by the Company of shares of Common
Stock on or after the Initial Issue Date (other than issuances of stock
requiring adjustments hereunder pursuant to the immediately preceding
subsections (a) and (b) of this Section 6) for a consideration lower than the
Market Price per share of stock in effect immediately prior to such issuance,
the Purchase Price then in effect shall be reduced to equal the following
amount:
[(D x E) + F]
G x ---------------
C x E
where C equals the number of shares of Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Common Stock outstanding immediately prior to the issue of such additional
Common Stock, E equals the Market Price per share of stock in effect
immediately prior to the issue of such additional Common Stock, F equals the
aggregate consideration (before deducting underwriting discounts, commissions,
and other expenses) received or to be received by the Company in connection
with the issuance of such additional Common Stock, and G equals the Purchase
Price which would have been in effect immediately prior to such issuance had
all previous adjustments (if any) under this subsection (c) been made pursuant
to the foregoing formula. Upon any such reduction in the Purchase Price, the
number of Warrant Shares purchasable upon the exercise of this Warrant shall be
correspondingly increased. The provisions of this subsection (c) shall not be
applicable to any issuance of Common Stock upon actual exercise or actual
conversion of any option, warrant, right, or other security convertible into or
exercisable for Common Stock if the Purchase Price was fully and properly
adjusted pursuant to the immediately following subsection (d) at the time such
option, warrant, right, or other security was issued.
(d) Common Stock Options; Subscription Rights; Convertible Securities.
Upon any issuance by the Company on or after the Initial Issue Date of options,
warrants, or rights to subscribe for shares of Common Stock or of any
securities convertible into or exchangeable for shares of Common Stock or of
any similar securities for a consideration per share other than the Market
Price in effect immediately prior to the issuance of such options, warrants,
rights or securities, the Purchase Price shall be reduced (and the number of
shares of Common Stock purchasable upon the exercise of this Warrant shall be
appropriately increased), by making computations in accordance with subsection
(c) of this Section 6; provided that:
(i) The maximum number of shares of Common Stock deliverable
under any such option, warrant, or right shall be considered to have been
delivered at the time such option, warrant, or right was issued, for a
consideration equal to the minimum purchase price per share of Common Stock
provided for in such option, warrant, or right plus the consideration, if any,
received by the Company for such option, warrant, or right (before deducting
underwriting discounts, commissions, and other expenses);
(ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities or rights
shall be considered to have been delivered at the time of issuance of such
securities or rights, for a consideration equal to the consideration received
by the Company for such securities or rights (before deducting underwriting
discounts, commissions, and other expenses) plus the minimum consideration
(other than such securities) to be received by the Company upon the exchange or
conversion of such securities or rights;
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(iii) If the purchase or conversion price provided for in any
options, warrants, or rights referred to above, the additional consideration,
if any, payable upon the conversion or exchange of convertible securities or
rights referred to above, or the rate at which any convertible securities or
rights referred to above are convertible into or exchangeable for shares of
Common Stock shall change (other than under or by reason of provisions designed
to protect against dilution), the Purchase Price (and the number of shares of
Nonvoting Common Stock purchasable upon the exercise of this Warrant) in effect
at the time of such event shall be readjusted to the Purchase Price (and the
number of shares of Nonvoting Common Stock purchasable upon the exercise of
this Warrant) which would have been in effect at such time had such rights,
options, warrants, or convertible securities still outstanding provided for
such new purchase or conversion price, additional consideration, or conversion
rate, as the case may be, at the time initially granted, issued, or sold. If
the purchase or conversion price provided for in any such option, warrant, or
right referred to above, the additional consideration, if any, payable upon the
conversion or exchange of convertible securities or rights referred to above,
or the rate at which any convertible securities or rights referred to above are
convertible into or exchangeable for shares of Common Stock shall be changed at
any time by reason of provisions designed to protect against dilution, then
when shares of Common Stock are delivered upon the exercise of any such option,
warrant, or right or upon conversion or exchange of any such convertible
security or rights, the Purchase Price (and the number of shares of Common
Stock purchasable upon the exercise of this Warrant) then in effect hereunder
shall be readjusted to such amount as would have been obtained had such option,
warrant, right, or convertible security never been issued as to such shares of
Common Stock and had the adjustments required hereunder been made at the time
of the issuance of the shares of Common Stock delivered as aforesaid; and
(iv) On the expiration of any such options, warrants, or
rights or at the termination of any such rights to convert or exchange, the
Purchase Price (and the number of shares of Common Stock purchasable upon the
exercise of this Warrant) then in effect shall be readjusted to the Purchase
Price (and the number of shares of Common Stock purchasable upon the exercise
of this Warrant) which would have been in effect had the adjustments (and
readjustments) made upon the issuance of such expired or terminated options,
warrants, rights, or securities (or upon the occurrence of any event with
respect thereto specified in the immediately preceding subsection (iii)) been
made without reference to the number of shares of Common Stock subject to such
terminated or expired options, warrants, rights, or securities. Notwithstanding
the prior sentence, the Holder shall not be required to surrender or adjust any
shares of Common Stock theretofore received by the Holder upon exercise of a
Warrant.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Initial Issue Date the
Company shall distribute to all holders of shares of Common Stock of any class
evidences of its indebtedness or assets (excluding any regular periodic cash
dividend) or a distribution in partial liquidation, each payable otherwise than
in shares of Common Stock or in securities to which the provisions of the
immediately following subsection (e)(ii) are applicable, the Company shall pay
to the Holder of this Warrant, upon the exercise hereof at any time on or after
the payment of such dividend or distribution, the securities and other property
(including cash) which such Holder would have received (together with all
subsequent dividends and distributions thereon) if such Holder had exercised or
converted this Warrant on the record date fixed in connection with such
dividend or distribution, and the Company shall take whatever steps are
necessary or
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appropriate to keep in reserve at all times any securities and other properties
which are required to fulfill such obligations of the Company. Notwithstanding
the foregoing, the rights of the Holder hereof under this subsection (e)(i)
upon the Company's declaration of a dividend or distribution in partial
liquidation payable only in securities convertible into shares of Common Stock
may be exercised only in lieu of any adjustment (in this subsection (e) called
a "subsection (d) adjustment") because of such dividend or distribution called
for under subsection (d) of this Section 6, and upon exercise hereof such
holder must elect (as indicated in the Subscription Form attached hereto)
either such subsection (d) adjustment or the rights and benefits provided for
in this subsection (e)(i). For the purposes of determining the Purchase Price
from time to time in effect and the number of shares from time to time subject
hereto prior to the exercise hereof, it shall be assumed that the Holder hereof
will so elect subsection (d) adjustments, but upon any election of the rights
and benefits provided for in this subsection (e)(i) made at the time of
exercise hereof the Purchase Price then in effect (and the number of
outstanding shares of Nonvoting Common Stock purchasable upon such exercise)
shall be redetermined to equal the amounts which would have been in effect had
such subsection (d) adjustments never been made. Notwithstanding the provisions
of this subsection (e)(i), in no event shall any Holder have the right to
receive, or to elect to receive, Voting Common Stock pursuant to this
subsection if, as a result thereof, a "change of control" could be deemed to
occur under that certain Indenture dated as of December 1, 1997 by and among
the Company, the Subsidiary Guarantors (as defined therein) and United States
Trust Company of New York, as Trustee, and, in lieu thereof, the Holder shall
have the right to receive, or the right to elect to receive, an equivalent
number of shares of Nonvoting Common Stock.
(ii) If at any time on or after the date hereof the Company
shall grant, issue, or sell any options or rights to purchase stock, warrants,
securities, or other property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), then each Holder shall be entitled (but not
obligated) to acquire, in lieu of any subsection (d) adjustment in respect of
and upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such Holder could have acquired if it had held the number of
shares of Nonvoting Common Stock purchasable upon exercise of the Warrants
immediately prior to the time or times at which the Company granted, issued, or
sold such Purchase Rights.
(f) Additional Adjustments.
(i) If at any time or from time to time conditions arise by
reason of action taken by the Company which are not adequately covered by the
provisions of this Section 6, and which might materially and adversely affect
the exercise rights of the Holders of Warrants, upon the request of a majority
in interest of the Holders the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, of the number of Warrant Shares purchasable upon the
exercise of the Warrants, on a basis consistent with the standards established
in the other provisions of this Section 6 and assuming all other adjustments
required pursuant to this Section 6 have been made, necessary in order to
preserve without diminution the rights of the holders of the Warrants. Upon
receipt of such opinion, the Board of Directors of the Company shall forthwith
make the adjustments described therein.
(ii) Notwithstanding any other provision hereof, any
antidilution adjustments made pursuant to the terms hereof or of the Notes, the
Other Warrants, or the
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Preferred Stock shall be deemed to be made to all warrants held by the Holders
or their Affiliates in this series simultaneously, the intention being to avoid
any iterative calculations.
(g) Effect of Reorganization and Asset Sales. If any capital
reorganization of the Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Nonvoting Common
Stock shall be entitled to receive stock, securities, or assets (including
cash) of the Company or another Person with respect to or in exchange for
Nonvoting Common Stock (each such transaction being hereinafter referred to as
a "Transaction"), then, as a condition of the consummation of each Transaction,
lawful and adequate provisions shall then be made so that each Holder, upon the
exercise hereof at any time after the consummation of such Transaction, shall
be entitled to receive, and such Warrants shall thereafter represent the right
to receive, in lieu of the Nonvoting Common Stock issuable upon exercise or
conversion hereof but otherwise upon and subject to all terms and conditions
hereof, the cash, securities or other property to which such Holder would have
been entitled upon the consummation of such Transaction if such Holder had
exercised or converted such Warrants immediately prior thereto (subject to
adjustments from and after the consummation date of such Transaction as nearly
equivalent as possible to the adjustments provided for in this Section 6). The
Company shall not effect any Transaction unless prior to the consummation
thereof each Person (other than the Company) which may be required to deliver
any securities or other property upon the exercise of the Warrants as provided
herein shall assume, by written instrument delivered to each registered Holder
of the Warrants in form and substance reasonably satisfactory to a majority in
interest of the Holders, the obligation to continue to honor this Warrant and
to deliver to such Holder such securities or other property to which, in
accordance with the foregoing provisions, such Holder may be entitled, and such
Person shall have similarly delivered to each registered Holder an opinion of
counsel for such Person, in substance and from such counsel as is acceptable to
the Holders, stating that all the outstanding Warrants shall thereafter
continue in full force and effect and shall be enforceable against such Person
in accordance with the terms hereof and thereof.
(h) Notice of Adjustment or Substitution. On the happening of an event
requiring an adjustment of the Purchase Price and upon each change in the
number of Warrant Shares issuable upon the exercise of this Warrant, and in the
event of any change in the rights of the Holder of this Warrant by reason of
other events herein set forth, the Company shall as soon as practicable give
written notice ("Notice of Adjustment") to the registered Holder(s) of this
Warrant: (i) describing the event; (ii) stating the adjusted Purchase Price,
the number of Warrant Shares issuable based upon the difference between the
Purchase Price before and after such adjustment; and (iii) stating how such
adjustment of Purchase Price or number of Warrant Shares was calculated and the
facts on which the calculation is based.
(i) Accountant's Opinion. Upon each adjustment of the Purchase Price
and upon each change in the number of Warrant Shares issuable upon the exercise
of this Warrant, and in the event of any change in the rights of the Holder of
this Warrant by reason of other events herein set forth, then and in each such
case, upon the reasonable written request of 50% in interest of the registered
Holders of Warrants in this series given to the Company within thirty (30) days
after the Company has given the Notice of Adjustment, the Company will promptly
obtain an opinion of independent certified public accountants selected by the
Company and reasonably satisfactory to such Holder(s), stating the adjusted
Purchase Price and the new
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number of Warrant Shares so issuable, or specifying the other shares of stock,
securities, or assets and the amount thereof receivable as a result of such
adjustment or change in rights, and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company will promptly mail a copy of such accountant's opinion to the
registered Holder of this Warrant. The costs of the accountant's opinion shall
be borne (i) by the Company, if the accountant's opinion reflects any change to
the adjusted Purchase Price or the number of Warrant Shares so issuable set
forth in the Notice of Adjustment, or (ii) by the Holders, if the accountant's
opinion reflects no change to the adjusted Purchase Price or the number of
Warrant Shares so issuable set forth in the Notice of Adjustment. Any dispute
or controversy in respect of the accountant's opinion shall be submitted to
final and binding arbitration in Dallas, Texas pursuant to the rules of the
American Arbitration Association. All costs and expenses (including reasonable
attorneys' fees) incurred by the Company and the Holders in connection with any
such arbitration proceeding shall be paid by the non-prevailing party (as
determined by the arbitrator(s)).
(j) Adjustment of Less Than $.01. The Company shall not be required to
give notice of any adjustment of the Purchase Price in accordance with
subsection (h) above if the amount of such adjustment shall be less than $.01,
but in such case any such adjustment shall be carried forward and notice
thereof shall be given at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried forward, shall
amount to not less than $.01 per share; provided, however, that notice of each
such adjustment of the Purchase Price shall be given not later than three years
from the date such adjustment would have been required to be made except for
the provisions of this subsection (j).
(k) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company or any of its subsidiaries, but the disposition of any such
shares to a third party shall be considered an issue or sale of Common Stock
for the purposes of this Section 6.
(l) Adjustment Exceptions. Anything in this Section 6 to the contrary
notwithstanding, no adjustment of the Purchase Price or the number of Warrant
Shares issuable upon the exercise of this Warrant shall be made upon (i) the
issuance of any Warrants, (ii) the issuance of any Warrant Shares, (iii) the
granting of any warrant concurrently with the granting of this Warrant,
including warrants granted under the Purchase Agreement, (iv) the issuance of
any shares of Common Stock upon the exercise of any warrant granted
concurrently with the granting of this Warrant, including warrants granted
under the Purchase Agreement, (v) the issuance of any Convertible Preferred
Stock by the Company in lieu of paying cash interest on the Notes, (vi) the
issuance of any shares of Common Stock upon the exchange of the Notes or
conversion of any Convertible Preferred Stock issued in lieu of cash interest
on the Notes or in exchange for the Notes, (vii) the issuance of rights to
acquire shares of Common Stock as a result of any antidilution adjustments in
any of the foregoing, (viii) the issuance of any shares of Common Stock or
other options or rights to purchase stock, warrants, other securities pursuant
to a Plan, and (ix) the issuance of shares of Common Stock or rights to acquire
Common Stock in connection with any redemption pursuant to Article 3 of either
of the Notes or in connection with any redemption of Preferred Stock.
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Section 7. Special Agreements of the Company. The Company covenants
and agrees that:
(a) Will Reserve Shares. The Company will authorize, reserve and set
apart and have available solely for issuance and delivery upon exercise at all
times, free from preemptive rights, those shares of the Nonvoting Common Stock
or other securities which are deliverable upon the exercise of the Warrants,
and the Company will have at all times all other rights or privileges necessary
to enable it at any time to fulfill all its obligations hereunder.
(b) Will Avoid Certain Actions. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities or otherwise, avoid
or take any action which would have the effect of avoiding the observance or
performance of any of the terms to be observed or performed hereunder by the
Company (including, without limitation by way of amending, altering, modifying,
or repealing any provision of the Company's Articles of Incorporation in any
manner which adversely affects the relative rights, preferences,
qualifications, powers, limitations or restrictions of the Nonvoting Common
Stock), but will at all times in good faith assist in carrying out all of the
Company's obligations pursuant to the provisions of this Warrant and in taking
all such action as may be necessary or appropriate in order to protect the
rights of the registered holder of this Warrant against dilution or other
impairment, and, in particular, will not permit the par value, if any, of any
share of the Nonvoting Common Stock to be or become greater than the then
effective Purchase Price.
(c) Will List on Securities Exchange. If and so long as the Common
Stock is listed on any national securities exchange (as defined in the Exchange
Act) or automatic quotation system, the Company will, at its expense, use its
reasonable best efforts to obtain and maintain the approval for listing on each
such exchange upon official notice of issuance of all shares of the Nonvoting
Common Stock receivable upon the exercise of the Warrants at the time
outstanding and in any event will use its reasonable best efforts to obtain and
maintain the listing of such shares after their issuance; and the Company will
so list on such national securities exchange or automatic quotation system, to
register under the Exchange Act (and any similar state statute then in effect),
and to maintain such listing of, any other securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange by the
Company.
(d) Will Bind Successors. This Warrant will be binding upon any Person
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
Section 8. Notifications by the Company. If at any time:
(a) the Company shall declare upon the Common Stock any dividend or
other distribution to the holders of the Common Stock;
(b) the Company shall make an offer for subscription pro rata to the
holders of the Voting Common Stock and/or Nonvoting Common Stock of any
additional shares of stock of any class or other rights;
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58
(c) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
statutory exchange or any consolidation of the Company or merger of the Company
with, or sale of all or substantially all of its assets to, another Person;
(d) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) a voluntary dissolution, liquidation
or winding-up of the Company; or
(e) the Company shall become subject to involuntary dissolution,
liquidation or winding-up;
then, in any one or more of such cases, the Company shall give notice thereof
to each registered Holder of Warrants or Warrant Shares, specifying (i) the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or (ii) the date on
which such reorganization, reclassification, statutory exchange, consolidation,
merger, sale, dissolution, liquidation or winding-up shall take place or be
voted upon by shareholders of the Company, as the case may be. Any such notice
under subsections (a) through (e) of this Section 8 shall also specify the date
as of which the holders of record of the Voting Common Stock and/or Nonvoting
Common Stock shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Voting Common Stock and/or
Nonvoting Common Stock for securities or other property deliverable upon such
reorganization, reclassification, statutory exchange, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be; such notice
shall be given not less than thirty (30) and not more than fifty (50) days
prior to the action in question (except in the case of notice for actions under
Section 8(e), which notice shall be promptly following such action) and not
less than thirty (30) and not more than fifty (50) days prior to the record
date or the date on which the Company's transfer books are closed in respect
thereto, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act or to a favorable vote of shareholders, if either is required.
Section 9. Notices. All notices, requests and other communications
required or permitted to be given or delivered to registered Holders shall be
in writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to each such Holder at the address shown
on such Holder's Warrant or Warrant Shares, or at such other address as shall
have been furnished to the Company by notice from such Holder. All notices,
requests and other communications required or permitted to be given or
delivered to the Company shall be in writing, and shall be delivered, or shall
be sent by certified or registered mail, postage prepaid and addressed, to
Company, as follows:
Kevco, Inc.
1300 South University, Suite 200
Fort Worth, Texas 76107
Attention: President
Telecopy Number: (817) 332-2765
with a copy to:
14
59
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Byron F. Egan
Telecopy Number: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopy Number: (212) 225-3999
Wingate Partners II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
Attention: Frederick B. Hegi, Jr.
James A. Johnson
Telecopy Number: (214) 871-8799
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Telecopy Number: (214) 746-7777
or at such other address as shall have been furnished to the registered Holders
by notice from the Company. Each such notice sent by mail as described above
shall be deemed received on the date of receipt by the Holder or the Company,
as applicable.
Section 10. No Rights or Liabilities as Shareholder. This Warrant
shall not entitle any Holder hereof to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of the Nonvoting Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Purchase Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
Section 11. Governing Law. This Warrant shall be construed in
accordance with and governed by the laws of the State of Texas, without regard
to the provisions thereof relating to conflict of laws.
Section 12. Confidentiality. By its acceptance hereof each Holder of
this Warrant agrees that it will take all reasonable steps to keep confidential
any proprietary information of the Company furnished to it; provided, however,
that this restriction shall not apply to information which (i) has at the time
in question entered the public domain, (ii) is required to be disclosed by law
or by any order, rule or regulation (whether valid or invalid) of any court
15
60
or governmental agency or authority, or (iii) is furnished to purchasers or
prospective purchasers hereof (exclusive of any Person who competes with, or is
an Affiliate of a Person who competes with, the Company) so long as such
purchasers and prospective purchasers have agreed to be subject to restrictions
identical to those imposed upon such Holder under this sentence.
Section 13. Miscellaneous. Unless otherwise expressly provided herein
or unless the registered Holder hereof otherwise consents in writing, all
financial statements and reports furnished pursuant to Section 6(i) or
otherwise furnished hereunder to the registered Holder hereof shall be prepared
and all computations and determinations pursuant hereto shall be made in
accordance with generally accepted accounting principles applied on a
consistent basis. This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against whom enforcement of the same is sought. The headings in this Warrant
are for purposes of reference only and shall not affect the meaning or
construction of any provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, ___________________________ has caused
this Warrant to be signed and delivered by its duly authorized officer,
attested by its duly authorized officer, and to be dated as of _______________,
199__.
By:
---------------------------------
Name:
Title:
ATTEST:
By:
---------------------------------------
Name:
Title:
17
62
ASSIGNMENT FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
For Value Received, the Undersigned registered holder hereby
sells, assigns and transfers unto _______________________ the right to purchase
______ shares of the Nonvoting Common Stock covered by the within Warrant, and
does hereby irrevocably constitute and appoint ___________________________ as
Attorney to transfer the said Warrant on the books of the Company (as defined
in said Warrant), with full power of substitution.
Name of Registered Holder:
------------------------------------
Signature:
------------------------------------
Title of Signing Officer
or Agent (if any):
------------------------------------
Address of Registered Holder:
------------------------------------
------------------------------------
Dated:
------------------------------
Signed in the presence of
- ------------------------------------
63
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
The undersigned registered holder hereby exercises the right
to purchase ______ shares of the Nonvoting Common Stock covered by the within
Warrant, according to the conditions thereof, and herewith makes payment of the
Purchase Price of such shares, $____________.
Name of Registered Holder:
------------------------------------
Signature:
------------------------------------
Title of Signing Officer
or Agent (if any):
------------------------------------
Address of Registered Holder:
------------------------------------
------------------------------------
Dated:
------------------------------
64
EXHIBIT A-2
NONVOTING WARRANT
FOR 772,727 NONVOTING WARRANT SHARES
65
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
OF THIS WARRANT WERE PURCHASED PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT DATED AS OF JULY 14,
1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P.
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND
SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND
SECTION 3 OF THIS WARRANT.
No. of Nonvoting Shares: 772,727 Shares Warrant No.
--------
WARRANT
To purchase Nonvoting Common Stock of
KEVCO, INC.
July ___, 1999
THIS WARRANT CERTIFIES THAT, for value received, the
registered holder hereof, Wingate Partners II, L.P., a Delaware limited
partnership ("Wingate"), or its registered assigns, is entitled to purchase
from Kevco, Inc., a Texas corporation (the "Company"), at any time and from
time to time after the date hereof (the "Initial Issue Date") and on or before
5:00 p.m. Central Time, on the Expiration Date (as hereinafter defined) 772,727
shares of the Nonvoting Common Stock (as hereinafter defined) at the Basic
Purchase Price (as hereinafter defined), subject to the terms, conditions, and
adjustments as hereinafter provided in Section 6.
Section 1. Definitions and References. Unless otherwise specified,
references herein to sections, subsections, and similar subdivisions refer to
the sections, subsections, and subdivisions of this Warrant. For all purposes
of this Warrant, the following terms shall have the meanings hereinafter
indicated:
"Affiliate" with respect to a party to this Agreement shall
mean any Person that directly or indirectly (through one or more intermediaries
or otherwise) controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used in respect of any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement, or otherwise.
"Amendment" shall mean the Amendment to the Company's
Articles of Incorporation required by the Purchase Agreement to create the
Nonvoting Common Stock, a
66
class of preferred stock designated "Series A 103/8% Convertible Pay-in-Kind
Voting Preferred Stock" and a class of preferred stock designated "Series B
103/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" (collectively, the
"Convertible Preferred Stock").
"Basic Purchase Price" shall mean the price of $5.50 per
share of the Nonvoting Common Stock.
"Board of Directors" shall mean the board of directors of the
Company.
"Business Day" shall mean a day on which commercial banks are
open for business with the public in New York, New York.
"Commission" shall mean the Securities and Exchange
Commission and any other similar or successor agency of the federal government
then administering the Securities Act or the Exchange Act.
"Common Stock" shall mean the voting common stock, par value
$.01 per share, of the Company ("Voting Common Stock"), and, after the adoption
of the Amendment the nonvoting common stock, par value $.01 per share, of the
Company ("Nonvoting Common Stock") and any capital stock into which such Common
Stock thereafter may be changed or converted.
"Common Stock Equivalents" shall mean (without duplication
with any other Common Stock or Common Stock Equivalents) rights, warrants,
options, convertible securities or convertible indebtedness, exchangeable
securities or exchangeable indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock, and any
stock appreciation rights or similar rights to payment based upon the value of
the Company's common equity, whether at the time or upon the occurrence of some
future event including all shares of Common Stock issuable in respect of this
Warrant and in respect of the Purchase Agreement and the documents and
instruments executed in connection with the Purchase Agreement and the
transactions contemplated thereby to the extent not issued and outstanding.
"Composite Tape" shall mean, with respect to any security,
the reporting by the National Association of Securities Dealers (or any
successor reporting mechanism) of all trades of such security occurring on all
exchanges on which such security is traded.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any similar or successor federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in
effect at the time in question.
"Expiration Date" shall mean the fifth anniversary of the
Initial Issue Date.
"Fully-Diluted Common Stock" shall mean, at any time, the
then outstanding shares of Common Stock of the Company plus (without
duplication) all shares of Common Stock issuable, whether at such time or upon
passage of time or the occurrence of future events, upon the exercise,
conversion, or exchange of all then-outstanding Common Stock Equivalents
(including, for purposes of such calculation, "phantom" shares of equivalent
value to any stock appreciation or equivalent equity-based payment right).
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67
"Holder" shall mean the initial holder of this Warrant, and
any Person to whom this Warrant, or any portion thereof, is subsequently
transferred of record, together with the registered holder(s) of any Warrant
Shares into which this Warrant (or any subsequent Warrant) is subsequently
converted.
"Independent Directors" shall mean any director of the
Company not affiliated with Wingate or its assigns or Jerry E. Kimmel and who
does not have any other relationship (including any relationship, contractual
or otherwise, with Wingate, its assigns or Jerry E. Kimmel) that would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
"Kimmel Designees" shall mean Jerry E. Kimmel, if he is a
director of the Company, and any other director of the Company elected or
appointed at the designation of Jerry E. Kimmel.
"Market Price" shall mean, with respect to any Common Stock,
on a per share basis and as of any date, an amount equal to the average, for
each of the ten (10) consecutive Trading Days immediately prior to such date,
of the closing prices for a share of Voting Common Stock on such Trading Day as
reported on the Composite Tape (as reported in The Wall Street Journal or, if
not reported thereby, any other authoritative source). If no price can be
determined under the foregoing, then the "Market Price" shall be deemed to be
the fair market value thereof, as determined by the Special Committee in good
faith as of a date which is within fifteen (15) days preceding the date as of
which the determination is to be made.
"NASDAQ" shall mean the NASDAQ Stock Market.
"Notes" shall mean collectively the $17.0 million and $6.5
million principal amount Series A and Series B Senior Subordinated Convertible
Exchangeable Notes issued by the Company pursuant to the Purchase Agreement.
"Other Warrants" shall mean collectively the warrant to
acquire 675,000 shares of Nonvoting Common Stock and the warrant to acquire
295,455 shares of Nonvoting Common Stock.
"Person" shall mean any individual, partnership, limited
liability company, joint venture, corporation, trust, unincorporated
organization, or other entity.
"Plans" shall mean any plan existing on the date hereof or
adopted by the Company after the date hereof providing for the issuance of
Common Stock or other options or rights to purchase stock, warrants or other
securities.
"Preferred Stock" shall mean collectively the Company's (i)
Series A 10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par value
$0.01 per share, and (ii) Series B 10 3/8% Convertible Pay-in-Kind Nonvoting
Preferred Stock, par value $0.01 per share.
"Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of July 14, 1999, by and between the Company and
Wingate.
"Purchase Price" shall mean, as of any date, the Basic
Purchase Price as adjusted pursuant to Section 6.
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68
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time in question.
"Special Committee" shall mean a committee of the Board of
Directors composed solely of the Independent Directors and the Kimmel Designees
then in office; provided, however, that such committee shall be constituted
such that a majority of its members shall always be Independent Directors.
"Subsidiary" shall mean, with respect to any Person, any
other Person at least a majority of whose outstanding shares of capital stock
or other equity interests (having ordinary voting power for the election of
directors or comparable managers of such other Person) are owned, directly or
indirectly, by that Person.
"Trading Day" shall mean any day on which NADSAQ is open for
trading, or if the shares of Voting Common Stock are not quoted on NASDAQ, any
day on which the principal national securities exchange or national quotation
system on which the shares of Voting Common Stock are listed, admitted to
trading or quoted is open for trading.
"transfer", as used in Section 3, shall mean any disposition
of this Warrant, any Warrant Shares, or of any interest therein, which would
constitute a sale of or an offer to sell such Warrant or Warrant Shares within
the meaning of the Securities Act.
"Warrant" or "Warrants" shall mean this Warrant and any
Warrant or Warrants issued upon transfer hereof, including all amendments to
any such Warrants and together with all Warrants issued in exchange, transfer
or replacement of any thereof.
"Warrant Shares" shall mean all shares of Common Stock
purchased or purchasable by the registered Holders of the Warrants upon the
exercise thereof, provided that such shares of Common Stock shall be deemed to
include all other shares of Common Stock issued or issuable in connection
therewith, whether as a result of stock dividends, exchanges, stock splits,
reverse stock splits, recapitalizations, mergers, consolidations, or otherwise.
Section 2. Ownership of this Warrant.
(a) Ownership. The Company may deem and treat the Person in whose name
this Warrant is registered as the Holder and owner hereof for all purposes,
notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company, and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in Section 3. The Company shall maintain, at its office or agency in
Fort Worth, Texas (or at such other office or agency of the Company as the
Company shall designate from time to time by notice to the registered holder of
this Warrant), a register for the Warrants, in which the Company shall record
the name and address of the Person in whose name each Warrant has been issued,
as well as the name and address of each transferee and each prior owner of such
Warrant. Within five (5) Business Days after any Holder shall by notice request
the same, the Company will deliver to such Holder a certificate, signed by one
of its authorized officers, listing the name and address of every other Holder
of Warrants of this series, as such information appears in such register and in
the stock transfer books of the Company at the close of business on the day
before such certificate is signed.
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69
(b) Term. This Warrant shall be void after 5:00 p.m. Central Time on
the Expiration Date.
Section 3. Exchange, Transfer and Replacement.
(a) Exchange. This Warrant is exchangeable, upon the surrender hereof
by the registered Holder to the Company at its office or agency provided for in
Section 2, for new Warrants of like tenor, representing in the aggregate the
right to purchase the number of shares of the Nonvoting Common Stock
purchasable hereunder or in the aggregate with any other Warrants tendered
herewith, each of such new Warrants to represent the right to purchase such
number of shares of the Nonvoting Common Stock as shall be designated by said
registered Holder at the time of such surrender, not to exceed the aggregate
shares of Nonvoting Common Stock purchasable on the exercise of all such
tendered Warrants.
(b) Transfer. This Warrant and all rights hereunder are transferable,
in whole or in part, but only upon the register provided for in Section 2 and
only upon satisfaction of the conditions set forth in this Warrant, by the
registered Holder hereof, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant with the assignment form attached
hereto duly completed, at said office or agency of the Company. No sale,
transfer, or other disposition of this Warrant or the Warrant Shares issuable
hereunder will be made without registration under the Securities Act and
applicable state securities laws or pursuant to exemptions therefrom. The
Company may, as a condition to any such transfer, require an opinion of counsel
reasonably satisfactory to it that such transfer complies with all applicable
federal and state securities laws.
(c) Replacement. Upon receipt by the Company at its office or agency
provided for in Section 2 of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor, in replacement of this Warrant; provided
that, if Wingate, Armbuck & Co., H C Crown Corp. or any of their respective
Affiliates shall be the registered holder hereof, an agreement of indemnity (in
form reasonably satisfactory to the Company) by such registered Holder shall be
sufficient for all purposes of this Section 3.
(d) Cancellation and Taxes. This Warrant shall be promptly cancelled
by the Company upon the surrender hereof in connection with any exchange,
transfer or replacement pursuant to this Section 3. The Company shall pay all
taxes and other expenses and charges payable in connection with the
preparation, execution and delivery of Warrants pursuant to this Section 3,
excluding, however, any thereof imposed on or measured by the overall net
income of the Holder of this Warrant or any other Person by any jurisdiction in
which such Holder or such other Person is located.
(e) Legend. All Warrants issued upon transfer hereof, including all
amendments to any such Warrants shall be imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
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THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS WARRANT WERE PURCHASED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT DATED
AS OF JULY 14, 1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P. NEITHER
THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW AND
SECTION 3 OF THIS WARRANT.
Section 4. Exercise of This Warrant.
(a) Procedure for Exercise.
(i) In order to exercise this Warrant in whole or in part, the
registered Holder hereof shall complete a subscription form in the form
attached hereto and deliver to the Company at its office or agency provided for
in Section 2 such subscription form, this Warrant and the aggregate Purchase
Price of the shares of the Nonvoting Common Stock then being purchased;
provided that any single exercise of this Warrant not made in whole must be for
a minimum of 5,000 Warrant Shares.
(ii) Such Purchase Price shall be paid to the Company in lawful
money of the United States by company check of Wingate or an Affiliate of
Wingate, or, if the Holder is other than Wingate or an Affiliate of Wingate, by
certified check drawn as a banking institution chartered by the government of
the United States or any state thereof or wire transfer of funds.
(iii) The exercise of this Warrant shall be deemed to have been
effected and the Purchase Price and the number of shares of the Nonvoting
Common Stock issuable in connection with such exercise shall be determined as
of the close of business on the Business Day on which the last to be delivered
of such completed subscription form and all other items required to be
delivered in connection with such exercise by the registered Holder hereof
pursuant to this Section 4 shall have been delivered at the requisite office or
agency of the Company. Upon receipt of such form and other items, the Company
shall, as promptly as practicable, and in any event within five (5) Business
Days thereafter, issue such shares of Nonvoting Common Stock and execute or
cause to be executed and delivered to the registered Holder hereof a
certificate or certificates representing the aggregate number of shares of the
Nonvoting Common Stock specified in such form. The Holder shall be deemed to be
a shareholder of the Company for all purposes upon receipt of such form and
other items, notwithstanding the fact that certificates representing such
Nonvoting Common Stock have not been issued. If this Warrant shall have been
exercised only in part, the Company shall, at its expense at the time of
delivery of such stock certificate or certificates, deliver to the registered
Holder hereof a new Warrant evidencing the rights of such Holder to purchase
the remaining shares of the Nonvoting Common Stock covered by this Warrant. The
Company shall pay all taxes (other than any taxes imposed on or measured by the
overall net income of such Holder in any jurisdiction in which such Holder is
located) and other expenses and charges payable in
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71
connection with the preparation, execution and delivery of stock certificates
pursuant to this Section 4.
(b) Character of Warrant Shares. All shares of the Nonvoting Common
Stock issuable upon the exercise of this Warrant shall, when issued and paid
for in accordance with such Warrant, be duly authorized, validly issued, fully
paid, and nonassessable.
Section 5. Payment of Taxes. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Warrant Shares or of other securities or property
deliverable upon exercise of the Warrants evidenced by this Warrant
representing such shares or securities (other than income taxes imposed on
Holders); provided that the Company shall not be required to pay any such tax
or other charge that may be imposed in connection with any transfer involved in
the issue of any certificate for Warrant Shares or other securities or
property, or payment of cash, to any Person other than the Holder who
surrendered a Warrant upon exercise, and in case of any such tax or charge, the
Company shall not be required to issue any security or property or pay any cash
until such tax or charge has been paid or it has been established to the
Company's satisfaction that no such tax or charge is payable.
Section 6. Share Adjustment Provisions; Adjustment of Purchase Price.
The Purchase Price from time to time in effect under this Warrant, and the
number of Warrant Shares subject to purchase hereunder, shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.
(a) Common Stock Splits. Upon any subdivision by the Company on or
after the Initial Issue Date of all of its outstanding shares of Common Stock
into a greater number of shares or upon any issuance by the Company on or after
such date of a greater number of shares of Common Stock in a pro rata exchange
for all of its outstanding shares of Common Stock, then in each case from and
after the record date for such subdivision or exchange the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be increased in
proportion to such increase in the number of outstanding shares of Common
Stock, and the Purchase Price then in effect shall be correspondingly
decreased. Upon any pro rata reduction by the Company on or after the Initial
Issue Date of its outstanding shares of Common Stock as a whole or upon any
issuance by the Company after such date of a lesser number of shares of Common
Stock in a pro rata exchange for all of its outstanding shares of Common Stock,
then in each case from and after the record date for such reduction or exchange
the number of Warrant Shares purchasable upon the exercise of this Warrant
shall be decreased in proportion to such reduction in the number of outstanding
shares of Common Stock, and the Purchase Price shall be correspondingly
increased.
(b) Common Stock Dividends. Upon any declaration and payment by the
Company on or after the Initial Issue Date of a dividend upon Common Stock
payable in Common Stock, then in each case from and after the record date for
the payment of such stock dividend, the number of Warrant Shares purchasable
upon the exercise of this Warrant shall be increased in proportion to the
increase in the number of outstanding shares of Common Stock through such stock
dividend, and the Purchase Price shall be correspondingly decreased.
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(c) Other Issues. Upon any issuance by the Company of shares of Common
Stock on or after the Initial Issue Date (other than issuances of stock
requiring adjustments hereunder pursuant to the immediately preceding
subsections (a) and (b) of this Section 6) for a consideration lower than the
Market Price per share of stock in effect immediately prior to such issuance,
the Purchase Price then in effect shall be reduced to equal the following
amount:
[(D x E) + F]
G x -------------
C x E
where C equals the number of shares of Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Common Stock outstanding immediately prior to the issue of such additional
Common Stock, E equals the Market Price per share of stock in effect
immediately prior to the issue of such additional Common Stock, F equals the
aggregate consideration (before deducting underwriting discounts, commissions,
and other expenses) received or to be received by the Company in connection
with the issuance of such additional Common Stock, and G equals the Purchase
Price which would have been in effect immediately prior to such issuance had
all previous adjustments (if any) under this subsection (c) been made pursuant
to the foregoing formula. Upon any such reduction in the Purchase Price, the
number of Warrant Shares purchasable upon the exercise of this Warrant shall be
correspondingly increased. The provisions of this subsection (c) shall not be
applicable to any issuance of Common Stock upon actual exercise or actual
conversion of any option, warrant, right, or other security convertible into or
exercisable for Common Stock if the Purchase Price was fully and properly
adjusted pursuant to the immediately following subsection (d) at the time such
option, warrant, right, or other security was issued.
(d) Common Stock Options; Subscription Rights; Convertible Securities.
Upon any issuance by the Company on or after the Initial Issue Date of options,
warrants, or rights to subscribe for shares of Common Stock or of any
securities convertible into or exchangeable for shares of Common Stock or of
any similar securities for a consideration per share other than the Market
Price in effect immediately prior to the issuance of such options, warrants,
rights or securities, the Purchase Price shall be reduced (and the number of
shares of Common Stock purchasable upon the exercise of this Warrant shall be
appropriately increased), by making computations in accordance with subsection
(c) of this Section 6; provided that:
(i) The maximum number of shares of Common Stock deliverable under
any such option, warrant, or right shall be considered to have been delivered
at the time such option, warrant, or right was issued, for a consideration
equal to the minimum purchase price per share of Common Stock provided for in
such option, warrant, or right plus the consideration, if any, received by the
Company for such option, warrant, or right (before deducting underwriting
discounts, commissions, and other expenses);
(ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities or rights
shall be considered to have been delivered at the time of issuance of such
securities or rights, for a consideration equal to the consideration received
by the Company for such securities or rights (before deducting underwriting
discounts, commissions, and other expenses) plus the minimum consideration
(other than such securities) to be received by the Company upon the exchange or
conversion of such securities or rights;
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(iii) If the purchase or conversion price provided for in any
options, warrants, or rights referred to above, the additional consideration,
if any, payable upon the conversion or exchange of convertible securities or
rights referred to above, or the rate at which any convertible securities or
rights referred to above are convertible into or exchangeable for shares of
Common Stock shall change (other than under or by reason of provisions designed
to protect against dilution), the Purchase Price (and the number of shares of
Nonvoting Common Stock purchasable upon the exercise of this Warrant) in effect
at the time of such event shall be readjusted to the Purchase Price (and the
number of shares of Nonvoting Common Stock purchasable upon the exercise of
this Warrant) which would have been in effect at such time had such rights,
options, warrants, or convertible securities still outstanding provided for
such new purchase or conversion price, additional consideration, or conversion
rate, as the case may be, at the time initially granted, issued, or sold. If
the purchase or conversion price provided for in any such option, warrant, or
right referred to above, the additional consideration, if any, payable upon the
conversion or exchange of convertible securities or rights referred to above,
or the rate at which any convertible securities or rights referred to above are
convertible into or exchangeable for shares of Common Stock shall be changed at
any time by reason of provisions designed to protect against dilution, then
when shares of Common Stock are delivered upon the exercise of any such option,
warrant, or right or upon conversion or exchange of any such convertible
security or rights, the Purchase Price (and the number of shares of Common
Stock purchasable upon the exercise of this Warrant) then in effect hereunder
shall be readjusted to such amount as would have been obtained had such option,
warrant, right, or convertible security never been issued as to such shares of
Common Stock and had the adjustments required hereunder been made at the time
of the issuance of the shares of Common Stock delivered as aforesaid; and
(iv) On the expiration of any such options, warrants, or rights or
at the termination of any such rights to convert or exchange, the Purchase
Price (and the number of shares of Common Stock purchasable upon the exercise
of this Warrant) then in effect shall be readjusted to the Purchase Price (and
the number of shares of Common Stock purchasable upon the exercise of this
Warrant) which would have been in effect had the adjustments (and
readjustments) made upon the issuance of such expired or terminated options,
warrants, rights, or securities (or upon the occurrence of any event with
respect thereto specified in the immediately preceding subsection (iii)) been
made without reference to the number of shares of Common Stock subject to such
terminated or expired options, warrants, rights, or securities. Notwithstanding
the prior sentence, the Holder shall not be required to surrender or adjust any
shares of Common Stock theretofore received by the Holder upon exercise of a
Warrant.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Initial Issue Date the
Company shall distribute to all holders of shares of Common Stock of any class
evidences of its indebtedness or assets (excluding any regular periodic cash
dividend) or a distribution in partial liquidation, each payable otherwise than
in shares of Common Stock or in securities to which the provisions of the
immediately following subsection (e)(ii) are applicable, the Company shall pay
to the Holder of this Warrant, upon the exercise hereof at any time on or after
the payment of such dividend or distribution, the securities and other property
(including cash) which such Holder would have received (together with all
subsequent dividends and distributions thereon) if such Holder had exercised or
converted this Warrant on the record date fixed in connection with such
dividend or distribution, and the Company shall take whatever steps are
necessary or
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appropriate to keep in reserve at all times any securities and other properties
which are required to fulfill such obligations of the Company. Notwithstanding
the foregoing, the rights of the Holder hereof under this subsection (e)(i)
upon the Company's declaration of a dividend or distribution in partial
liquidation payable only in securities convertible into shares of Common Stock
may be exercised only in lieu of any adjustment (in this subsection (e) called
a "subsection (d) adjustment") because of such dividend or distribution called
for under subsection (d) of this Section 6, and upon exercise hereof such
holder must elect (as indicated in the Subscription Form attached hereto)
either such subsection (d) adjustment or the rights and benefits provided for
in this subsection (e)(i). For the purposes of determining the Purchase Price
from time to time in effect and the number of shares from time to time subject
hereto prior to the exercise hereof, it shall be assumed that the Holder hereof
will so elect subsection (d) adjustments, but upon any election of the rights
and benefits provided for in this subsection (e)(i) made at the time of
exercise hereof the Purchase Price then in effect (and the number of
outstanding shares of Nonvoting Common Stock purchasable upon such exercise)
shall be redetermined to equal the amounts which would have been in effect had
such subsection (d) adjustments never been made. Notwithstanding the provisions
of this subsection (e)(i), in no event shall any Holder have the right to
receive, or to elect to receive, Voting Common Stock pursuant to this
subsection if, as a result thereof, a "change of control" could be deemed to
occur under that certain Indenture dated as of December 1, 1997 by and among
the Company, the Subsidiary Guarantors (as defined therein) and United States
Trust Company of New York, as Trustee, and, in lieu thereof, the Holder shall
have the right to receive, or the right to elect to receive, an equivalent
number of shares of Nonvoting Common Stock.
(ii) If at any time on or after the date hereof the Company shall
grant, issue, or sell any options or rights to purchase stock, warrants,
securities, or other property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), then each Holder shall be entitled (but not
obligated) to acquire, in lieu of any subsection (d) adjustment in respect of
and upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such Holder could have acquired if it had held the number of
shares of Nonvoting Common Stock purchasable upon exercise of the Warrants
immediately prior to the time or times at which the Company granted, issued, or
sold such Purchase Rights.
(f) Additional Adjustments.
(i) If at any time or from time to time conditions arise by
reason of action taken by the Company which are not adequately covered by the
provisions of this Section 6, and which might materially and adversely affect
the exercise rights of the Holders of Warrants, upon the request of a majority
in interest of the Holders the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, of the number of Warrant Shares purchasable upon the
exercise of the Warrants, on a basis consistent with the standards established
in the other provisions of this Section 6 and assuming all other adjustments
required pursuant to this Section 6 have been made, necessary in order to
preserve without diminution the rights of the holders of the Warrants. Upon
receipt of such opinion, the Board of Directors of the Company shall forthwith
make the adjustments described therein.
(ii) Notwithstanding any other provision hereof, any antidilution
adjustments made pursuant to the terms hereof or of the Notes, the Other
Warrants, or the
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Preferred Stock shall be deemed to be made to all warrants held by the Holders
or their Affiliates in this series simultaneously, the intention being to avoid
any iterative calculations.
(g) Effect of Reorganization and Asset Sales. If any capital
reorganization of the Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Nonvoting Common
Stock shall be entitled to receive stock, securities, or assets (including
cash) of the Company or another Person with respect to or in exchange for
Nonvoting Common Stock (each such transaction being hereinafter referred to as
a "Transaction"), then, as a condition of the consummation of each Transaction,
lawful and adequate provisions shall then be made so that each Holder, upon the
exercise hereof at any time after the consummation of such Transaction, shall
be entitled to receive, and such Warrants shall thereafter represent the right
to receive, in lieu of the Nonvoting Common Stock issuable upon exercise or
conversion hereof but otherwise upon and subject to all terms and conditions
hereof, the cash, securities or other property to which such Holder would have
been entitled upon the consummation of such Transaction if such Holder had
exercised or converted such Warrants immediately prior thereto (subject to
adjustments from and after the consummation date of such Transaction as nearly
equivalent as possible to the adjustments provided for in this Section 6). The
Company shall not effect any Transaction unless prior to the consummation
thereof each Person (other than the Company) which may be required to deliver
any securities or other property upon the exercise of the Warrants as provided
herein shall assume, by written instrument delivered to each registered Holder
of the Warrants in form and substance reasonably satisfactory to a majority in
interest of the Holders, the obligation to continue to honor this Warrant and
to deliver to such Holder such securities or other property to which, in
accordance with the foregoing provisions, such Holder may be entitled, and such
Person shall have similarly delivered to each registered Holder an opinion of
counsel for such Person, in substance and from such counsel as is acceptable to
the Holders, stating that all the outstanding Warrants shall thereafter
continue in full force and effect and shall be enforceable against such Person
in accordance with the terms hereof and thereof.
(h) Notice of Adjustment or Substitution. On the happening of an event
requiring an adjustment of the Purchase Price and upon each change in the
number of Warrant Shares issuable upon the exercise of this Warrant, and in the
event of any change in the rights of the Holder of this Warrant by reason of
other events herein set forth, the Company shall as soon as practicable give
written notice ("Notice of Adjustment") to the registered Holder(s) of this
Warrant: (i) describing the event; (ii) stating the adjusted Purchase Price,
the number of Warrant Shares issuable based upon the difference between the
Purchase Price before and after such adjustment; and (iii) stating how such
adjustment of Purchase Price or number of Warrant Shares was calculated and the
facts on which the calculation is based.
(i) Accountant's Opinion. Upon each adjustment of the Purchase Price
and upon each change in the number of Warrant Shares issuable upon the exercise
of this Warrant, and in the event of any change in the rights of the Holder of
this Warrant by reason of other events herein set forth, then and in each such
case, upon the reasonable written request of 50% in interest of the registered
Holders of Warrants in this series given to the Company within thirty (30) days
after the Company has given Notice of Adjustment, the Company will promptly
obtain an opinion of independent certified public accountants selected by the
Company and reasonably satisfactory to such Holder(s), stating the adjusted
Purchase Price and the new
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number of Warrant Shares so issuable, or specifying the other shares of stock,
securities, or assets and the amount thereof receivable as a result of such
adjustment or change in rights, and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company will promptly mail a copy of such accountant's opinion to the
registered Holder of this Warrant. The costs of the accountant's opinion shall
be borne (i) by the Company, if the accountant's opinion reflects any change to
the adjusted Purchase Price or the number of Warrant Shares so issuable set
forth in the Notice of Adjustment, or (ii) by the Holders, if the accountant's
opinion reflects no change to the adjusted Purchase Price or the number of
Warrant Shares so issuable set forth in the Notice of Adjustment. Any dispute
or controversy in respect of the accountant's opinion shall be submitted to
final and binding arbitration in Dallas, Texas pursuant to the rules of the
American Arbitration Association. All costs and expenses (including reasonable
attorneys' fees) incurred by the Company and the Holders in connection with any
such arbitration proceeding shall be paid by the non-prevailing party (as
determined by the arbitrator(s)).
(j) Adjustment of Less Than $.01. The Company shall not be required to
give notice of any adjustment of the Purchase Price in accordance with
subsection (h) above if the amount of such adjustment shall be less than $.01,
but in such case any such adjustment shall be carried forward and notice
thereof shall be given at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried forward, shall
amount to not less than $.01 per share; provided, however, that notice of each
such adjustment of the Purchase Price shall be given not later than three years
from the date such adjustment would have been required to be made except for
the provisions of this subsection (j).
(k) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company or any of its subsidiaries, but the disposition of any such
shares to a third party shall be considered an issue or sale of Common Stock
for the purposes of this Section 6.
(l) Adjustment Exceptions. Anything in this Section 6 to the contrary
notwithstanding, no adjustment of the Purchase Price or the number of Warrant
Shares issuable upon the exercise of this Warrant shall be made upon (i) the
issuance of any Warrants, (ii) the issuance of any Warrant Shares, (iii) the
granting of any warrant concurrently with the granting of this Warrant,
including warrants granted under the Purchase Agreement, (iv) the issuance of
any shares of Common Stock upon the exercise of any warrant granted
concurrently with the granting of this Warrant, including warrants granted
under the Purchase Agreement, (v) the issuance of any Convertible Preferred
Stock by the Company in lieu of paying cash interest on the Notes, (vi) the
issuance of any shares of Common Stock upon the exchange of the Notes or
conversion of any Convertible Preferred Stock issued in lieu of cash interest
on the Notes or in exchange for the Notes, (vii) the issuance of rights to
acquire shares of Common Stock as a result of any antidilution adjustments in
any of the foregoing, (viii) the issuance of any shares of Common Stock or
other options or rights to purchase stock, warrants, other securities pursuant
to a Plan, and (ix) the issuance of shares of Common Stock or rights to acquire
Common Stock in connection with any redemption pursuant to Article 3 of either
of the Notes or in connection with any redemption of Preferred Stock.
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Section 7. Special Agreements of the Company. The Company covenants
and agrees that:
(a) Will Reserve Shares. The Company will authorize, reserve and set
apart and have available solely for issuance and delivery upon exercise at all
times, free from preemptive rights, those shares of the Nonvoting Common Stock
or other securities which are deliverable upon the exercise of the Warrants,
and the Company will have at all times all other rights or privileges necessary
to enable it at any time to fulfill all its obligations hereunder.
(b) Will Avoid Certain Actions. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities or otherwise, avoid
or take any action which would have the effect of avoiding the observance or
performance of any of the terms to be observed or performed hereunder by the
Company (including, without limitation, by way of amending, altering,
modifying, or repealing any provision of the Company's Articles of
Incorporation in any manner which adversely affects the relative rights,
preferences, qualifications, powers, limitations or restrictions of the
Nonvoting Common Stock), but will at all times in good faith assist in carrying
out all of the Company's obligations pursuant to the provisions of this Warrant
and in taking all such action as may be necessary or appropriate in order to
protect the rights of the registered holder of this Warrant against dilution or
other impairment, and, in particular, will not permit the par value, if any, of
any share of the Nonvoting Common Stock to be or become greater than the then
effective Purchase Price.
(c) Will List on Securities Exchange. If and so long as the Common
Stock is listed on any national securities exchange (as defined in the Exchange
Act) or automatic quotation system, the Company will, at its expense, use its
reasonable best efforts to obtain and maintain the approval for listing on each
such exchange upon official notice of issuance of all shares of the Nonvoting
Common Stock receivable upon the exercise of the Warrants at the time
outstanding and in any event will use its reasonable best efforts to obtain and
maintain the listing of such shares after their issuance; and the Company will
so list on such national securities exchange or automatic quotation system, to
register under the Exchange Act (and any similar state statute then in effect),
and to maintain such listing of, any other securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange by the
Company.
(d) Will Bind Successors. This Warrant will be binding upon any Person
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
Section 8. Notifications by the Company. If at any time:
(a) the Company shall declare upon the Common Stock any dividend or
other distribution to the holders of the Common Stock;
(b) the Company shall make an offer for subscription pro rata to the
holders of the Voting Common Stock and/or Nonvoting Common Stock of any
additional shares of stock of any class or other rights;
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(c) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
statutory exchange or any consolidation of the Company or merger of the Company
with, or sale of all or substantially all of its assets to, another Person;
(d) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) a voluntary dissolution, liquidation
or winding-up of the Company; or
(e) the Company shall become subject to involuntary dissolution,
liquidation or winding-up;
then, in any one or more of such cases, the Company shall give notice thereof
to each registered Holder of Warrants or Warrant Shares, specifying (i) the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or (ii) the date on
which such reorganization, reclassification, statutory exchange, consolidation,
merger, sale, dissolution, liquidation or winding-up shall take place or be
voted upon by shareholders of the Company, as the case may be. Any such notice
under subsections (a) through (e) of this Section 8 shall also specify the date
as of which the holders of record of the Voting Common Stock and/or Nonvoting
Common Stock shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Voting Common Stock and/or
Nonvoting Common Stock for securities or other property deliverable upon such
reorganization, reclassification, statutory exchange, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be; such notice
shall be given not less than thirty (30) and not more than fifty (50) days
prior to the action in question (except in the case of notice for actions under
Section 8(e), which notice shall be promptly following such action) and not
less than thirty (30) and not more than fifty (50) days prior to the record
date or the date on which the Company's transfer books are closed in respect
thereto, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act or to a favorable vote of shareholders, if either is required.
Section 9. Notices. All notices, requests and other communications
required or permitted to be given or delivered to registered Holders shall be
in writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to each such Holder at the address shown
on such Holder's Warrant or Warrant Shares, or at such other address as shall
have been furnished to the Company by notice from such Holder. All notices,
requests and other communications required or permitted to be given or
delivered to the Company shall be in writing, and shall be delivered, or shall
be sent by certified or registered mail, postage prepaid and addressed, to
Company, as follows:
Kevco, Inc.
1300 South University, Suite 200
Fort Worth, Texas 76107
Attention: President
Telecopy Number: (817) 332-2765
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with a copy to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Byron F. Egan
Telecopy Number: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopy Number: (212) 225-3999
Wingate Partners II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
Attention: Frederick B. Hegi, Jr.
James A. Johnson
Telecopy Number: (214) 871-8799
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Telecopy Number: (214) 746-7777
or at such other address as shall have been furnished to the registered Holders
by notice from the Company. Each such notice sent by mail as described above
shall be deemed received on the date of receipt by the Holder or the Company,
as applicable.
Section 10. No Rights or Liabilities as Shareholder. This Warrant
shall not entitle any Holder hereof to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of the Nonvoting Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Purchase Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
Section 11. Governing Law. This Warrant shall be construed in
accordance with and governed by the laws of the State of Texas, without regard
to the provisions thereof relating to conflict of laws.
Section 12. Confidentiality. By its acceptance hereof each Holder of
this Warrant agrees that it will take all reasonable steps to keep confidential
any proprietary information of the Company furnished to it; provided, however,
that this restriction shall not apply to information which (i) has at the time
in question entered the public domain, (ii) is required to be disclosed by law
or by any order, rule or regulation (whether valid or invalid) of any court
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or governmental agency or authority, or (iii) is furnished to purchasers or
prospective purchasers hereof (exclusive of any Person who competes with, or is
an Affiliate of a Person who competes with, the Company) so long as such
purchasers and prospective purchasers have agreed to be subject to restrictions
identical to those imposed upon such Holder under this sentence.
Section 13. Miscellaneous. Unless otherwise expressly provided herein
or unless the registered Holder hereof otherwise consents in writing, all
financial statements and reports furnished pursuant to Section 6(i) or
otherwise furnished hereunder to the registered Holder hereof shall be prepared
and all computations and determinations pursuant hereto shall be made in
accordance with generally accepted accounting principles applied on a
consistent basis. This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against whom enforcement of the same is sought. The headings in this Warrant
are for purposes of reference only and shall not affect the meaning or
construction of any provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, ___________________________ has caused
this Warrant to be signed and delivered by its duly authorized officer,
attested by its duly authorized officer, and to be dated as of _______________,
199__.
---------------------------------------
By:
------------------------------------
Name:
Title:
ATTEST:
By:
------------------------------------
Name:
Title:
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ASSIGNMENT FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
For Value Received, the Undersigned registered holder hereby
sells, assigns and transfers unto _______________________ the right to purchase
______ shares of the Nonvoting Common Stock covered by the within Warrant, and
does hereby irrevocably constitute and appoint ___________________________ as
Attorney to transfer the said Warrant on the books of the Company (as defined
in said Warrant), with full power of substitution.
Name of Registered Holder:
---------------------------------------
Signature:
---------------------------------------
Title of Signing Officer
---------------------------------------
or Agent (if any):
Address of Registered Holder:
---------------------------------------
---------------------------------------
Dated:
-------------------------
Signed in the presence of
- -------------------------------
83
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
The undersigned registered holder hereby exercises the right
to purchase ______ shares of the Nonvoting Common Stock covered by the within
Warrant, according to the conditions thereof, and herewith makes payment of the
Purchase Price of such shares, $____________.
Name of Registered Holder:
---------------------------------------
Signature:
---------------------------------------
Title of Signing Officer
---------------------------------------
or Agent (if any):
Address of Registered Holder:
---------------------------------------
---------------------------------------
Dated:
-------------------------
84
EXHIBIT A-3
NONVOTING WARRANT
FOR 295,455 NONVOTING WARRANT SHARES
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THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
OF THIS WARRANT WERE PURCHASED PURSUANT TO THE
SECURITIES PURCHASE AGREEMENT DATED AS OF JULY 14,
1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P.
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND
SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS AND
SECTION 3 OF THIS WARRANT.
No. of Nonvoting Shares: 295,455 Shares Warrant No. ____
WARRANT
To purchase Nonvoting Common Stock of
KEVCO, INC.
July ___, 1999
THIS WARRANT CERTIFIES THAT, for value received, the
registered holder hereof, Wingate Partners II, L.P., a Delaware limited
partnership ("Wingate"), or its registered assigns, is entitled to purchase from
Kevco, Inc., a Texas corporation (the "Company"), at any time and from time to
time after the date hereof (the "Initial Issue Date") and on or before 5:00 p.m.
Central Time, on the Expiration Date (as hereinafter defined) 295,455 shares of
the Nonvoting Common Stock (as hereinafter defined) at the Basic Purchase Price
(as hereinafter defined), subject to the terms, conditions, and adjustments as
hereinafter provided in Section 6.
Section 1. Definitions and References. Unless otherwise specified,
references herein to sections, subsections, and similar subdivisions refer to
the sections, subsections, and subdivisions of this Warrant. For all purposes of
this Warrant, the following terms shall have the meanings hereinafter indicated:
"Affiliate" with respect to a party to this Agreement shall
mean any Person that directly or indirectly (through one or more intermediaries
or otherwise) controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used in respect of any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement, or otherwise.
"Amendment" shall mean the Amendment to the Company's Articles
of Incorporation required by the Purchase Agreement to create the Nonvoting
Common Stock, a
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class of preferred stock designated "Series A 103/8% Convertible Pay-in-Kind
Voting Preferred Stock" and a class of preferred stock designated "Series B
103/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" (collectively, the
"Convertible Preferred Stock").
"Basic Purchase Price" shall mean the price of $5.50 per share
of the Nonvoting Common Stock.
"Board of Directors" shall mean the board of directors of the
Company.
"Business Day" shall mean a day on which commercial banks are
open for business with the public in New York, New York.
"Commission" shall mean the Securities and Exchange Commission
and any other similar or successor agency of the federal government then
administering the Securities Act or the Exchange Act.
"Common Stock" shall mean the voting common stock, par value
$.01 per share, of the Company ("Voting Common Stock"), and, after the adoption
of the Amendment the nonvoting common stock, par value $.01 per share, of the
Company ("Nonvoting Common Stock") and any capital stock into which such Common
Stock thereafter may be changed or converted.
"Common Stock Equivalents" shall mean (without duplication
with any other Common Stock or Common Stock Equivalents) rights, warrants,
options, convertible securities or convertible indebtedness, exchangeable
securities or exchangeable indebtedness, or other rights, exercisable for or
convertible or exchangeable into, directly or indirectly, Common Stock, and any
stock appreciation rights or similar rights to payment based upon the value of
the Company's common equity, whether at the time or upon the occurrence of some
future event including all shares of Common Stock issuable in respect of this
Warrant and in respect of the Purchase Agreement and the documents and
instruments executed in connection with the Purchase Agreement and the
transactions contemplated thereby to the extent not issued and outstanding.
"Composite Tape" shall mean, with respect to any security, the
reporting by the National Association of Securities Dealers (or any successor
reporting mechanism) of all trades of such security occurring on all exchanges
on which such security is traded.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time in question.
"Expiration Date" shall mean the fifth anniversary of the
Initial Issue Date.
"Fully-Diluted Common Stock" shall mean, at any time, the then
outstanding shares of Common Stock of the Company plus (without duplication) all
shares of Common Stock issuable, whether at such time or upon passage of time or
the occurrence of future events, upon the exercise, conversion, or exchange of
all then-outstanding Common Stock Equivalents (including, for purposes of such
calculation, "phantom" shares of equivalent value to any stock appreciation or
equivalent equity-based payment right).
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"Holder" shall mean the initial holder of this Warrant, and
any Person to whom this Warrant, or any portion thereof, is subsequently
transferred of record, together with the registered holder(s) of any Warrant
Shares into which this Warrant (or any subsequent Warrant) is subsequently
converted.
"Independent Directors" shall mean any director of the Company
not affiliated with Wingate or its assigns or Jerry E. Kimmel and who does not
have any other relationship (including any relationship, contractual or
otherwise, with Wingate, its assigns or Jerry E. Kimmel) that would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director.
"Kimmel Designees" shall mean Jerry E. Kimmel, if he is a
director of the Company, and any other director of the Company elected or
appointed at the designation of Jerry E. Kimmel.
"Market Price" shall mean, with respect to any Common Stock,
on a per share basis and as of any date, an amount equal to the average, for
each of the ten (10) consecutive Trading Days immediately prior to such date, of
the closing prices for a share of Voting Common Stock on such Trading Day as
reported on the Composite Tape (as reported in The Wall Street Journal or, if
not reported thereby, any other authoritative source). If no price can be
determined under the foregoing, then the "Market Price" shall be deemed to be
the fair market value thereof, as determined by the Special Committee in good
faith as of a date which is within fifteen (15) days preceding the date as of
which the determination is to be made.
"NASDAQ" shall mean the NASDAQ Stock Market.
"Notes" shall mean collectively the $17.0 million and $6.5
million principal amount Series A and Series B Senior Subordinated Convertible
Exchangeable Notes issued by the Company pursuant to the Purchase Agreement.
"Other Warrants" shall mean collectively the warrant to
acquire 675,000 shares of Nonvoting Common Stock and the warrant to acquire
772,727 shares of Nonvoting Common Stock.
"Person" shall mean any individual, partnership, limited
liability company, joint venture, corporation, trust, unincorporated
organization, or other entity.
"Plans" shall mean any plan existing on the date hereof or
adopted by the Company after the date hereof providing for the issuance of
Common Stock or other options or rights to purchase stock, warrants or other
securities.
"Preferred Stock" shall mean collectively the Company's (i)
Series A 10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par value $0.01
per share, and (ii) Series B 10 3/8% Convertible Pay-in-Kind Nonvoting Preferred
Stock, par value $0.01 per share.
"Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of July 14, 1999, by and between the Company and
Wingate.
"Purchase Price" shall mean, as of any date, the Basic
Purchase Price as adjusted pursuant to Section 6.
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"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time in question.
"Special Committee" shall mean a committee of the Board of
Directors composed solely of the Independent Directors and the Kimmel Designees
then in office; provided, however, that such committee shall be constituted such
that a majority of its members shall always be Independent Directors.
"Subsidiary" shall mean, with respect to any Person, any other
Person at least a majority of whose outstanding shares of capital stock or other
equity interests (having ordinary voting power for the election of directors or
comparable managers of such other Person) are owned, directly or indirectly, by
that Person.
"Trading Day" shall mean any day on which NADSAQ is open for
trading, or if the shares of Voting Common Stock are not quoted on NASDAQ, any
day on which the principal national securities exchange or national quotation
system on which the shares of Voting Common Stock are listed, admitted to
trading or quoted is open for trading.
"transfer", as used in Section 3, shall mean any disposition
of this Warrant, any Warrant Shares, or of any interest therein, which would
constitute a sale of or an offer to sell such Warrant or Warrant Shares within
the meaning of the Securities Act.
"Warrant" or "Warrants" shall mean this Warrant and any
Warrant or Warrants issued upon transfer hereof, including all amendments to any
such Warrants and together with all Warrants issued in exchange, transfer or
replacement of any thereof.
"Warrant Shares" shall mean all shares of Common Stock
purchased or purchasable by the registered Holders of the Warrants upon the
exercise thereof, provided that such shares of Common Stock shall be deemed to
include all other shares of Common Stock issued or issuable in connection
therewith, whether as a result of stock dividends, exchanges, stock splits,
reverse stock splits, recapitalizations, mergers, consolidations, or otherwise.
Section 2. Ownership of this Warrant.
(a) Ownership. The Company may deem and treat the Person in whose name
this Warrant is registered as the Holder and owner hereof for all purposes,
notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company, and shall not be affected by any notice to the contrary,
until presentation of this Warrant for registration of transfer as provided in
Section 3. The Company shall maintain, at its office or agency in Fort Worth,
Texas (or at such other office or agency of the Company as the Company shall
designate from time to time by notice to the registered holder of this Warrant),
a register for the Warrants, in which the Company shall record the name and
address of the Person in whose name each Warrant has been issued, as well as the
name and address of each transferee and each prior owner of such Warrant. Within
five (5) Business Days after any Holder shall by notice request the same, the
Company will deliver to such Holder a certificate, signed by one of its
authorized officers, listing the name and address of every other Holder of
Warrants of this series, as such information appears in such register and in the
stock transfer books of the Company at the close of business on the day before
such certificate is signed.
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(b) Term. This Warrant shall be void after 5:00 p.m. Central Time on
the Expiration Date.
Section 3. Exchange, Transfer and Replacement.
(a) Exchange. This Warrant is exchangeable, upon the surrender hereof
by the registered Holder to the Company at its office or agency provided for in
Section 2, for new Warrants of like tenor, representing in the aggregate the
right to purchase the number of shares of the Nonvoting Common Stock purchasable
hereunder or in the aggregate with any other Warrants tendered herewith, each of
such new Warrants to represent the right to purchase such number of shares of
the Nonvoting Common Stock as shall be designated by said registered Holder at
the time of such surrender, not to exceed the aggregate shares of Nonvoting
Common Stock purchasable on the exercise of all such tendered Warrants.
(b) Transfer. This Warrant and all rights hereunder are transferable,
in whole or in part, but only upon the register provided for in Section 2 and
only upon satisfaction of the conditions set forth in this Warrant, by the
registered Holder hereof, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the name of the
transferee, upon surrender of this Warrant with the assignment form attached
hereto duly completed, at said office or agency of the Company. No sale,
transfer, or other disposition of this Warrant or the Warrant Shares issuable
hereunder will be made without registration under the Securities Act and
applicable state securities laws or pursuant to exemptions therefrom. The
Company may, as a condition to any such transfer, require an opinion of counsel
reasonably satisfactory to it that such transfer complies with all applicable
federal and state securities laws.
(c) Replacement. Upon receipt by the Company at its office or agency
provided for in Section 2 of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in the case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor, in replacement of this Warrant; provided
that, if Wingate, Armbuck & Co., H C Crown Corp. or any of their respective
Affiliates shall be the registered holder hereof, an agreement of indemnity (in
form reasonably satisfactory to the Company) by such registered Holder shall be
sufficient for all purposes of this Section 3.
(d) Cancellation and Taxes. This Warrant shall be promptly cancelled by
the Company upon the surrender hereof in connection with any exchange, transfer
or replacement pursuant to this Section 3. The Company shall pay all taxes and
other expenses and charges payable in connection with the preparation, execution
and delivery of Warrants pursuant to this Section 3, excluding, however, any
thereof imposed on or measured by the overall net income of the Holder of this
Warrant or any other Person by any jurisdiction in which such Holder or such
other Person is located.
(e) Legend. All Warrants issued upon transfer hereof, including all
amendments to any such Warrants shall be imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
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THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
WARRANT WERE PURCHASED PURSUANT TO THE SECURITIES PURCHASE AGREEMENT DATED AS OF
JULY 14, 1999, BETWEEN KEVCO, INC. AND WINGATE PARTNERS II, L.P. NEITHER THIS
WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW AND SECTION 3 OF THIS
WARRANT.
Section 4. Exercise of This Warrant.
(a) Procedure for Exercise.
(i) In order to exercise this Warrant in whole or in part, the
registered Holder hereof shall complete a subscription form in the form attached
hereto and deliver to the Company at its office or agency provided for in
Section 2 such subscription form, this Warrant and the aggregate Purchase Price
of the shares of the Nonvoting Common Stock then being purchased; provided that
any single exercise of this Warrant not made in whole must be for a minimum of
5,000 Warrant Shares.
(ii) Such Purchase Price shall be paid to the Company in lawful
money of the United States by company check of Wingate or an Affiliate of
Wingate, or, if the Holder is other than Wingate or an Affiliate of Wingate, by
certified check drawn as a banking institution chartered by the government of
the United States or any state thereof or wire transfer of funds.
(iii) The exercise of this Warrant shall be deemed to have been
effected and the Purchase Price and the number of shares of the Nonvoting Common
Stock issuable in connection with such exercise shall be determined as of the
close of business on the Business Day on which the last to be delivered of such
completed subscription form and all other items required to be delivered in
connection with such exercise by the registered Holder hereof pursuant to this
Section 4 shall have been delivered at the requisite office or agency of the
Company. Upon receipt of such form and other items, the Company shall, as
promptly as practicable, and in any event within five (5) Business Days
thereafter, issue such shares of Nonvoting Common Stock and execute or cause to
be executed and delivered to the registered Holder hereof a certificate or
certificates representing the aggregate number of shares of the Nonvoting Common
Stock specified in such form. The Holder shall be deemed to be a shareholder of
the Company for all purposes upon receipt of such form and other items,
notwithstanding the fact that certificates representing such Nonvoting Common
Stock have not been issued. If this Warrant shall have been exercised only in
part, the Company shall, at its expense at the time of delivery of such stock
certificate or certificates, deliver to the registered Holder hereof a new
Warrant evidencing the rights of such Holder to purchase the remaining shares of
the Nonvoting Common Stock covered by this Warrant. The Company shall pay all
taxes (other than any taxes imposed on or measured by the overall net income of
such Holder in any jurisdiction in which such Holder is located) and other
expenses and charges payable in
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connection with the preparation, execution and delivery of stock certificates
pursuant to this Section 4.
(b) Character of Warrant Shares. All shares of the Nonvoting Common
Stock issuable upon the exercise of this Warrant shall, when issued and paid for
in accordance with such Warrant, be duly authorized, validly issued, fully paid,
and nonassessable.
Section 5. Payment of Taxes. The Company shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Warrant Shares or of other securities or property
deliverable upon exercise of the Warrants evidenced by this Warrant representing
such shares or securities (other than income taxes imposed on Holders); provided
that the Company shall not be required to pay any such tax or other charge that
may be imposed in connection with any transfer involved in the issue of any
certificate for Warrant Shares or other securities or property, or payment of
cash, to any Person other than the Holder who surrendered a Warrant upon
exercise, and in case of any such tax or charge, the Company shall not be
required to issue any security or property or pay any cash until such tax or
charge has been paid or it has been established to the Company's satisfaction
that no such tax or charge is payable.
Section 6. Share Adjustment Provisions; Adjustment of Purchase Price.
The Purchase Price from time to time in effect under this Warrant, and the
number of Warrant Shares subject to purchase hereunder, shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.
(a) Common Stock Splits. Upon any subdivision by the Company on or
after the Initial Issue Date of all of its outstanding shares of Common Stock
into a greater number of shares or upon any issuance by the Company on or after
such date of a greater number of shares of Common Stock in a pro rata exchange
for all of its outstanding shares of Common Stock, then in each case from and
after the record date for such subdivision or exchange the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be increased in
proportion to such increase in the number of outstanding shares of Common Stock,
and the Purchase Price then in effect shall be correspondingly decreased. Upon
any pro rata reduction by the Company on or after the Initial Issue Date of its
outstanding shares of Common Stock as a whole or upon any issuance by the
Company after such date of a lesser number of shares of Common Stock in a pro
rata exchange for all of its outstanding shares of Common Stock, then in each
case from and after the record date for such reduction or exchange the number of
Warrant Shares purchasable upon the exercise of this Warrant shall be decreased
in proportion to such reduction in the number of outstanding shares of Common
Stock, and the Purchase Price shall be correspondingly increased.
(b) Common Stock Dividends. Upon any declaration and payment by the
Company on or after the Initial Issue Date of a dividend upon Common Stock
payable in Common Stock, then in each case from and after the record date for
the payment of such stock dividend, the number of Warrant Shares purchasable
upon the exercise of this Warrant shall be increased in proportion to the
increase in the number of outstanding shares of Common Stock through such stock
dividend, and the Purchase Price shall be correspondingly decreased.
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(c) Other Issues. Upon any issuance by the Company of shares of Common
Stock on or after the Initial Issue Date (other than issuances of stock
requiring adjustments hereunder pursuant to the immediately preceding
subsections (a) and (b) of this Section 6) for a consideration lower than the
Market Price per share of stock in effect immediately prior to such issuance,
the Purchase Price then in effect shall be reduced to equal the following
amount:
[(D x E) + F]
G x -------------
C x E
where C equals the number of shares of Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Common Stock outstanding immediately prior to the issue of such additional
Common Stock, E equals the Market Price per share of stock in effect immediately
prior to the issue of such additional Common Stock, F equals the aggregate
consideration (before deducting underwriting discounts, commissions, and other
expenses) received or to be received by the Company in connection with the
issuance of such additional Common Stock, and G equals the Purchase Price which
would have been in effect immediately prior to such issuance had all previous
adjustments (if any) under this subsection (c) been made pursuant to the
foregoing formula. Upon any such reduction in the Purchase Price, the number of
Warrant Shares purchasable upon the exercise of this Warrant shall be
correspondingly increased. The provisions of this subsection (c) shall not be
applicable to any issuance of Common Stock upon actual exercise or actual
conversion of any option, warrant, right, or other security convertible into or
exercisable for Common Stock if the Purchase Price was fully and properly
adjusted pursuant to the immediately following subsection (d) at the time such
option, warrant, right, or other security was issued.
(d) Common Stock Options; Subscription Rights; Convertible Securities.
Upon any issuance by the Company on or after the Initial Issue Date of options,
warrants, or rights to subscribe for shares of Common Stock or of any securities
convertible into or exchangeable for shares of Common Stock or of any similar
securities for a consideration per share other than the Market Price in effect
immediately prior to the issuance of such options, warrants, rights or
securities, the Purchase Price shall be reduced (and the number of shares of
Common Stock purchasable upon the exercise of this Warrant shall be
appropriately increased), by making computations in accordance with subsection
(c) of this Section 6; provided that:
(i) The maximum number of shares of Common Stock deliverable under
any such option, warrant, or right shall be considered to have been delivered at
the time such option, warrant, or right was issued, for a consideration equal to
the minimum purchase price per share of Common Stock provided for in such
option, warrant, or right plus the consideration, if any, received by the
Company for such option, warrant, or right (before deducting underwriting
discounts, commissions, and other expenses);
(ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such securities or rights
shall be considered to have been delivered at the time of issuance of such
securities or rights, for a consideration equal to the consideration received by
the Company for such securities or rights (before deducting underwriting
discounts, commissions, and other expenses) plus the minimum consideration
(other than such securities) to be received by the Company upon the exchange or
conversion of such securities or rights;
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(iii) If the purchase or conversion price provided for in any
options, warrants, or rights referred to above, the additional consideration, if
any, payable upon the conversion or exchange of convertible securities or rights
referred to above, or the rate at which any convertible securities or rights
referred to above are convertible into or exchangeable for shares of Common
Stock shall change (other than under or by reason of provisions designed to
protect against dilution), the Purchase Price (and the number of shares of
Nonvoting Common Stock purchasable upon the exercise of this Warrant) in effect
at the time of such event shall be readjusted to the Purchase Price (and the
number of shares of Nonvoting Common Stock purchasable upon the exercise of this
Warrant) which would have been in effect at such time had such rights, options,
warrants, or convertible securities still outstanding provided for such new
purchase or conversion price, additional consideration, or conversion rate, as
the case may be, at the time initially granted, issued, or sold. If the purchase
or conversion price provided for in any such option, warrant, or right referred
to above, the additional consideration, if any, payable upon the conversion or
exchange of convertible securities or rights referred to above, or the rate at
which any convertible securities or rights referred to above are convertible
into or exchangeable for shares of Common Stock shall be changed at any time by
reason of provisions designed to protect against dilution, then when shares of
Common Stock are delivered upon the exercise of any such option, warrant, or
right or upon conversion or exchange of any such convertible security or rights,
the Purchase Price (and the number of shares of Common Stock purchasable upon
the exercise of this Warrant) then in effect hereunder shall be readjusted to
such amount as would have been obtained had such option, warrant, right, or
convertible security never been issued as to such shares of Common Stock and had
the adjustments required hereunder been made at the time of the issuance of the
shares of Common Stock delivered as aforesaid; and
(iv) On the expiration of any such options, warrants, or rights or
at the termination of any such rights to convert or exchange, the Purchase Price
(and the number of shares of Common Stock purchasable upon the exercise of this
Warrant) then in effect shall be readjusted to the Purchase Price (and the
number of shares of Common Stock purchasable upon the exercise of this Warrant)
which would have been in effect had the adjustments (and readjustments) made
upon the issuance of such expired or terminated options, warrants, rights, or
securities (or upon the occurrence of any event with respect thereto specified
in the immediately preceding subsection (iii)) been made without reference to
the number of shares of Common Stock subject to such terminated or expired
options, warrants, rights, or securities. Notwithstanding the prior sentence,
the Holder shall not be required to surrender or adjust any shares of Common
Stock theretofore received by the Holder upon exercise of a Warrant.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Initial Issue Date the Company
shall distribute to all holders of shares of Common Stock of any class evidences
of its indebtedness or assets (excluding any regular periodic cash dividend) or
a distribution in partial liquidation, each payable otherwise than in shares of
Common Stock or in securities to which the provisions of the immediately
following subsection (e)(ii) are applicable, the Company shall pay to the Holder
of this Warrant, upon the exercise hereof at any time on or after the payment of
such dividend or distribution, the securities and other property (including
cash) which such Holder would have received (together with all subsequent
dividends and distributions thereon) if such Holder had exercised or converted
this Warrant on the record date fixed in connection with such dividend or
distribution, and the Company shall take whatever steps are necessary or
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appropriate to keep in reserve at all times any securities and other properties
which are required to fulfill such obligations of the Company. Notwithstanding
the foregoing, the rights of the Holder hereof under this subsection (e)(i) upon
the Company's declaration of a dividend or distribution in partial liquidation
payable only in securities convertible into shares of Common Stock may be
exercised only in lieu of any adjustment (in this subsection (e) called a
"subsection (d) adjustment") because of such dividend or distribution called for
under subsection (d) of this Section 6, and upon exercise hereof such holder
must elect (as indicated in the Subscription Form attached hereto) either such
subsection (d) adjustment or the rights and benefits provided for in this
subsection (e)(i). For the purposes of determining the Purchase Price from time
to time in effect and the number of shares from time to time subject hereto
prior to the exercise hereof, it shall be assumed that the Holder hereof will so
elect subsection (d) adjustments, but upon any election of the rights and
benefits provided for in this subsection (e)(i) made at the time of exercise
hereof the Purchase Price then in effect (and the number of outstanding shares
of Nonvoting Common Stock purchasable upon such exercise) shall be redetermined
to equal the amounts which would have been in effect had such subsection (d)
adjustments never been made. Notwithstanding the provisions of this subsection
(e)(i), in no event shall any Holder have the right to receive, or to elect to
receive, Voting Common Stock pursuant to this subsection if, as a result
thereof, a "change of control" could be deemed to occur under that certain
Indenture dated as of December 1, 1997 by and among the Company, the Subsidiary
Guarantors (as defined therein) and United States Trust Company of New York, as
Trustee, and, in lieu thereof, the Holder shall have the right to receive, or
the right to elect to receive, an equivalent number of shares of Nonvoting
Common Stock.
(ii) If at any time on or after the date hereof the Company shall
grant, issue, or sell any options or rights to purchase stock, warrants,
securities, or other property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), then each Holder shall be entitled (but not
obligated) to acquire, in lieu of any subsection (d) adjustment in respect of
and upon the terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such Holder could have acquired if it had held the number of shares
of Nonvoting Common Stock purchasable upon exercise of the Warrants immediately
prior to the time or times at which the Company granted, issued, or sold such
Purchase Rights.
(f) Additional Adjustments.
(i) If at any time or from time to time conditions arise by
reason of action taken by the Company which are not adequately covered by the
provisions of this Section 6, and which might materially and adversely affect
the exercise rights of the Holders of Warrants, upon the request of a majority
in interest of the Holders the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), whi ch shall give their opinion upon the
adjustment, if any, of the number of Warrant Shares purchasable upon the
exercise of the Warrants, on a basis consistent with the standards established
in the other provisions of this Section 6 and assuming all other adjustments
required pursuant to this Section 6 have been made, necessary in order to
preserve without diminution the rights of the holders of the Warrants. Upon
receipt of such opinion, the Board of Directors of the Company shall forthwith
make the adjustments described therein.
(ii) Notwithstanding any other provision hereof, any antidilution
adjustments made pursuant to the terms hereof or of the Notes, the Other
Warrants, or the
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Preferred Stock shall be deemed to be made to all warrants held by the Holders
or their Affiliates in this series simultaneously, the intention being to avoid
any iterative calculations.
(g) Effect of Reorganization and Asset Sales. If any capital
reorganization of the Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Nonvoting Common
Stock shall be entitled to receive stock, securities, or assets (including cash)
of the Company or another Person with respect to or in exchange for Nonvoting
Common Stock (each such transaction being hereinafter referred to as a
"Transaction"), then, as a condition of the consummation of each Transaction,
lawful and adequate provisions shall then be made so that each Holder, upon the
exercise hereof at any time after the consummation of such Transaction, shall be
entitled to receive, and such Warrants shall thereafter represent the right to
receive, in lieu of the Nonvoting Common Stock issuable upon exercise or
conversion hereof but otherwise upon and subject to all terms and conditions
hereof, the cash, securities or other property to which such Holder would have
been entitled upon the consummation of such Transaction if such Holder had
exercised or converted such Warrants immediately prior thereto (subject to
adjustments from and after the consummation date of such Transaction as nearly
equivalent as possible to the adjustments provided for in this Section 6). The
Company shall not effect any Transaction unless prior to the consummation
thereof each Person (other than the Company) which may be required to deliver
any securities or other property upon the exercise of the Warrants as provided
herein shall assume, by written instrument delivered to each registered Holder
of the Warrants in form and substance reasonably satisfactory to a majority in
interest of the Holders, the obligation to continue to honor this Warrant and to
deliver to such Holder such securities or other property to which, in accordance
with the foregoing provisions, such Holder may be entitled, and such Person
shall have similarly delivered to each registered Holder an opinion of counsel
for such Person, in substance and from such counsel as is acceptable to the
Holders, stating that all the outstanding Warrants shall thereafter continue in
full force and effect and shall be enforceable against such Person in accordance
with the terms hereof and thereof.
(h) Notice of Adjustment or Substitution. On the happening of an event
requiring an adjustment of the Purchase Price and upon each change in the number
of Warrant Shares issuable upon the exercise of this Warrant, and in the event
of any change in the rights of the Holder of this Warrant by reason of other
events herein set forth, the Company shall as soon as practicable give written
notice ("Notice of Adjustment") to the registered Holder(s) of this Warrant: (i)
describing the event; (ii) stating the adjusted Purchase Price, the number of
Warrant Shares issuable based upon the difference between the Purchase Price
before and after such adjustment; and (iii) stating how such adjustment of
Purchase Price or number of Warrant Shares was calculated and the facts on which
the calculation is based.
(i) Accountant's Opinion. Upon each adjustment of the Purchase Price
and upon each change in the number of Warrant Shares issuable upon the exercise
of this Warrant, and in the event of any change in the rights of the Holder of
this Warrant by reason of other events herein set forth, then and in each such
case, upon the reasonable written request of 50% in interest of the registered
Holders of Warrants in this series given to the Company within thirty (30) days
after the Company has given the Notice of Adjustment, the Company will promptly
obtain an opinion of independent certified public accountants selected by the
Company and reasonably satisfactory to such Holder(s), stating the adjusted
Purchase Price and the new
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number of Warrant Shares so issuable, or specifying the other shares of stock,
securities, or assets and the amount thereof receivable as a result of such
adjustment or change in rights, and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company will promptly mail a copy of such accountant's opinion to the registered
Holder of this Warrant. The costs of the accountant's opinion shall be borne (i)
by the Company, if the accountant's opinion reflects any change to the adjusted
Purchase Price or the number of Warrant Shares so issuable set forth in the
Notice of Adjustment, or (ii) by the Holders, if the accountant's opinion
reflects no change to the adjusted Purchase Price or the number of Warrant
Shares so issuable set forth in the Notice of Adjustment. Any dispute or
controversy in respect of the accountant's opinion shall be submitted to final
and binding arbitration in Dallas, Texas pursuant to the rules of the American
Arbitration Association. All costs and expenses (including reasonable attorneys'
fees) incurred by the Company and the Holders in connection with any such
arbitration proceeding shall be paid by the non-prevailing party (as determined
by the arbitrator(s)).
(j) Adjustment of Less Than $.01. The Company shall not be required to
give notice of any adjustment of the Purchase Price in accordance with
subsection (h) above if the amount of such adjustment shall be less than $.01,
but in such case any such adjustment shall be carried forward and notice thereof
shall be given at the time of and together with the next subsequent adjustment,
which, together with any adjustment so carried forward, shall amount to not less
than $.01 per share; provided, however, that notice of each such adjustment of
the Purchase Price shall be given not later than three years from the date such
adjustment would have been required to be made except for the provisions of this
subsection (j).
(k) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company or any of its subsidiaries, but the disposition of any such
shares to a third party shall be considered an issue or sale of Common Stock for
the purposes of this Section 6.
(l) Adjustment Exceptions. Anything in this Section 6 to the contrary
notwithstanding, no adjustment of the Purchase Price or the number of Warrant
Shares issuable upon the exercise of this Warrant shall be made upon (i) the
issuance of any Warrants, (ii) the issuance of any Warrant Shares, (iii) the
granting of any warrant concurrently with the granting of this Warrant,
including warrants granted under the Purchase Agreement, (iv) the issuance of
any shares of Common Stock upon the exercise of any warrant granted concurrently
with the granting of this Warrant, including warrants granted under the Purchase
Agreement, (v) the issuance of any Convertible Preferred Stock by the Company in
lieu of paying cash interest on the Notes, (vi) the issuance of any shares of
Common Stock upon the exchange of the Notes or conversion of any Convertible
Preferred Stock issued in lieu of cash interest on the Notes or in exchange for
the Notes, (vii) the issuance of rights to acquire shares of Common Stock as a
result of any antidilution adjustments in any of the foregoing, (viii) the
issuance of any shares of Common Stock or other options or rights to purchase
stock, warrants, other securities pursuant to a Plan, and (ix) the issuance of
shares of Common Stock or rights to acquire Common Stock in connection with any
redemption pursuant to Article 3 of either of the Notes or in connection with
any redemption of Preferred Stock.
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Section 7. Special Agreements of the Company. The Company covenants and
agrees that:
(a) Will Reserve Shares. The Company will authorize, reserve and set
apart and have available solely for issuance and delivery upon exercise at all
times, free from preemptive rights, those shares of the Nonvoting Common Stock
or other securities which are deliverable upon the exercise of the Warrants, and
the Company will have at all times all other rights or privileges necessary to
enable it at any time to fulfill all its obligations hereunder.
(b) Will Avoid Certain Actions. The Company will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, issue or sale of securities or otherwise, avoid or take
any action which would have the effect of avoiding the observance or performance
of any of the terms to be observed or performed hereunder by the Company
(including, without limitation, by way of amending, altering, modifying, or
repealing any provision of the Company's Articles of Incorporation in any manner
which adversely affects the relative rights, preferences, qualifications,
powers, limitations or restrictions of the Nonvoting Common Stock), but will at
all times in good faith assist in carrying out all of the Company's obligations
pursuant to the provisions of this Warrant and in taking all such action as may
be necessary or appropriate in order to protect the rights of the registered
holder of this Warrant against dilution or other impairment, and, in particular,
will not permit the par value, if any, of any share of the Nonvoting Common
Stock to be or become greater than the then effective Purchase Price.
(c) Will List on Securities Exchange. If and so long as the Common
Stock is listed on any national securities exchange (as defined in the Exchange
Act) or automatic quotation system, the Company will, at its expense, use its
reasonable best efforts to obtain and maintain the approval for listing on each
such exchange upon official notice of issuance of all shares of the Nonvoting
Common Stock receivable upon the exercise of the Warrants at the time
outstanding and in any event will use its reasonable best efforts to obtain and
maintain the listing of such shares after their issuance; and the Company will
so list on such national securities exchange or automatic quotation system, to
register under the Exchange Act (and any similar state statute then in effect),
and to maintain such listing of, any other securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange by the
Company.
(d) Will Bind Successors. This Warrant will be binding upon any Person
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
Section 8. Notifications by the Company. If at any time:
(a) the Company shall declare upon the Common Stock any dividend or
other distribution to the holders of the Common Stock;
(b) the Company shall make an offer for subscription pro rata to the
holders of the Voting Common Stock and/or Nonvoting Common Stock of any
additional shares of stock of any class or other rights;
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(c) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any statutory
exchange or any consolidation of the Company or merger of the Company with, or
sale of all or substantially all of its assets to, another Person;
(d) the Board of Directors of the Company shall authorize (whether
definitively or subject to any conditions) a voluntary dissolution, liquidation
or winding-up of the Company; or
(e) the Company shall become subject to involuntary dissolution,
liquidation or winding-up;
then, in any one or more of such cases, the Company shall give notice thereof to
each registered Holder of Warrants or Warrant Shares, specifying (i) the date on
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or (ii) the date on which such
reorganization, reclassification, statutory exchange, consolidation, merger,
sale, dissolution, liquidation or winding-up shall take place or be voted upon
by shareholders of the Company, as the case may be. Any such notice under
subsections (a) through (e) of this Section 8 shall also specify the date as of
which the holders of record of the Voting Common Stock and/or Nonvoting Common
Stock shall participate in such dividend, distribution or subscription rights,
or shall be entitled to exchange their Voting Common Stock and/or Nonvoting
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, statutory exchange, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be; such notice
shall be given not less than thirty (30) and not more than fifty (50) days prior
to the action in question (except in the case of notice for actions under
Section 8(e), which notice shall be promptly following such action) and not less
than thirty (30) and not more than fifty (50) days prior to the record date or
the date on which the Company's transfer books are closed in respect thereto,
and such notice shall state that the action in question or the record date is
subject to the effectiveness of a registration statement under the Securities
Act or to a favorable vote of shareholders, if either is required.
Section 9. Notices. All notices, requests and other communications
required or permitted to be given or delivered to registered Holders shall be in
writing, and shall be delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to each such Holder at the address shown on
such Holder's Warrant or Warrant Shares, or at such other address as shall have
been furnished to the Company by notice from such Holder. All notices, requests
and other communications required or permitted to be given or delivered to the
Company shall be in writing, and shall be delivered, or shall be sent by
certified or registered mail, postage prepaid and addressed, to Company, as
follows:
Kevco, Inc.
1300 South University, Suite 200
Fort Worth, Texas 76107
Attention: President
Telecopy Number: (817) 332-2765
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with a copy to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attention: Byron F. Egan
Telecopy Number: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopy Number: (212) 225-3999
Wingate Partners II, L.P.
750 North St. Paul, Suite 1200
Dallas, Texas 75201
Attention: Frederick B. Hegi, Jr.
James A. Johnson
Telecopy Number: (214) 871-8799
with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Mary R. Korby
Telecopy Number: (214) 746-7777
or at such other address as shall have been furnished to the registered Holders
by notice from the Company. Each such notice sent by mail as described above
shall be deemed received on the date of receipt by the Holder or the Company, as
applicable.
Section 10. No Rights or Liabilities as Shareholder. This Warrant shall
not entitle any Holder hereof to any of the rights of a shareholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase shares of the Nonvoting Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
Section 11. Governing Law. This Warrant shall be construed in
accordance with and governed by the laws of the State of Texas, without regard
to the provisions thereof relating to conflict of laws.
Section 12. Confidentiality. By its acceptance hereof each Holder of
this Warrant agrees that it will take all reasonable steps to keep confidential
any proprietary information of the Company furnished to it; provided, however,
that this restriction shall not apply to information which (i) has at the time
in question entered the public domain, (ii) is required to be disclosed by law
or by any order, rule or regulation (whether valid or invalid) of any court
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100
or governmental agency or authority, or (iii) is furnished to purchasers or
prospective purchasers hereof (exclusive of any Person who competes with, or is
an Affiliate of a Person who competes with, the Company) so long as such
purchasers and prospective purchasers have agreed to be subject to restrictions
identical to those imposed upon such Holder under this sentence.
Section 13. Miscellaneous. Unless otherwise expressly provided herein
or unless the registered Holder hereof otherwise consents in writing, all
financial statements and reports furnished pursuant to Section 6(i) or otherwise
furnished hereunder to the registered Holder hereof shall be prepared and all
computations and determinations pursuant hereto shall be made in accordance with
generally accepted accounting principles applied on a consistent basis. This
Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against whom
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any
provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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101
IN WITNESS WHEREOF, ___________________________ has caused
this Warrant to be signed and delivered by its duly authorized officer,
attested by its duly authorized officer, and to be dated as of _______________,
199__.
------------------------------------------
By:
---------------------------------------
Name:
Title:
ATTEST:
By:
---------------------------------------
Name:
Title:
17
102
ASSIGNMENT FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
For Value Received, the Undersigned registered holder hereby
sells, assigns and transfers unto _______________________ the right to purchase
______ shares of the Nonvoting Common Stock covered by the within Warrant, and
does hereby irrevocably constitute and appoint ___________________________ as
Attorney to transfer the said Warrant on the books of the Company (as defined in
said Warrant), with full power of substitution.
Name of Registered Holder:
-----------------------------------------
Signature:
-----------------------------------------
Title of Signing Officer
-----------------------------------------
or Agent (if any):
Address of Registered Holder:
-----------------------------------------
-----------------------------------------
Dated:
--------------------------
Signed in the presence of
- ------------------------------------------------
103
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
-----------------------------------
The undersigned registered holder hereby exercises the right
to purchase ______ shares of the Nonvoting Common Stock covered by the within
Warrant, according to the conditions thereof, and herewith makes payment of the
Purchase Price of such shares, $____________.
Name of Registered Holder:
-----------------------------------------
Signature:
-----------------------------------------
Title of Signing Officer
-----------------------------------------
or Agent (if any):
Address of Registered Holder:
-----------------------------------------
-----------------------------------------
Dated:
--------------------------
104
EXHIBIT B
TRANCHE A NOTE
105
THIS TRANCHE A SENIOR SUBORDINATED EXCHANGEABLE NOTE AND THE SECURITIES
REPRESENTED HEREBY HAVE BEEN PURCHASED PURSUANT TO A SECURITIES PURCHASE
AGREEMENT DATED AS OF JULY 14, 1999, BETWEEN THE COMPANY AND WINGATE PARTNERS
II, L.P. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES
AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS TRANCHE A SENIOR
SUBORDINATED EXCHANGEABLE NOTE. THIS TRANCHE A SENIOR SUBORDINATED EXCHANGEABLE
NOTE WAS ISSUED ON THE DATE HEREOF WITH ORIGINAL ISSUE DISCOUNT. THE ISSUE PRICE
OF THIS NOTE IS _________________. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
ATTRIBUTABLE TO THIS NOTE IS $[21,594,775](1). THE ISSUE DATE OF THIS NOTE IS
JULY ___, 1999. THE YIELD TO MATURITY OF THIS NOTE IS ____%.
TRANCHE A SENIOR SUBORDINATED EXCHANGEABLE NOTE
$17,000,000.00 July ___, 1999
FOR VALUE RECEIVED, Kevco, Inc., a Texas corporation, hereby promises
to pay to the order of _______________________________________, the principal
sum of SEVENTEEN MILLION AND NO/100 DOLLARS ($17,000,000.00), together with
interest, as hereinafter described.
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions.
"10 3/8% Senior Subordinated Notes" means the Company's 10 3/8% Senior
Subordinated Notes due December 1, 2007.
"Acceleration Notice" has the meaning specified in Section 5.2.
"Acquired Indebtedness" means, in respect of the Company or any of its
Subsidiaries, (i) Indebtedness of any other Person existing at the time such
other Person is merged with or into or becomes a Subsidiary of the Company or
any of its Subsidiaries, including, without limitation, Indebtedness Incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Subsidiary of the Company or any of its Subsidiaries and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by the Company or
any of its Subsidiaries.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause
- --------
(1) Calculated as of July 12, 1999.
106
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement, or otherwise; provided, however,
that Beneficial Ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Aggregate Common Stock" means the Voting Common Stock and the
Nonvoting Common Stock.
"Amendment" has the meaning specified in the Purchase Agreement.
"Applicable Law" means the applicable laws of the State of Texas or
applicable laws of the United States, whichever laws allow the greater rate of
interest, as such laws now exist or may be changed or amended or come into
effect in the future.
"Asset Sale" means (a) the direct or indirect sale, lease, license,
conveyance, transfer, or other disposition of any assets or rights (including,
without limitation, by way of a sale and leaseback or similar arrangement, by
merger or consolidation) by the Company or any of its Subsidiaries (a
"disposition"), in one transaction or a series of transactions; provided,
however, that the disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the provisions
of Section 4.1 and/or the provisions of Section 4.8 and not by the provisions of
Section 4.2 and (b) the issuance or disposition by the Company or any of its
Subsidiaries of Equity Interests of the Company's Subsidiaries. Notwithstanding
the foregoing, none of the following will be deemed an Asset Sale: (i) a
disposition of assets by the Company to a Subsidiary of the Company or by a
Subsidiary of the Company to the Company or to another Subsidiary of the
Company; (ii) an issuance of Equity Interests by a Subsidiary of the Company to
the Company or to another Subsidiary of the Company; (iii) a Restricted Payment
that is permitted by Section 4.3; (iv) dispositions of $250,000 or less; (v)
dispositions of assets or rights in the ordinary course of business consistent
with past practices; (vi) the grant in the ordinary course of business of any
non-exclusive license of intellectual property rights; (vii) any liquidation of
any Cash Equivalents; (viii) any disposition of defaulted receivables for
collection; and (ix) the grant of any Lien securing Indebtedness (or any
foreclosure thereon) to the extent that such Lien is granted in compliance with
Section 4.5.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of the date of determination, in respect of
any security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Law" means Title II, U.S. Code or any similar federal or
state law for the relief of debtors.
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107
"Beneficial Owner" or "beneficial owner" (including, with correlative
meanings, the terms "Beneficial Ownership" and "Beneficially Owns") for purposes
of the definition of Change of Control has the meaning attributed to it in Rules
13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether
or not applicable, except that a "person" (as such term is used in Sections
13(d)(3) of the Exchange Act) shall be deemed to have "Beneficial Ownership" of
all shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time or is exercisable only
upon the occurrence of a subsequent condition.
"Benefitted Party" has the meaning specified in Section 7.1(a).
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to each Holder.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday, and
Friday which is not a day on which banking institutions in Fort Worth, Texas are
authorized or obligated by law or executive order to close.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights, or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited), and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations
of such Person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) Government Securities having maturities of
not more than 12 months from the date of acquisition, (ii) certificates of
deposit and eurodollar time deposits with maturities of 12 months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any member bank of the
U.S. Federal Reserve System having capital and surplus in excess of
$500,000,000, (iii) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any financial institution meeting the qualifications specified
in clause (ii) above, and (iv) commercial paper having the rating of at least
P-1 from Moody's Investors Services, Inc. ("Moody's"), or any successor to its
rating business, or at least A-1 from Standard & Poor's Ratings Services
("S&P"), or any successor to its rating business, and in each case maturing
within 180 days after the date of acquisition.
"Change of Control" means the occurrence or existence of any of the
following events or circumstances after the Issue Date: (i) a "person" or
"group" (within the meaning of
3
108
Sections 13(d) and 14(d)(2) of the Exchange Act) (other than any person or group
comprised solely of any or all of the Initial Investors or their Affiliates)
becomes the Beneficial Owner of 50% or more of the Voting Common Stock or Jerry
E. Kimmel, his family members, heirs, estate or Affiliates, individually or
collectively become the Beneficial Owners of more than 46% of the Voting Common
Stock (an "Acquiring Person"); or (ii) a sale or transfer of all or
substantially all of the assets of the Company and its Subsidiaries, taken as a
whole, to any person or group (other than any person or group consisting solely
of any or all of the Initial Investors or their respective Affiliates) has been
consummated; or (iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors (together
with any new directors whose election was approved by a vote of a majority of
the directors then still in office, who either were directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors of the
Company then in office, other than as a result of a reduction of the number of
directors comprising the Board of Directors, pursuant to the provisions of the
Company's Articles of Incorporation or under the terms of the Senior Credit
Facility. Notwithstanding the foregoing, for purposes of clause (i) above, a
Change of Control shall not be deemed to have occurred if any person or group
becomes an Acquiring Person through one or more transactions which includes the
acquisition, directly or indirectly, of any of the Voting Common Stock
Beneficially Owned by the Initial Investors or their Affiliates, unless such
action is part of a transaction, including a tender or exchange offer, merger,
consolidation, or other business combination, in which such person or group
acquires or offers to acquire, on substantially the same terms and conditions as
those applicable to the Initial Investors and their Affiliates, substantially
the same proportion of shares of the outstanding Voting Common Stock held by the
remaining shareholders; provided, however, that a Change of Control may occur
notwithstanding the fact that (i) holders of Voting Common Stock may elect more
than one form of consideration in such transaction or (ii) such holders may
receive cash in lieu of the purchase of fractional shares.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means Kevco, Inc., a Texas corporation, and any successor
thereto permitted pursuant to Section 4.8.
"Composite Tape" means in respect of any security, the reporting by the
National Association of Securities Dealers, Inc. (or any successor reporting
mechanism) of all trades of such security occurring on all exchanges on which
such security is traded.
"Consolidated Coverage Ratio" of any Person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(a) the aggregate amount of Consolidated EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses discounted or disposed of) for the Reference Period to
(b) the aggregate Consolidated Fixed Charges of such Person (exclusive of
amounts attributable to operations and businesses discontinued or disposed of,
but only to the extent that the obligations giving rise to such Consolidated
Fixed Charges would no longer be obligations contributing to such Person's
Consolidated Fixed Charges subsequent to the Transaction Date) during the
Reference Period; provided, however, that for purposes of such calculation, (i)
acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period, (ii) transactions giving
rise to the need to calculate the
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Consolidated Coverage Ratio shall be assumed to have occurred on the first day
of the Reference Period, (iii) the Incurrence of any Indebtedness or issuance of
any Disqualified Stock during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date (and the application of
the proceeds therefrom to the extent used to refinance or retire other
Indebtedness) shall be assumed to have occurred on the first day of such
Reference Period, and (iv) the Consolidated Fixed Charges of such Person
attributable to interest on any Indebtedness or dividends on any Disqualified
Stock bearing a floating interest (or dividend) rate shall be computed on a pro
forma basis as if the average rate in effect from the beginning of the Reference
Period to the Transaction Date had been the applicable rate for the entire
period, unless such Person or any of its Subsidiaries is a party to a Hedging
Obligation (which by its terms will remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used. For purposes of this definition whenever pro
forma effect is to be given to a transaction, the pro forma calculations of
Consolidated EBITDA and Consolidated Fixed Charges shall be made in accordance
with Article 11 of Regulation S-X of the Commission and subject to agreed-upon
procedures to be performed by the Company's independent accountants to determine
whether the pro forma calculations are made in accordance with Article 11 of
Regulations S-X.
"Consolidated EBITDA" means, in respect of the Company, for any period,
the Consolidated Net Income of the Company for such period adjusted to add
thereto (to the extent deducted in determining Consolidated Net Income), without
duplication, the sum of (i) consolidated income tax expense, (ii) consolidated
depreciation and amortization expense, and other non-cash charges required to be
reflected as expenses for such period on the books and records of the Company,
and (iii) Consolidated Fixed Charges, less the amount of all cash payments made
by the Company or any of its Subsidiaries during such period to the extent such
payments relate to non-cash charges that were added back in determining
Consolidated EBITDA for such period or any prior period.
"Consolidated Fixed Charges" means, in respect of the Company for any
period, the sum of (i) the consolidated interest expense of the Company and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original issue discount, non
cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capitalized
Lease Obligations, imputed interest in respect of Attributable Debt, interest
payments in respect of Indebtedness of another Person that is Guaranteed by the
Company or one or more of its Subsidiaries or secured by a Lien on assets of the
Company or one or more of its Subsidiaries, commissions, discounts, and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the
consolidated interest expense of the Company and its Subsidiaries that was
capitalized during such period, in each case, on a consolidated basis and in
accordance with GAAP, and (iii) the product of (A) the aggregate amount of
dividends paid (to the extent not accrued in a prior period) or accrued on
Disqualified Stock of the Company and its Subsidiaries or preferred stock of the
Company's Subsidiaries, to the extent such Disqualified Stock or preferred stock
is owned by Persons other than the Company and its Subsidiaries and (B) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state, local, and foreign statutory tax
rate of the Company, expressed as a decimal.
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"Consolidated Net Income" means, in respect of the Company for any
period, the aggregate of the Net Income of the Company and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net Income (but not loss) of any Person that is
not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid in cash to the Company or any of its Subsidiaries as to which Consolidated
Net Income is being calculated, (ii) the Net Income of any Subsidiary of the
Company shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary of such Net Income would
not be permitted at the date of determination or, directly or indirectly,
pursuant to the terms of its charter and bylaws (or similar organizational and
governing documents) and all agreements, instruments, judgments, decrees,
orders, statutes, rules, or governmental regulations applicable to such
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, (v) income or loss attributable to
discounted operations shall be excluded, and (vi) any gain (but not loss)
realized upon the sale or other disposition of any property, plant, or equipment
of the Company or its Subsidiaries (including pursuant to any sale and leaseback
transaction) which is not sold or otherwise disposed of in the ordinary course
of business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person shall be excluded.
"Convertible Preferred Stock" means collectively the Series A Voting
Preferred Stock and the Series B Nonvoting Preferred Stock.
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debt Incurrence Ratio" has the meaning specified in Section 4.4(a).
"Default" means any event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Indebtedness" means any Indebtedness outstanding
under the Senior Credit Facility.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Maturity Date.
"Dollars" and "$" mean lawful money or currency of the United States of
America.
"Equity Interests" means Capital Stock and all warrants, options, or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" has the meaning specified in Section 5.1.
"Excess Proceeds" has the meaning specified in Section 4.2(b).
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"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Price" has the meaning specified in Section 6.1(a).
"Existing Indebtedness" means the 10 3/8% Senior Subordinated Notes and
all other Indebtedness of the Company and its Subsidiaries in existence on the
Issue Date, including the Tranche B Notes.
"Fair Market Value" means, in respect of any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy; provided, however, that if such value
exceeds $1,000,000, such determination shall be made in good faith by the Board
of Directors.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
fully guaranteed by, or participations in pools consisting solely of obligations
of or obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States of
America is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness (and "Guaranteed" shall have a meaning correlative to the
foregoing).
"Hedging Obligations" means, in respect of any Person, the obligations
of such Person under (i) interest or currency exchange rate swap agreements,
interest or currency exchange rate cap agreements, and interest or currency
exchange rate collar agreements and (ii) other agreements or arrangements, in
any case, designed to protect such Person against fluctuations in interest or
currency exchange rates (as appropriate, "Interest Rate Hedges" and "Currency
Hedges").
"Holder" means a Person in whose name a Note is registered.
"HSR Act" has the meaning specified in Section 3.2(e).
"Incur" means, in respect of any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange, or otherwise),
assume, Guarantee, or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence," "Incurred," "Incurrable," and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results
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in an obligation of such Person that exists at such time, and is not theretofore
classified as Indebtedness, becoming Indebtedness shall not be deemed an
Incurrence of such Indebtedness.
"Incurrence Date" has the meaning specified in Section 4.4(a).
"Indebtedness" means, in respect of any Person, (a) any liability of
such Person, whether or not contingent (i) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance, or
note purchase facility; (ii) evidenced by a bond, note, debenture, or similar
instrument (including a purchase money obligation); (iii) for the payment of
money relating to a Capitalized Lease Obligation; (iv) for or pursuant to
Disqualified Stock; (v) for or pursuant to preferred stock of any Subsidiary of
such Person (other than preferred stock held by such Person or any of its
Subsidiaries or in the case of the Company, any of its Subsidiaries); (vi)
representing the balance deferred and unpaid of the purchase price of any
property or services (except any such balance that constitutes a trade payable
or accrued liability in the ordinary course of business that is not overdue by
more than 90 days or is being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted); or (vii) under or in respect of
Hedging Obligations; (b) any liability of others described in the preceding
clause (a) that such Person has Guaranteed, that is recourse to such Person or
that is otherwise its legal liability, or the payment of which is secured by (or
for which the holder of such liability has an existing right to be secured by)
any Lien upon property owned by such Person, even though such Person has not
assumed or become liable for the payment of such liability; and (c) any
amendment, supplement, modification, deferral, renewal, extension, or refunding
of any liability of the types referred to in clauses (a) and (b) above. The
amount of any non-interest bearing or other discount Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer dated such date prepared in accordance with GAAP, but such
Indebtedness shall be deemed to have been Incurred only on the date of the
original issuance thereof.
"Indenture" means the Indenture dated December 1, 1997 between the
Company, the Subsidiary Guarantors, and the United States Trust Company of New
York, as amended or supplemented from time to time.
"Independent Director" means any director of the Company not affiliated
with Wingate or its assigns or Jerry E. Kimmel and who does not have any other
relationship (including any relationship, contractual or otherwise, with
Wingate, its assigns, or Jerry E. Kimmel) that would interfere with the exercise
of independent judgment in carrying out the responsibilities of a director.
"Initial Investor" means any "Purchasers" under the Purchase Agreement,
including any such Purchasers acquiring rights by way of assignment pursuant to
Section 13.8 thereof.
"Interest Payment Date" has the meaning specified in Section 2.1.
"Investments" means, in respect of any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations (but
excluding endorsements of negotiable instruments for collection in the ordinary
course of business)), advances or capital contributions (excluding commissions,
travel, and similar advances to directors, officers, and employees made in the
ordinary course of business), purchases or other acquisitions (for
consideration) of
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Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Issue Date" means July ___, 1999, the date on which the Notes were
originally issued.
"Junior Securities" means, in respect of the Company or any of its
Subsidiaries, securities (including Capital Stock but excluding Disqualified
Stock) issued by the Company or any of its Subsidiaries to a Holder on account
of the Notes that (a) has an Average Life and maturity or mandatory redemption
obligation, if any, longer than, or occurring after the final maturity date of,
all Designated Senior Indebtedness of the Company, (b) by their terms or by law
are subordinated to Designated Senior Indebtedness of the Company outstanding on
the date of issuance of such Junior Securities at least to the same extent as
the Notes and (c) are not secured by any assets or property of the Company or
any of its Subsidiaries. As used herein, "Designated Senior Indebtedness" of the
Company outstanding on the date of issuance of such Junior Securities" shall
include securities issued in connection with a reorganization pursuant to the
Bankruptcy Law of any jurisdiction to Persons which held "Designated Senior
Indebtedness" in such reorganization proceeding.
"Kimmel Designees" means Jerry E. Kimmel, if he is a director of the
Company, and any other director of the Company elected or appointed at the
designation of Jerry E. Kimmel.
"Lien" means, in respect of any asset, any mortgage, lien, pledge,
charge, security interest, or encumbrance of any kind in respect of such asset,
whether or not filed, recorded, or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement or any lease
in the nature thereof).
"Mandatory Redemption Obligation" has the meaning specified in Section
4.1(b).
"Market Price" means, with respect to any Aggregate Common Stock, on a
per share basis and as of any date, an amount equal to the average, for each of
the ten (10) consecutive Trading Days immediately prior to such date, of the
closing prices for a share of Voting Common Stock on such Trading Day as
reported on the Composite Tape (as reported in The Wall Street Journal or, if
not reported thereby, any other authoritative source). If no price can be
determined under the foregoing, then the "Market Price" shall be deemed to be
the fair market value thereof, as determined by the Special Committee in good
faith as of a date which is within fifteen (15) days preceding the date as of
which the determination is to be made.
"Maturity Date" means the maturity of this Note, which is the date that
is seven (7) calendar years after the date hereof, as the same may be hereafter
accelerated pursuant to the provisions of this Note.
"Maximum Lawful Rate" means the maximum rate of interest permitted
under Applicable Law.
"Net Income" means, in respect of any Person, the net income (loss) of
such Person, determined in accordance with GAAP.
"Net Proceeds" means, in respect of any Asset Sale, the aggregate
amount of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable
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issued in connection with such Asset Sale, other than the portion of such
deferred payment constituting interest, and including any amounts received as
disbursements or withdrawals from any escrow or similar account established in
connection with any such Asset Sale, but, in either case, only as and when so
received) received by the Company or any of its Subsidiaries in respect of such
Asset Sale, net of: (i) the cash expenses of such Asset Sale (including, without
limitation, the payment of principal of, and premium, if any, and interest on,
Indebtedness required to be paid as a result of such Asset Sale and legal,
accounting, management and advisory, and investment banking fees and sales
commissions), (ii) taxes paid or payable as a result thereof, (iii) any portion
of cash proceeds that the Company determines in good faith should be reserved
for post-closing adjustments, it being understood and agreed that on the day
that all such post-closing adjustments have been determined, the amount (if any)
by which the reserved amount in respect of such Asset Sale exceeds the actual
post-closing adjustments payable by the Company or any of its Subsidiaries shall
constitute Net Proceeds on such date, (iv) any relocation expenses and pension,
severance, and shutdown costs incurred as a result thereof, and (v) any cash
amounts actually set aside by the Company or any of its Subsidiaries as a
reserve in accordance with GAAP against any retained liabilities associated with
the asset disposed of in such transaction, including, without limitation,
pension and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"Nonvoting Common Stock" means the newly created class of nonvoting
common stock, par value $0.01 per share, to be created by the Amendment.
"Note or Notes" means this Tranche A Senior Subordinated Exchangeable
Note, including any Note issued upon transfer, assignment, or subdivision
thereof.
"Notice of Adjustment" has the meaning specified in Section 6.3(h).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, in respect of the Company, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary,
any Assistant Secretary, or any Vice President of the Company.
"Officer's Certificate" means a certificate signed on behalf of the
Company by two Officers of such Person, one of whom must be the principal
executive officer, the principal financial officer, or the principal accounting
officer of the Company.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Holders.
"Payment Blockage Notice" has the meaning specified in Section 8.2(a).
"Payment Blockage Period" has the meaning specified in Section 8.2(a).
"Payment Default" has the meaning specified in Section 5.1(f).
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"Permitted Indebtedness" has the meaning specified in Section 4.4(b).
"Permitted Investments" means (i) any Investment in the Company or in a
Subsidiary of the Company; (ii) any Investment in Cash Equivalents; (iii) any
Investment by the Company or any of its Subsidiaries in a Person engaged in a
Related Business if, as a result of such Investment, (A) such Person becomes a
Subsidiary of the Company or (B) such Person is merged, consolidated, or
amalgamated with or into, or transfers or conveys all or substantially all of
its assets to, or is liquidated into, the Company or a Subsidiary of the
Company; (iv) Investments the payment for which consists exclusively of Equity
Interests (excluding Disqualified Stock) of the Company; (v) Investments in
shares of money market mutual or similar funds having assets in excess of
$500,000,000; and (vi) Investments in negotiable instruments held for collection
in the ordinary course of business and lease, utility, and similar deposits.
"Permitted Liens" means (i) Liens securing Permitted Indebtedness
Incurred pursuant to clause (i) of the definition of such term; (ii) Liens in
favor of the Company and/or its Subsidiaries; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any of its Subsidiaries, provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company or any of its Subsidiaries; (iv) Liens securing any Acquired
Indebtedness and which exist at the time of acquisition thereof by the Company
or any of its Subsidiaries, provided that such Liens were in existence prior to
the contemplation of such acquisition; (v) Liens existing on the Issue Date or
arising since such date in compliance with this Note; (vi) Liens arising by
reason of (1) any judgment, decree, or order of any court not constituting an
Event of Default; (2) taxes not yet delinquent or which are being contested in
good faith by appropriate proceedings which suspend the collection thereof,
promptly instituted and diligently conducted, and for which adequate reserves
have been established to the extent required by GAAP; (3) security for payment
of workers' compensation or other insurance; (4) good faith deposits in
connection with tenders, leases and contracts (other than contracts for the
payment of money), bids, licenses, performance or similar bonds and other
obligations of a like nature, in the ordinary course of business; (5) zoning
restrictions, easements, licenses, reservations, provisions, covenants,
conditions, waivers, restrictions on the use of property or minor irregularities
of title (and in respect of leasehold interests, mortgages, obligations, Liens,
and other encumbrances incurred, created, assumed, or permitted to exist and
arising by, through or under a landlord or owner of the leased property, with or
without consent of the lessees), none of which materially impairs the use of any
parcel of property material to the operation of the business of the Company or
any of its Subsidiaries or the value of such property for the purpose of such
business; (6) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds; (7) surveys, exceptions, title defects, encumbrances,
easements, reservations of, or rights or others for, rights of way, sewers,
electric lines, telegraph or telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property not interfering with
the ordinary conduct of the business of the Company or any of its Subsidiaries;
or (8) operation of law or statute and incurred in the ordinary course of
business, including without limitation, those in favor of mechanics,
materialmen, suppliers, laborers or employees, and, if securing sums of money,
for sums which are not yet delinquent or are being contested in good faith by
appropriate proceedings which suspend the collection thereof, promptly
instituted and diligently conducted, and for which adequate reserves have been
established to the extent required by GAAP; (vii) Liens resulting from the
deposit of funds in trust for the purpose of decreasing or
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defeasing Indebtedness of the Company and its Subsidiaries so long as such
deposit of funds and such decreasing or defeasing of Indebtedness are permitted
under Section 4.3; and (viii) any extension, renewal, or replacement (or
successive extensions, renewals, or replacements), in whole or in part, of any
Lien referred to in the foregoing clauses (iii), (iv), and (v) above; provided,
however, that the principal amount of the Indebtedness secured thereby shall not
exceed the principal amount of Indebtedness secured thereby immediately prior to
the time of such extension, renewal, or replacement, and that such extension,
renewal, or replacement Lien shall be limited to all or a part of the property
that secured the Lien so extended, renewed, or replaced (plus improvements on
such property).
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used by such Person to extend, refinance, renew, replace, defease,
or refund other Indebtedness of such Person ("Old Indebtedness"); provided,
however, that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Old Indebtedness plus any premium or
penalty payable thereon and any reasonable expenses incurred in connection
therewith; (ii) such Permitted Refinancing Indebtedness has a final maturity
date equal to or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Old Indebtedness; (iii) if the Old Indebtedness is subordinated
in right of payment to the Notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the Notes on terms at least as favorable to
the Holders as those contained in the documentation governing the Old
Indebtedness; (iv) such Permitted Refinancing Indebtedness is on terms that are
no more restrictive, as a whole, than those governing such Old Indebtedness; and
(v) such Permitted Refinancing Indebtedness is Incurred only by the Company or
any of its Subsidiaries that is the obligor on the Old Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Plans" means any plan existing on the Issue Date or adopted by the
Company after the Issue Date providing for the issuance of Aggregate Common
Stock of any class or series or other options or rights to purchase stock,
warrants, or other securities.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of July 14, 1999 between Wingate and Kevco, Inc.
"Purchase Money Indebtedness" means, in respect of the Company or any
of its Subsidiaries, any Indebtedness of the Company or any of its Subsidiaries
to any seller or other Person incurred to finance the acquisition (including in
the case of a Capitalized Lease Obligation, the lease) of any real or personal
tangible property acquired after the Issue Date which, in the reasonable good
faith judgment of the Board of Directors or the board of directors (or similar
governing body) of any of its Subsidiaries, as applicable, is directly related
to a Related Business and which is Incurred within 180 days of such acquisition
and is secured only by the assets so financed.
"Purchase Rights" has the meaning specified in Section 6.3(e)(ii).
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"Redemption Notice" has the meaning specified in Section 3.2(b).
"Reference Period" in respect of any Person means the four full fiscal
quarters for which financial statements are available at the time of
determination (or such lesser period during which such Person has been in
existence) ended immediately preceding any date upon which any such
determination is to be made pursuant to the terms of this Note.
"Related Business" means the business conducted by the Company and its
Subsidiaries as of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors are materially related businesses.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payments" has the meaning specified in Section 4.3(a).
"Senior Credit Facility" means the Credit Agreement dated December 1,
1997, among the Company, the guarantors named therein, and NationsBank of Texas,
N.A., as agent and lender, and the other lenders party thereto, as amended to
the date hereof.
"Senior Indebtedness" means, in respect of any Person, (i) all
Indebtedness of such Person outstanding under the Senior Credit Facility and all
Hedging Obligations in respect thereof, (ii) any other Indebtedness of such
Person permitted to be issued under this Note, provided that Senior Indebtedness
shall not include any Indebtedness which by the terms of the instrument creating
or evidencing the same is on parity with or is subordinated or junior in right
of payment in any respect to any other Indebtedness of such Person or its
Subsidiaries or Affiliates and (iii) all Obligations in respect of the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include (i) any liability for federal, state, local,
foreign, or other taxes, (ii) any Indebtedness of any such Person to any of its
Subsidiaries or other Affiliates, (iii) any accounts payable or trade
liabilities arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (iv) any Indebtedness that
is incurred in violation of this Note, (v) Indebtedness of the Person to any
shareholder of the Person, (vi) Indebtedness to, or guaranteed by the Person or
any of its Subsidiaries for the benefit of, any director, officer, or employee
of the Person or any Subsidiary of the Person (including, without limitation,
amounts owed for compensation), (vii) Capital Stock of such Person and
Indebtedness represented by Disqualified Stock, (viii) Indebtedness which, when
Incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to such Person, (ix) any Indebtedness or
obligation which is subordinated in right of payment to any other Indebtedness
or obligation of such Person and (x) any Indebtedness under the 10 3/8% Senior
Subordinated Notes or any refinancings thereof. "Senior Indebtedness" when used
in respect of a Subsidiary Guarantor, shall have a meaning substantially
identical to that applied to the Indebtedness of the Person or its Subsidiaries.
"Series A Voting Preferred Stock" means the Company's "Series A 10 3/8%
Convertible Pay-in-Kind Voting Preferred Stock" to be established under the
terms of the Amendment.
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"Series B Nonvoting Preferred Stock" means the Company's "Series B 10
3/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" to be established under
the terms of the Amendment.
"Special Committee" means a committee of the Board of Directors
composed solely of the Independent Directors and the Kimmel Designees then in
office; provided, however, that such committee shall be constituted such that a
majority of its members shall always be Independent Directors.
"Subordinated Indebtedness" means Indebtedness of the Company (or of
its Subsidiaries) that is subordinated in right of payment to the Notes (or a
Subsidiary Guarantee, as appropriate).
"subparagraph (d) adjustment" has the meaning specified in Section
6.3(e)(i).
"Subsidiary" means, in respect of any Person, (i) any corporation,
association, or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers, or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof). Unless indicated to the contrary,
"Subsidiary" refers to a direct or indirect Subsidiary of the Company.
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under this Note by any Person.
"Subsidiary Guarantors" means Kevco Management, Inc., Kevco Holding,
Inc., Kevco GP, Inc., DCM Delaware, Inc., Kevco Components, Inc., Kevco
Distribution, L.P., and Kevco Manufacturing, L.P. in each case until such time,
if any, as such Subsidiary is released from its Subsidiary Guarantee as
permitted by this Note.
"TBCA" means the Texas Business Corporation Act, as the same may be
amended from time to time.
"Trading Day" means any day on which the NASDAQ Stock Market is open
for trading, or if the shares of Voting Common Stock are not quoted on the
NASDAQ Stock Market, any day on which the principal national securities exchange
or national quotation system on which the shares of Voting Common Stock are
listed, admitted to trading, or quoted is open for trading.
"Tranche B Notes" means the Company's $6,500,000 principal amount
Tranche B Senior Subordinated Exchangeable Notes issued on the Issue Date.
"Transaction" has the meaning specified in Section 6.3(g).
"Voting Common Stock" means the voting common stock, par value $0.01
per share, of the Company.
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"Voting Rights Triggering Event" has the meaning specified in Section
6.4(b)(i).
"Warrants" means the following: (i) the warrant issued by the Company
dated July ___, 1999 to The Kevco Partners Investment Trust providing for the
purchase of 675,000 shares of Nonvoting Common Stock, (ii) the warrant issued by
the Company dated July ___, 1999 to The Kevco Partners Investment Trust
providing for the purchase of 772,727 shares of Nonvoting Common Stock, (iii)
the warrant issued by the Company dated July ___, 1999 to The Kevco Partners
Investment Trust providing for the purchase of 295,455 shares of Nonvoting
Common Stock, and (iv) all reissuances, transfers, and substitutions of the
foregoing.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wingate" means Wingate Partners II, L.P., a Delaware limited
partnership.
ARTICLE 2
PAYMENTS
Section 2.1 Interest Payments. The Company shall pay interest on this
Note quarterly on the last day of each June, September, December, and March
(each an, "Interest Payment Date"), commencing with September 30, 1999. Interest
will accrue on the unpaid principal balance hereof outstanding (and on any
accrued but unpaid interest as provided for below) at the lesser of (i) the
Maximum Lawful Rate or (ii) a rate per annum equal to eleven and one-half
percent (11.5%); provided, however, that on any Interest Payment Date such
interest may, in the sole discretion of the Company as determined by the Special
Committee, in lieu of the payment in whole of such interest in cash, be accrued
(in which case, interest shall also be payable on any accrued interest until
paid); provided, however, that if the Company elects to accrue interest pursuant
to the provisions of this Section 2.1, (i) the Company shall give Holders
written notice thereof at least one (1) Business Day prior to the applicable
Interest Payment Date, and (ii) the Holders shall have the right to elect to
have all accrued interest paid in shares of Series B Nonvoting Preferred Stock
with an aggregate liquidation preference equal to the amount of interest accrued
and unpaid through the applicable Interest Payment Date. The Holders shall make
such election by the delivery of written notice thereof to the Company within
ten (10) days after the applicable Interest Payment Date. Notwithstanding the
foregoing, at any time when an Event of Default has occurred and is continuing,
from such date until the date such Event of Default no longer exists, interest
shall accrue at the lesser of (i) the Maximum Lawful Rate or (ii) a rate per
annum equal to twelve and one-half percent (12.5%).
Section 2.2 Principal Payments. All principal and accrued but unpaid
interest shall be due and payable, in full, in cash, on the Maturity Date,
pursuant to Section 3.1 or 4.1.
Section 2.3 Computations. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
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Section 2.4 Prepayments. Except as provided for in Section 4.1, the
Notes may not be redeemed in whole or in part prior to the third anniversary of
the Issue Date.
Section 2.5 Certain Determinations. Notwithstanding any other provision
of this Note, all determinations with respect to interest and principal payments
on, and redemption of, the Notes requiring action by the Board of Directors
shall be taken by the Special Committee.
ARTICLE 3
REDEMPTION
Section 3.1 Optional Redemption. The Notes shall be subject to
redemption at any time after the third anniversary of the Issue Date at the
option of the Company as determined by the Special Committee, in whole or in
part, at a redemption price in cash equal to 100% of the principal amount of the
Notes together with accrued and unpaid interest thereon to the applicable
redemption date.
Section 3.2 Procedures for Redemption.
(a) In the event that fewer than all the outstanding Notes are
to be redeemed pursuant to Section 3.1, the amount of Notes to be redeemed shall
be determined by the Board of Directors following the recommendation of the
Special Committee and the Notes so redeemed shall be selected pro rata according
to the principal amount of Notes held by each Holder.
(b) In the event the Company shall redeem Notes pursuant to
this Article 3, notice of such redemption ("Redemption Notice") shall be given
by overnight courier not less than 10 Business Days nor more than 40 Business
Days prior to the redemption date, to each Holder of record of the Notes to be
redeemed at such Holder's address as the same appears on the Note register of
the Company; provided, however, that neither the failure to give the Redemption
Notice nor any defect therein shall affect the validity of the giving of notice
for the redemption of any Notes to be redeemed except as to the Holder to whom
the Company has failed to give the Redemption Notice or except as to the Holder
whose Redemption Notice was defective. Each Redemption Notice shall state: (i)
the redemption date; (ii) the principal amount of Notes to be redeemed and, if
less than all the principal amount of Notes held by such Holder are to be
redeemed, the principal amount of Notes to be redeemed from such Holder; (iii)
customary provisions regarding the surrender of Notes; (iv) the redemption price
and the estimated amount of accrued but unpaid interest on the Notes to the date
of redemption; (v) the place or places where Notes are to be surrendered for
redemption; and (vi) that interest on the Notes to be redeemed will cease to
accrue on such redemption date.
(c) In the case of a redemption pursuant to this Article 3,
and if the Redemption Notice has been properly provided in accordance with this
Article 3, from and after the redemption date (unless the Company shall default
in payment in cash of the redemption price for the Notes called for redemption),
interest on such Notes called for redemption shall cease to accrue, and all
rights of the Holders thereof as Note Holders of the Company (except the right
to receive the redemption price from the Company) shall cease. Upon surrender of
the Notes in accordance with the Redemption Notice, any Notes so redeemed shall
be redeemed in cash by the Company at the redemption price specified herein and
in the Redemption Notice.
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(d) Any such offer under this Article 3 shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes pursuant to this
Article 3. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Note relating to an offer under
this Article 3, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under such
provisions of this Note by virtue thereof.
(e) Notwithstanding any other provision of this Note to the
contrary, in the event the Company delivers a Redemption Notice under this
Article 3 and the Holder timely elects to exchange the Notes prior to the stated
redemption date pursuant to Sections 6.1 and 6.2, then, for purposes of a
redemption under this Article 3, the "redemption date" shall mean the latter of
(i) the redemption date set forth in the Redemption Notice and (ii) the date
upon which any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), shall have expired or
early termination thereof shall have been granted without limitation,
restriction, or condition.
ARTICLE 4
COVENANTS
Section 4.1 Offer to Repurchase Upon Change of Control.
(a) In the event of a Change of Control, the Company shall, to
the extent it shall have funds legally available for such payment, offer to
redeem for cash all of the Notes then outstanding, and shall redeem the Notes of
any Holder of such Notes that shall consent to such redemption, upon a date no
later than 30 Business Days following the Change in Control, at a redemption
price equal to 100% of the principal amount of the Notes, in cash, plus (without
duplication) accrued and unpaid interest thereon to the date fixed for
redemption.
(b) If the Company is unable or shall fail to discharge its
obligation to redeem all outstanding Notes pursuant to this Section 4.1 (a
"Mandatory Redemption Obligation"), such Mandatory Redemption Obligation shall
be discharged as soon as the Company is able to discharge such Mandatory
Redemption Obligation.
(c) In the case of a redemption pursuant to this Section 4.1,
notice of such redemption shall be given by overnight courier not more than ten
Business Days following the occurrence of the Change of Control and not less
than 20 Business Days prior to the redemption date, to each Holder of record of
the Notes to be redeemed at such Holder's address as the same appears on the
Note register of the Company; provided, however, that neither the failure to
give such notice nor any defect therein shall affect the validity of the giving
of notice for the redemption of any Notes to be redeemed, except as to the
Holder to whom the Company has failed to give said notice or except as to the
Holder whose notice was defective. Each such redemption notice shall state: (i)
that a Change of Control has occurred; (ii) the redemption date; (iii) the
redemption price and the estimated amount of accrued but unpaid interest to the
redemption date; (iv) customary provisions regarding the surrender of Notes; (v)
that such Holder may elect to cause the Company to redeem all or any of the
Notes held by such Holder; (vi) the place or places where Notes are to be
surrendered for redemption; and (vii) that interest on the Notes the Holder
elects to cause the Company to redeem will cease to accrue on such redemption
date.
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(d) Upon receipt of such redemption notice, Holders of Notes
shall, within 10 Business Days after receipt thereof, return such redemption
notice to the Company indicating the aggregate principal amount of Notes such
Holder shall elect to cause the Company to redeem, if any.
(e) In the case of a redemption pursuant to this Section 4.1,
and if notice thereof has been properly provided in accordance with this Section
4.1, from and after the redemption date (unless the Company shall default in
payment in cash of the redemption price for the Notes called for redemption),
interest on such Notes as the Holder elects to cause the Company to redeem shall
cease to accrue, and all rights of the electing Holders thereof as Note Holders
of the Company (except the right to receive the redemption price from the
Company) shall cease. Upon surrender of the Notes in accordance with such
redemption notice, any Notes so redeemed shall be redeemed in cash by the
Company at the redemption price specified herein and in such redemption notice.
(f) Notwithstanding anything in this Section 4.1 to the
contrary, prior to the commencement of an offer under Section 4.1, but in any
event within 30 days following any Change of Control, the Company shall (i)
repay in full and terminate all commitments under Indebtedness under the Senior
Credit Facility and all other Senior Indebtedness the terms of which require
repayment upon a Change of Control or (ii) obtain the requisite consents under
the Senior Credit Facility and all such other Senior Indebtedness to permit the
repurchase of the Notes as provided herein.
(g) Any such offer under this Section 4.1 shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes pursuant to this
Section 4.1. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Note relating to a Change of
Control, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under such
provisions of this Note by virtue thereof.
(h) Notwithstanding any other provision of this Note to the
contrary, in the event the Company delivers a redemption notice under this
Section 4.1 and the Holder timely elects to exchange the Notes prior to the
stated redemption date pursuant to Sections 6.1 and 6.2, then, for purposes of a
redemption under this Section 4.1, the "redemption date" shall mean the latter
of (i) the date 30 Business Days after a Change of Control and (ii) the date
upon which any applicable waiting period under the HSR Act shall have expired or
early termination thereof shall have been granted without limitation,
restriction, or condition.
Section 4.2 Limitation on Sale of Assets and Subsidiary Stock.
(a) The Company will not, and will not permit any of its
Subsidiaries to, engage in an Asset Sale, unless (i) the Company or
such Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the Fair Market Value (which, if
it exceeds $1,000,000, shall be determined by the Board of Directors
and set forth in a Board Resolution delivered to the Holders) of the
assets (including, if appropriate, Equity Interests) disposed of or
issued, as appropriate, and (ii) at least 75% of the consideration
therefor received by the Company or such Subsidiary is in the form of
cash or Cash Equivalents; provided, however, that the 75% limitation
referred to above shall not apply to any Asset Sale in which the cash
portion of the consideration received
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therefor, determined in accordance with the following sentence, is
equal to or greater than what the after-tax net proceeds would have
been had such transaction complied with the aforementioned 75%
limitation. For purposes of this covenant (and not for purposes of any
other provision of this Note), the term "cash" shall be deemed to
include (A) any notes or other obligations received by the Company or
such Subsidiary as consideration as part of such Asset Sale that are
immediately converted by the Company or such Subsidiary into actual
cash or Cash Equivalents (to the extent of the actual cash or Cash
Equivalents so received), and (B) any liabilities of the Company or
such Subsidiary (as shown on the most recent balance sheet of the
Company or such Subsidiary) that are payable in cash and that (1) are
assumed by the transferee of the assets which are the subject of such
Asset Sale as consideration therefor in a transaction the result of
which is that the Company and all of its Subsidiaries are released from
all liability for such assumed liability, (2) are not by their terms
subordinated in right of payment to the Notes, (3) are not owed to the
Company or any Subsidiary of the Company, and (4) constitute short-term
liabilities (as determined in accordance with GAAP).
(b) Within 360 days after the receipt of any Net Proceeds from
an Asset Sale, the Company may apply, directly or indirectly, such Net
Proceeds (i) to repay permanently Senior Indebtedness of the Company or
of its Subsidiaries, or (ii) to the making of a capital expenditure or
the acquisition of other long-term assets, in each case, in a Related
Business. Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $10,000,000, the Company may make an offer to
all holders of 10 3/8% Senior Subordinated Notes to the extent required
by Section 4.08(b) of the Indenture. Pending the final application of
any such Net Proceeds, the Company or its Subsidiaries, as the case may
be, may temporarily reduce Indebtedness under the Senior Credit
Facility or otherwise invest such Net Proceeds in any manner that is
not prohibited by this Note. If the aggregate principal amount of the
10 3/8% Senior Subordinated Notes tendered by the holders thereof is
less than the amount of Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. Upon
completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
(c) The Company will not, and will not permit any of its
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of
any Capital Stock of any of its Subsidiaries to any Person (other than
the Company or another Subsidiary of the Company), unless (i) such
transfer, conveyance, sale, lease or other disposition is of all of the
Capital Stock of such Subsidiary owned by the Company and its
Subsidiaries or is otherwise permitted under Section 4.7 and (ii) such
transaction is conducted in accordance with Sections 4.2(a) and (b).
Section 4.3 Limitation on Restricted Payments.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend or make any other payment or distribution on account of the
Company's or any of its Subsidiary's Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation) other than dividends or distributions (A) paid or
payable in Equity Interests (other than Disqualified Stock) of the
Company or (B) paid or payable to the Company or any Subsidiary of the
Company; (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any direct or indirect parent of
the Company or
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other Affiliate of the Company or any Subsidiary of the Company (other
than any such Equity Interests owned by the Company or any Subsidiary
of the Company or upon redemption of the Series A Voting Preferred
Stock or the Series B Nonvoting Preferred Stock in accordance with the
terms of the Amendment); (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value
prior to the scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Indebtedness (except, if no
Default or Event of Default is continuing or would result therefrom,
any such payment, purchase, redemption, defeasance or other acquisition
or retirement for value made (A) out of Excess Proceeds available for
general corporate purposes if such payment or other action is required
by the indenture or other agreement or instrument pursuant to which
such Subordinated Indebtedness was issued, or (B) upon the occurrence
of a Change of Control if (1) such payment or other action is required
by the indenture or other agreement or instrument pursuant to which
such Subordinated Indebtedness was issued and (2) the Company has
purchased all Notes properly tendered pursuant to Section 4.1 resulting
from such Change of Control); or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted
Payment:
(i) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence
thereof;
(ii) the Company would, at the time of such
Restricted Payment and after giving pro forma effect thereto
as if such Restricted Payment had been made at the beginning
of the applicable Reference Period, have been permitted to
Incur at least $1.00 of additional Indebtedness pursuant to
the Debt Incurrence Ratio test set forth in Section 4.4(a);
and
(iii) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments declared or
made by the Company and its Subsidiaries after the Issue Date
shall not exceed, at the date of determination, the sum of (1)
50% of aggregate Consolidated Net Income of the Company from
the beginning of the first fiscal quarter commencing after the
Issue Date to the end of the Company's most recently ended
fiscal quarter for which financial statements are available at
the time of such Restricted Payment (or, if such aggregate
Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (2) 100% of the aggregate net cash
proceeds received by the Company from the issue or sale after
the Issue Date of Equity Interests of the Company or of
Disqualified Stock or debt securities of the Company that have
been converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (3) the aggregate net cash
proceeds received by the Company as capital contributions to
the Company (other than from a Subsidiary of the Company)
after the Issue Date (other than capital contributions from
Wingate, its partners, or their respective Affiliates).
(b) The foregoing provisions will not prohibit the following
Restricted Payments:
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(i) the payment of any dividend or other
distribution within 60 days after the date of declaration
thereof, if, at said date of declaration, such payment would
have complied with the provisions of this Note;
(ii) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company
(other than Disqualified Stock) in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to
a Subsidiary of the Company) of other Equity Interests of the
Company (other than Disqualified Stock or one or more sales of
Equity Interests to Wingate, its partners, or their respective
Affiliates); provided that the amount of any such net cash
proceeds that are utilized for any such redemption,
repurchase, retirement, or other acquisition shall be excluded
from clause (iii) of Section 4.3(a) (both for purposes of
determining the aggregate amount of Restricted Payments made
and for purposes of determining the aggregate amount of
Restricted Payments permitted);
(iii) the payment, purchase, redemption,
defeasance or other acquisition or retirement for value of
Subordinated Indebtedness with the net cash proceeds from a
substantially concurrent Incurrence of Permitted Refinancing
Indebtedness or the substantially concurrent sale (in each
case other than to a Subsidiary of the Company) of Equity
Interests of the Company (other than Disqualified Stock or one
or more sales of Equity Interests to Wingate, its partners, or
their respective Affiliates); provided that the amount of any
such net cash proceeds that are utilized for any such payment,
purchase, redemption, defeasance or other acquisition or
retirement shall be excluded from clause (iii) of Section
4.3(a) (both for purposes of determining the aggregate amount
of Restricted Payments made and for purposes of determining
the aggregate amount of Restricted Payments permitted);
(iv) so long as no Default or Event of Default is
continuing, the repurchase of Equity Interests of the Company
from former employees of the Company or any Subsidiary thereof
(or the estates, heirs or legatees of such former employees)
for consideration which does not exceed $500,000 in the
aggregate in any fiscal year;
(v) any Restricted Investment made with the net
cash proceeds from a substantially concurrent sale (other than
to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock or one or more sales of
Equity Interests to Wingate, its partners, or their respective
Affiliates); and
(vi) so long as no Default or Event of Default is
continuing, any Restricted Investment which, together with all
other Restricted Investments outstanding made pursuant to this
clause (vi) does not exceed $5,000,000.
Except to the extent specifically noted above, Restricted
Payments made pursuant to this Section 4.3(b) shall be included in calculating
the amount of Restricted Payments made after the Issue Date.
(c) The amount of all Restricted Payments not made in cash
shall be the Fair Market Value (which, if it exceeds $1,000,000, shall
be determined in good faith by the
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Board of Directors and set forth in a Board Resolution delivered to the
Holders) on the date of the Restricted Payment of the asset(s) proposed
to be transferred by the Company or any Subsidiary thereof, as the case
may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, the Company shall deliver to the Holders
an Officers' Certificate stating that such Restricted Payments were
permitted and setting forth the basis upon which the calculations
required by this Section 4.3 were computed, which calculations may be
based upon the Company's latest available financial
statements.
Section 4.4 Limitation on Incurrence of Indebtedness.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, Incur any Indebtedness
(including Acquired Indebtedness), except for Permitted Indebtedness;
provided, however, that the Company and its Subsidiaries may Incur
Indebtedness (including Acquired Indebtedness) if, at the time of
Incurrence of such Indebtedness, after giving pro forma effect to such
Incurrence as of such date and to the use of proceeds therefrom
(including the application or the use of the net proceeds therefrom to
repay Indebtedness or make any Restricted Payment) (i) no Default or
Event of Default shall have occurred and be continuing at the time of,
or would occur after giving effect on a pro forma basis to, such
Incurrence of Indebtedness and (ii) on the date of such Incurrence (the
"Incurrence Date"), the Consolidated Coverage Ratio of the Company for
the Reference Period immediately preceding the Incurrence Date, after
giving effect on a pro forma basis to such Incurrence of Indebtedness
and, to the extent set forth in the definition of Consolidated Coverage
Ratio, the use of proceeds thereof, would exceed 1.75 to 1 (the "Debt
Incurrence Ratio").
(b) "Permitted Indebtedness" means any and all of the
following:
(i) Indebtedness of the Company Incurred
pursuant to the Senior Credit Facility in the aggregate
principal amount at any time outstanding not to exceed the sum
of the aggregate commitments pursuant to the Senior Credit
Facility as in effect on the date hereof;
(ii) Existing Indebtedness;
(iii) intercompany Indebtedness between or among
the Company and any of its Subsidiaries; provided that (A) if
the Company is an obligor on such Indebtedness, such
Indebtedness is expressly subordinate to the payment in full
of all Obligations with respect to the Notes and (B) any
subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than the Company or a Subsidiary of the Company, or any sale
or other transfer of any such Indebtedness to a Person that is
not either the Company or a Subsidiary of the Company, shall
be deemed to constitute a new Incurrence of such Indebtedness
by the Company or such Subsidiary, as the case may be;
(iv) Permitted Refinancing Indebtedness Incurred
in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund, (A)
Indebtedness (other than Permitted Indebtedness) that was
Incurred in compliance with this Note, (B) Indebtedness
referred to in Section 4.4(b)(i) or (b)(ii), or (C) Existing
Indebtedness, other than Existing
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Indebtedness, if any, related to the Indebtedness refinanced
by the Senior Credit Facility;
(v) Indebtedness of a Subsidiary of the Company
constituting a Guarantee of Indebtedness of the Company or a
Subsidiary thereof which Indebtedness was Incurred pursuant to
this Section 4.4(b) or the Debt Incurrence Ratio test set
forth in Section 4.4(a);
(vi) the Incurrence by the Company or any of its
Subsidiaries of Hedging Obligations of the following types:
(A) Interest Rate Hedges with respect to any Indebtedness of
such Person that is permitted by the terms of this Note to be
outstanding, the notional principal amount of which does not
exceed the principal amount of the Indebtedness to which such
Interest Rate Hedge relates, and (B) Currency Hedges that do
not increase the outstanding loss potential or liabilities
other than as a result of fluctuations in foreign currency
exchange rates; and
(vii) other Indebtedness of the Company and its
Subsidiaries from time to time outstanding in an aggregate
principal amount not to exceed $20,000,000.
(c) Indebtedness of any Person which is outstanding at the
time such Person becomes a Subsidiary of the Company or is merged with
or into or consolidated with the Company or a Subsidiary of the Company
shall be deemed to have been Incurred at the time such Person becomes
such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary thereof, as applicable.
Section 4.5 Limitation on Liens. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur,
affirm, assume or suffer to exist any Liens of any kind, other than Liens
securing Senior Indebtedness and Permitted Liens, against or upon any assets or
property now owned or hereafter acquired or any income or profits therefrom or
assign or convey any right to receive income therefrom, unless (i) in the case
of Liens securing Subordinated Indebtedness, the Notes are secured by a valid,
perfected Lien on such assets, property or proceeds that is senior in priority
to such Liens, (ii) in the case of Liens securing obligations subordinate to a
Subsidiary Guarantee, such Subsidiary Guarantee is secured by a valid, perfected
Lien on such assets, property or proceeds that is senior in priority to such
Liens, and (iii) in all other cases, the Notes (and, if such Lien secures
obligations of a Subsidiary of the Company, a Subsidiary Guarantee of such
Subsidiary) are equally and ratably secured.
Section 4.6 Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, assume or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any such Subsidiary to (i) (a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries on its Capital Stock or
with respect to any other interest or participation in, or measured by, its
profits or (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries, (iii) transfer any of its properties to the Company or any of its
Subsidiaries, (iv) grant any Liens in favor of the Holders of the Notes or (v)
guarantee the Notes or any renewals or refinancings thereof, except for such
encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness, (B) the Senior Credit Facility, (C) applicable law, (D) any
instrument governing Indebtedness or Capital Stock of a Person acquired
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by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was Incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties of any Person, other than the
Person, or the property of the Person, so acquired, provided that in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Note to be
Incurred, (E) customary non-assignment provisions in leases, licenses, sales
agreements or other contracts (but excluding contracts related to the extension
of credit) entered into in the ordinary course of business and consistent with
past practices, (F) restrictions imposed pursuant to a binding agreement for the
sale or disposition of all or substantially all of the Equity Interests or
assets of any Subsidiary of the Company, provided such restrictions apply solely
to the Equity Interests or assets being sold, (G) restrictions imposed by
Permitted Liens on the transfer of the assets that are subject to such Liens,
(H) Permitted Refinancing Indebtedness Incurred to refinance Existing
Indebtedness or Indebtedness of the type described in clause (D) above, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, as a whole, than those
contained in the agreements governing the Indebtedness being refinanced, and (I)
the terms of Purchase Money Indebtedness, but only to the extent such Purchase
Money Indebtedness encumbers or restricts the property acquired with such
Purchase Money Indebtedness.
Section 4.7 Limitation on Issuance, Sale and Ownership of Capital Stock
of Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, (i) sell, assign, transfer, convey or otherwise dispose of, any
Equity Interests of any Subsidiary of the Company, other than to the Company or
another Subsidiary of the Company, (ii) permit any Subsidiary of the Company to
issue any Equity Interests (including, without limitation, pursuant to any
merger, consolidation, recapitalization or similar transaction) other than to
the Company or another Subsidiary of the Company or (iii) permit any Person
other than the Company or its Subsidiaries to own any Equity Interests of any
Subsidiary of the Company, except that (A) the Company or its Subsidiaries may
consummate a sale to a Person of all of the Equity Interests of a Subsidiary of
the Company, if such sale is made by the Company or another Subsidiary of the
Company subject to, and in compliance with, Section 4.2, and (B) the Company may
issue and permit the subsequent ownership by directors of, directors' qualifying
shares.
Section 4.8 Limitation on Mergers, Consolidations, or Sale of Assets.
The Company will not merge or consolidate (whether or not the Company is the
surviving corporation), or sell, assign, transfer, lease, convey, or otherwise
dispose of all or substantially all of its properties or assets in one or more
related transactions, to another Person unless: (i) the Company is the surviving
corporation or the Person formed by or surviving any such merger or
consolidation (if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance, or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof, or the District of Columbia; (ii) the Person formed by or surviving any
such merger or consolidation (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance, or other disposition shall
have been made assumes all the obligations of the Company under the Notes and
pursuant to an assumption agreement reasonably satisfactory to the Holders;
(iii) immediately before or immediately after giving effect to such transactions
no Default or Event of Default shall have occurred and be continuing or would
result therefrom; and (iv) except in the case of a merger of the Company with or
into a Subsidiary of the Company, the Company, any of its Subsidiaries, or any
Person formed by or surviving any such merger or consolidation, or to which such
sale, assignment, transfer, lease, conveyance, or other disposition shall have
been made will, at the time of such transaction and after giving pro forma
effect thereto as if such
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transaction had occurred at the beginning of the applicable Reference Period, be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio test set forth in Section 4.4(a).
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1 Events of Default. Each of the following constitutes an
"Event of Default":
(a) default for 30 days in the payment when due of interest on
the Notes (whether or not prohibited by Article 8), provided that the accrual of
interest as permitted by Section 2.1 shall not be deemed to be a default;
(b) default in payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by Article 8);
(c) failure by the Company to comply in all material respects
with any of the provisions of Section 4.1;
(d) failure by the Company for 30 days after written notice,
stating in reasonable detail the non-compliance, to the Company by Holders of at
least 25% in principal amount of the then outstanding Notes to the Company to
comply with any other covenant or agreement (except as provided in clauses (a),
(b), and (c) above) in the Notes;
(e) except as permitted by this Note, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Subsidiary Guarantor,
or any Person acting on behalf of any Subsidiary Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee;
(f) default under any mortgage, indenture, or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Subsidiaries (or the payment of which
is Guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Issue Date, which
default (i) is caused by a failure to pay principal when due at final stated
maturity (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default which has not
been cured or the maturity of which has been so accelerated, aggregates
$10,000,000 or more;
(g) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $10,000,000, which judgments are not
paid, discharged, or stayed for a period of 60 days and are not covered by
insurance;
(h) the Company or any of its Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law (i) commences a voluntary case, (ii)
consents to the entry of an order for relief against it in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property, (iv) makes a general assignment for the
benefit of its creditors, or (v) generally is unable to pay its debts as the
same become due; or
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(i) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (i) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (ii) appoints a Custodian of the
Company or any of its Subsidiaries or for all or substantially all of their
respective properties, or (iii) orders the liquidation of the Company or any of
its Subsidiaries, and the order or decree remains unstayed and in effect for 60
days.
To the extent that the last day of the period referred to in
Section 5.1(a) or 5.1(d) is not a Business Day, then the first Business Day
following such day shall be deemed to be the last day of the period referred to
in such clauses. Any "day" will be deemed to end as of 11:59 p.m., Fort Worth,
Texas time.
Section 5.2 Acceleration.
(a) Notwithstanding any other provision of this Note to the
contrary, if any Event of Default occurs and is continuing (other than an Event
of Default specified in Section 5.1(b), 5.1(h), or 5.1(i)) prior to the
redemption, repurchase, or other repayment in full of the 10 3/8% Senior
Subordinated Notes, then the Holders shall not and shall not be entitled to
declare any outstanding Notes due and payable (as a result of such Event of
Default) prior to the delivery of an Acceleration Notice (as defined in the
Indenture) pursuant to Section 6.02 of the Indenture.
(b) If any Event of Default occurs and/or is continuing (other
than an Event of Default specified in Section 5.1(b), 5.1(h), or 5.1(i)) after
the redemption, repurchase, or other repayment of 10 3/8% Senior Subordinated
Notes or the delivery of an Acceleration Notice (as defined in the Indenture)
pursuant to Section 6.02 of the Indenture, or an Event of Default specified in
Section 5.1(b) occurs and is continuing at any time, then (i) if the Initial
Investors or their Affiliates Beneficially Own more than 50% of the aggregate
principal amount of the Notes then outstanding the Holders may, by notice in
writing to the Company, declare all outstanding Notes to be due and payable and
(ii) if the Initial Investors or their Affiliates Beneficially Own 50% or less
of the aggregate principal amount of the Notes then outstanding, then Holders of
at least 33 1/3% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company may declare all outstanding Notes to be due and
payable (in each case, an "Acceleration Notice"), and the same (x) if there are
no amounts outstanding under the Senior Credit Facility, shall become
immediately due and payable; or (y) if there are any amounts outstanding under
the Senior Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration under the Senior Credit Facility or five
Business Days after receipt by the Company and the representatives of the
holders of the Indebtedness under the Senior Credit Facility of such
Acceleration Notice, but only if such Event of Default is then continuing.
(c) Notwithstanding the foregoing, in the case of an Event of
Default specified in Section 5.1(h) or 5.1(i), all outstanding Notes will be
immediately due and payable without declaration or other action or notice on the
part of the Holders of Notes.
(d) In the event of a declaration of acceleration of the Notes
because an Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in Section 5.1(f), the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
such Indebtedness described in Section 5.1(f) have rescinded the declaration of
acceleration in respect of such Indebtedness within thirty (30) days of the date
of
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such declaration and the Holders received written notice of such rescission and
if (a) the annulment of the acceleration of the Notes would not conflict with
any judgment or decree of a court of competent jurisdiction, and (b) all
existing Events of Default, except nonpayment of principal or interest that
became due solely because of the acceleration of the Notes, have been cured or
waived.
Section 5.3 Other Remedies. Subject to Section 5.2, if an Event of
Default occurs and is continuing, the Holders may pursue any available remedy by
proceeding at law or in equity to collect the payment of principal, premium, if
any, or interest on the Notes or to enforce the performance of any provision of
the Notes or the Subsidiary Guarantees.
Section 5.4 Waiver of Past Defaults. Subject to Section 5.2, Holders of
a majority in aggregate principal amount of the then outstanding Notes by notice
to the Company may, on behalf of the Holders of all of the Notes, waive any
acceleration of the Notes or any existing Default or Event of Default, except a
continuing Default or Event of Default in the payment of the principal of,
premium, if any, or interest, on the Notes which may only be waived with the
consent of each Holder of Notes affected.
Section 5.5 Control by Majority. The Holders of a majority in aggregate
principal amount of the then outstanding Notes may direct the time, method, and
place of conducting any proceeding for any remedy available to the Holders.
ARTICLE 6
EXCHANGE; VOTING RIGHTS
Section 6.1 Exchange.
(a) The Notes shall be exchangeable without the payment of any
additional consideration, in whole or in part, at any time and from time to time
at the option of the Holder, into either (i) shares of fully paid,
non-assessable Series A Voting Preferred Stock, (ii) shares of fully paid and
non-assessable Voting Common Stock, or (iii) any combination thereof; provided,
however, that any portion of the Notes then subject to an offer to redeem under
Article 3 shall not be exchangeable into Series A Voting Preferred Stock. On any
such exchange, Holders of Notes shall receive, as the case may be, (x) one (1)
share of Series A Voting Preferred Stock for each $5.50 of outstanding principal
and accrued but unpaid interest of Notes exchanged to the date of such exchange
(subject to adjustment as provided in Section 6.3) or (y) one (1) share of
Voting Common Stock for each $5.50 of principal and accrued but unpaid interest
of Notes exchanged to the date of such exchange (subject to adjustment as
provided in Section 6.3) (such price, with respect to the issuance of Series A
Voting Preferred Stock or Voting Common Stock, as the case may be, the "Exchange
Price").
(b) The Notes shall be exchangeable without the payment of any
additional consideration, in whole or in part, at any time and from time to time
at the option of the Holder, into Tranche B Notes. On any such exchange, Holders
of Notes shall receive $1.00 of principal amount of Tranche B Note for each
$1.00 of outstanding principal and accrued but unpaid interest of Notes
exchanged to the date of such exchange.
Section 6.2 Exchange Procedures.
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(a) The Company will not issue any fractional shares of Series
A Voting Preferred Stock or Voting Common Stock upon an exchange pursuant to
this Article 6, but the Holder shall be entitled to be paid an amount in cash
equal to the Market Price of any fractional shares of Voting Common Stock
otherwise issuable upon exchange (assuming for the purposes of calculating
payments in respect of fractional shares of Series A Voting Preferred Stock that
any exchange of Notes resulting in the issuance of fractional shares of Series A
Voting Preferred Stock were exchanged for Voting Common Stock).
(b) At the time of an exchange pursuant to this Article 6, the
Holder of Notes shall deliver to the office of the Company, Notes to be
exchanged and written notice to the Company stating that such Holder elects to
exchange such Notes and stating the name and addresses in which each certificate
for shares of Series A Voting Preferred Stock, Voting Common Stock, or Tranche B
Notes, as the case may be, issued upon such exchange is to be issued; provided,
however, that if the Holder has received an offer to redeem under Article 3,
such Holder must notify the Company within 10 Business Days after its receipt of
the Redemption Notice in order for such Holder to exchange all or any portion of
the Notes prior to the redemption date. Exchange shall be deemed to have been
effected on the latter of (i) the close of business on the date when such
delivery is made to the Company of Notes to be exchanged, and the Holder of
Notes subject to such exchange shall be deemed to be the Holder of record of the
number of shares of Series A Voting Preferred Stock, Voting Common Stock, or
Tranche B Notes, as the case may be, issuable upon such exchange at such time,
and (ii) the date upon which any applicable waiting period under the HSR Act
shall have expired or early termination thereof shall have been granted without
limitation, restriction, or condition.
Section 6.3 Antidilution Provisions. The Exchange Price from time to
time in effect and the number of shares of Series A Voting Preferred Stock and
Voting Common Stock issuable upon exchange of Notes shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.3.
(a) Common Stock Splits. Upon any subdivision by the Company
on or after the Issue Date of all of its outstanding shares of Aggregate Common
Stock into a greater number of shares or upon any issuance by the Company on or
after such date of a greater number of shares of Aggregate Common Stock in a pro
rata exchange for all of its outstanding shares of Aggregate Common Stock, then
in each case from and after the record date for such subdivision or exchange,
the number of shares of Series A Voting Preferred Stock and Voting Common Stock
issuable upon the exchange of Notes shall be increased in proportion to such
increase in the number of outstanding shares of Aggregate Common Stock and the
Exchange Price shall be correspondingly decreased. Upon any pro rata reduction
by the Company on or after the Issue Date of its outstanding shares of Aggregate
Common Stock as a whole or upon any issuance by the Company after such date of a
lesser number of shares of Aggregate Common Stock in a pro rata exchange for all
of its outstanding shares of Aggregate Common Stock, then in each case from and
after the record date for such reduction or exchange, the number of shares of
Series A Voting Preferred Stock and Voting Common Stock issuable upon the
exchange of Notes shall be decreased in proportion to such reduction in the
number of outstanding shares of Aggregate Common Stock and the Exchange Price
shall be correspondingly increased.
(b) Common Stock Dividends. Upon any declaration and payment
by the Company on or after the Issue Date of a dividend upon Aggregate Common
Stock payable in
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shares of either class of Aggregate Common Stock, then in each case from and
after the record date for the payment of such stock dividend, the number of
shares of Series A Voting Preferred Stock and Voting Common Stock issuable upon
the exchange of Notes shall be increased in proportion to the increase in the
number of outstanding shares of Aggregate Common Stock through such stock
dividend and the Exchange Price shall be correspondingly decreased.
(c) Other Issues. Upon any issuance by the Company of shares
of Aggregate Common Stock on or after the Issue Date (other than issuances of
stock requiring adjustments hereunder pursuant to the immediately preceding
subparagraphs (a) and (b) of this Section 6.3) for a consideration lower than
the Market Price per share of stock in effect immediately prior to such
issuance, the Exchange Price then in effect shall be reduced to equal the
following amount:
[(D x E) + F]
G x -------------
C x E
where C equals the number of shares of Aggregate Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Aggregate Common Stock outstanding immediately prior to the issue of such
additional Aggregate Common Stock, E equals the Market Price per share of Voting
Common Stock in effect immediately prior to the issue of such additional
Aggregate Common Stock, F equals the aggregate consideration (before deducting
underwriting discounts, commissions, and other expenses) received or to be
received by the Company in connection with the issuance of such additional
Aggregate Common Stock, and G equals the Exchange Price which would have been in
effect immediately prior to such issuance had all previous adjustments (if any)
under this subparagraph (c) been made pursuant to the foregoing formula. Upon
any such reduction in the Exchange Price, the number of shares of Series A
Voting Preferred Stock and Voting Common Stock issuable upon the exchange of
Notes shall be correspondingly increased. The provisions of this subparagraph
(c) shall not be applicable to any issuance of Aggregate Common Stock upon
actual exercise or actual conversion of any option, warrant, right, or other
security convertible into or exercisable for Aggregate Common Stock if the
Exchange Price was fully and properly adjusted pursuant to the immediately
following subparagraph (d) at the time such option, warrant, right, or other
security was issued.
(d) Common Stock Options; Subscription Rights; Convertible
Securities. Upon any issuance by the Company on or after the Issue Date of
options, warrants, or rights to subscribe for shares of Aggregate Common Stock
or of any securities convertible into or exchangeable for shares of Aggregate
Common Stock or of any similar securities for a consideration per share other
than the Market Price in effect immediately prior to the issuance of such
options, warrants, rights or securities, the Exchange Price shall be reduced
(and the number of shares of Series A Voting Preferred Stock and Voting Common
Stock issuable upon the exchange of Notes shall be appropriately increased) by
making computations in accordance with subparagraph (c) of this Section 6.3;
provided, however, that:
(i) The maximum number of shares of Aggregate Common
Stock deliverable under any such option, warrant, or right shall be considered
to have been delivered at the time such option, warrant, or right was issued,
for a consideration equal to the minimum
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purchase price per share of Aggregate Common Stock provided for in such option,
warrant, or right, plus the consideration, if any, received by the Company for
such option, warrant, or right (before deducting underwriting discounts,
commissions, and other expenses);
(ii) The aggregate maximum number of shares of
Aggregate Common Stock deliverable upon conversion of or exchange for any such
securities shall be considered to have been delivered at the time of issuance of
such securities, for a consideration equal to the consideration received by the
Company for such securities (before deducting underwriting discounts,
commissions, and other expenses) plus the minimum consideration (other than such
securities) to be received by the Company upon the exchange or conversion of
such securities;
(iii) If the purchase or conversion price provided
for in any rights, options, or warrants referred to above, the additional
consideration, if any, payable upon the conversion or exchange of convertible
securities referred to above, or the rate at which any convertible securities
referred to above are convertible into or exchangeable for shares of Aggregate
Common Stock shall change (other than under or by reason of provisions designed
to protect against dilution), the Exchange Price (and the number of shares of
Series A Voting Preferred Stock and Voting Common Stock issuable upon the
exchange of Notes) in effect at the time of such event shall be readjusted to
the Exchange Price (and the number of shares of Series A Voting Preferred Stock
and Voting Common Stock issuable upon the exchange of Notes) which would have
been in effect at such time had such rights, options, warrants, or convertible
securities still outstanding provided for such new purchase or conversion price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. If the purchase or conversion price provided
for in any such right, option, or warrant referred to above, the additional
consideration, if any, payable upon the conversion or exchange of convertible
securities referred to above, or the rate at which any convertible securities
referred to above are convertible into or exchangeable for shares of Aggregate
Common Stock shall be changed at any time by reason of provisions designed to
protect against dilution, then when shares of Aggregate Common Stock are
delivered upon the exercise of any such right, option, or warrant or upon
conversion or exchange of any such convertible security, the Exchange Price (and
the number of shares of Series A Voting Preferred Stock and Voting Common Stock
issuable upon the exchange of Notes) then in effect hereunder shall be
readjusted to such amount as would have been obtained had such right, option,
warrant, or convertible security never been issued as to such shares of
Aggregate Common Stock and had the adjustments required hereunder been made at
the time of the issuance of the shares of Aggregate Common Stock delivered as
aforesaid; and
(iv) On the expiration of any such options,
warrants, or rights or at the termination of any such rights to convert or
exchange, the Exchange Price (and the number of shares of Series A Voting
Preferred Stock and Voting Common Stock issuable upon the exchange of Notes)
then in effect shall be readjusted to the Exchange Price (and the number of
shares of Series A Voting Preferred Stock and Voting Common Stock issuable upon
the exchange of Notes) which would have been in effect had the adjustments (and
readjustments) made upon the issuance of such expired or terminated options,
warrants, rights, or securities (or upon the occurrence of any event with
respect thereto specified in the immediately preceding subparagraph (iii)) been
made without reference to the number of shares of Aggregate Common Stock subject
to such terminated or expired options, warrants, rights, or securities.
Notwithstanding the prior sentence, the Holder shall not be required to
surrender or
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adjust any shares of Series A Voting Preferred Stock and Voting Common Stock
theretofore received by the Holder upon exchange of Notes.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Issue Date
the Company shall distribute to all holders of shares of Aggregate Common Stock
of any class evidences of its indebtedness or assets (excluding any regular
periodic cash dividend) or a distribution in partial liquidation, each payable
otherwise than in shares of Aggregate Common Stock or in securities to which the
provisions of the immediately following subparagraph (e)(ii) are applicable, the
Company shall pay to the Holder of Notes, upon the conversion thereof at any
time on or after the payment of such dividend or distribution, the securities
and other property (including cash) which such Holder would have received
(together with all subsequent dividends and distributions thereon) if such
Holder had exchanged such Notes for Voting Common Stock on the record date fixed
in connection with such dividend or distribution, and the Company shall take
whatever steps are necessary or appropriate to keep in reserve at all times any
securities and other properties which are required to fulfill such obligations
of the Company. Notwithstanding the foregoing, the rights of the Holder hereof
under this subparagraph (e)(i) upon the Company's declaration of a dividend or
distribution in partial liquidation payable only in securities convertible into
shares of Aggregate Common Stock may be exercised only in lieu of any adjustment
(in this subparagraph (e) called a "subparagraph (d) adjustment") because of
such dividend or distribution called for under subparagraph (d) of this Section
6.3, and upon exercise hereof, such holder must elect either such subparagraph
(d) adjustment or the rights and benefits provided for in this subparagraph
(e)(i). For the purposes of determining the Exchange Price from time to time in
effect and the number of shares from time to time subject hereto prior to the
exchange of Notes, it shall be assumed that the Holder hereof will so elect
subparagraph (d) adjustments, but upon any election of the rights and benefits
provided for in this subparagraph (e)(i) made at the time of exercise hereof the
Exchange Price then in effect (and the number of outstanding shares of Series A
Voting Preferred Stock and Voting Common Stock purchasable upon such exchange)
shall be redetermined to equal the amounts which would have been in effect had
such subparagraph (d) adjustments never been made. Notwithstanding the
provisions of this subparagraph (e)(i), in no event shall any Holder have the
right to receive, or to elect to receive, Voting Common Stock pursuant to this
subsection if, as a result thereof, a "change of control" could be deemed to
occur under the Indenture, and, in lieu thereof, the Holder shall have the right
to receive, or the right to elect to receive, an equivalent number of shares of
Nonvoting Common Stock.
(ii) If at any time on or after the Issue Date
the Company shall grant, issue, or sell any options or rights to purchase stock,
warrants, securities, or other property pro rata to the holders of Aggregate
Common Stock of all classes ("Purchase Rights"), then each Holder shall be
entitled (but not obligated) to acquire, in lieu of any subparagraph (d)
adjustment and upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if it had held the number
of shares of Voting Common Stock issuable upon exchange of Notes for Voting
Common Stock immediately prior to the time or times at which the Company
granted, issued, or sold such Purchase Rights.
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(f) Additional Adjustments.
(i) If at any time or from time to time
conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Section 6.3, and which might
materially and adversely affect the exercise rights of the Holders of Notes,
upon the request of a majority in interest of the Holders the Company shall
appoint a firm of independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company), which
shall give their opinion upon the adjustment, if any, of the number of shares
issuable upon the exchange of Notes, on a basis consistent with the standards
established in the other provisions of this Section 6.3 and assuming all other
adjustments required pursuant to this Section 6.3 have been made, necessary in
order to preserve without diminution the rights of the Holders of Notes. Upon
receipt of such opinion, the Board of Directors shall forthwith make the
adjustments described therein.
(ii) Notwithstanding any other provision hereof,
any antidilution adjustments made pursuant to the terms hereof or of the
Warrants, the Tranche B Notes, and the Convertible Preferred Stock shall be
deemed to be made simultaneously, the intention being to avoid any iterative
calculations.
(g) Effect of Reorganization and Asset Sales. If any capital
reorganization of the Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Voting Common
Stock shall be entitled to receive stock, securities, or assets (including cash)
of the Company or another Person with respect to or in exchange for Voting
Common Stock (each such transaction being hereinafter referred to as a
"Transaction"), then, as a condition of the consummation of each Transaction,
lawful and adequate provisions shall then be made so that each Holder, upon the
exchange hereof at any time after the consummation of such Transaction, shall be
entitled to receive, and such Notes shall thereafter represent the right to
receive, in lieu of Voting Common Stock issuable upon exchange hereof but
otherwise upon and subject to all terms and conditions hereof, the cash,
securities, or other property to which such Holder would have been entitled upon
the consummation of such Transaction if such Holder had exchanged such Notes
immediately prior thereto (subject to adjustments from and after the
consummation date of such Transaction as nearly equivalent as possible to the
adjustments provided for in this Section 6.3). The Company shall not effect any
Transaction unless prior to the consummation thereof each Person (other than the
Company) which may be required to deliver any securities or other property upon
the exchange of the Notes as provided herein shall assume, by written instrument
delivered to each registered Holder of the Notes in form and substance
reasonably satisfactory to the Holders of at least a majority of the aggregate
principal amount of the Notes then outstanding, the obligation to continue to
honor the Notes and to deliver to such Holders such securities or other property
to which, in accordance with the foregoing provisions, such Holders may be
entitled, and such Person shall have similarly delivered to each registered
Holder an opinion of counsel for such Person, in substance and from such counsel
as is acceptable to the Holders, stating that the Notes shall thereafter
continue in full force and effect and shall be enforceable against such Person
in accordance with the terms hereof and thereof.
(h) Notice of Adjustment or Substitution. On the happening of
an event requiring an adjustment of the Exchange Price and upon each change in
the number of shares of Series A Voting Preferred Stock and Voting Common Stock
issuable upon the exchange of
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Notes, and in the event of any change in the rights of the Holder of Notes by
reason of other events herein set forth, the Company shall as soon as
practicable give written notice ("Notice of Adjustment") to the registered
Holder(s) of Notes: (i) describing the event; (ii) stating the adjusted Exchange
Price, the number of shares of Series A Voting Preferred Stock and Voting Common
Stock issuable based upon the difference between the Exchange Price before and
after such adjustment; and (iii) stating how such adjustment of Exchange Price
or number of shares of Series A Voting Preferred Stock and Voting Common Stock
was calculated and the facts on which the calculation is based.
(i) Accountant's Opinion. Upon each adjustment of the Exchange
Price and upon each change in the number of shares of Series A Voting Preferred
Stock and Voting Common Stock issuable upon the exchange of Notes, and in the
event of any change in the rights of the Holder of Notes by reason of other
events herein set forth, then and in each such case, upon the reasonable written
request of the Holders of at least 50% of the aggregate principal amount of the
Notes then outstanding given to the Company within thirty (30) days after the
Company has given the Notice of Adjustment, the Company will promptly obtain an
opinion of independent certified public accountants selected by the Company and
reasonably satisfactory to such Holder(s), stating the adjusted Exchange Price
and the new number of shares of Series A Voting Preferred Stock and Voting
Common Stock so issuable, or specifying the other shares of stock, securities,
or assets and the amount thereof receivable as a result of such adjustment or
change in rights, and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. The Company will
promptly mail a copy of such accountant's opinion to each registered Holder of
Notes. The costs of the accountant's opinion shall be borne (i) by the Company,
if the accountant's opinion reflects any change to the adjusted Exchange Price
or the number of shares of Series A Voting Preferred Stock and Voting Common
Stock so issuable set forth in the Notice of Adjustment, or (ii) by the Holders,
if the accountant's opinion reflects no change to the adjusted Exchange Price or
the number of shares of Series A Voting Preferred Stock and Voting Common Stock
so issuable set forth in the Notice of Adjustment. Any dispute or controversy in
respect of the accountant's opinion shall be submitted to final and binding
arbitration in Dallas, Texas pursuant to the commercial arbitration rules of the
American Arbitration Association. All costs and expenses (including reasonable
attorneys' fees) incurred by the Company and the Holders in connection with any
such arbitration proceeding shall be paid by the non-prevailing party (as
determined by the arbitrator(s)).
(j) Adjustment of Less Than $.01. The Company shall not be
required to give any Notice of Adjustment of the Exchange Price in accordance
with subparagraph (h) above if the amount of such adjustment shall be less than
$.01, but in such case any such adjustment shall be carried forward and notice
thereof shall be given at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried forward, shall amount
to not less than $.01 per share; provided, however, that notice of each such
adjustment of the Exchange Price shall be given not later than three years from
the date such adjustment would have been required to be made except for the
provisions of this subparagraph (j).
(k) Treasury Shares. The number of shares of Aggregate Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company or any of its Subsidiaries, but the disposition
of any such shares to a third party shall be considered an issue or sale of
Aggregate Common Stock for the purposes of this Section 6.3.
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(l) Adjustment Exceptions. Anything in this Section 6.3 to the
contrary notwithstanding, no adjustment of the Exchange Price or the number of
shares of Series A Voting Preferred Stock and Voting Common Stock issuable upon
the exchange of Notes shall be made upon (i) the issuance of any shares of
Aggregate Common Stock upon the exercise of any of the Warrants, the exchange of
any Convertible Preferred Stock, the exchange of any Tranche B Notes, or the
issuance of rights to acquire shares of Aggregate Common Stock under any of the
foregoing, (ii) the issuance of any shares of Aggregate Common Stock or other
securities pursuant to any Plans, or (iii) the issuance of shares of Aggregate
Common Stock or rights to acquire such shares in connection with any redemption
pursuant to Article 3.
Section 6.4 Voting Rights.
(a) The Holders of Notes, except as set forth in this Section
6.4, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the shareholders of the Company.
(b) (i) If at any time when the Initial Investors and their
Affiliates Beneficially Own at least 50% of the principal amount of the
outstanding Notes (x) the Company fails to exchange all of the then outstanding
Notes under the provisions of Section 6.1 (after notice has been given), (y) the
Company fails to purchase Notes pursuant to Section 4.1, or (z) an Event of
Default has occurred and is continuing (each, a "Voting Rights Triggering
Event"), then the number of directors constituting the Board of Directors shall
be adjusted by the number, if any, necessary to permit the Holders of a majority
in principal amount of the Notes to appoint two directors of the Board of
Directors. Holders of a majority of the outstanding principal amount of the
Notes shall during the period set forth in Section 6.4(b)(ii) have the exclusive
right to appoint two directors of the Board of Directors at a meeting therefor
called upon occurrence of such Voting Rights Triggering Event and at every
subsequent meeting at which the terms of office of the directors so elected
expire.
(ii) The right of Holders of Notes to elect
members of the Board of Directors as set forth in Section 6.4(b)(i) shall
continue until such time as the failure, breach, or default giving rise to such
Voting Rights Triggering Event is remedied or is waived by Holders of at least a
majority in principal amount of outstanding Notes at which time (I) the special
right of Holders of Notes so to vote for the election of directors and (II) the
term of office of the additional directors elected by Holders of Notes shall
terminate. At any time after voting power to elect directors shall have become
vested and be continuing in Holders of Notes pursuant to Section 6.4(b)(i), or
if vacancies shall exist in the offices of directors elected by Holders of
Notes, a proper officer of the Company may, and upon the written request of the
Holders of record of at least twenty-five percent (25%) of the principal amount
of Notes then outstanding addressed to the secretary of the Company shall, call
a special meeting of the Holders of Notes for the purpose of electing the
directors which such Holders are entitled to elect. If such meeting shall not be
called by a proper officer of the Company within twenty (20) days after personal
service of said written request upon the secretary of the Company or within
twenty (20) days after mailing the same within the United States by certified
mail, addressed to the secretary of the Company at its principal executive
offices, then (x) the Holders of record of at least twenty-five percent (25%) of
the principal amount of Notes then outstanding may designate in writing one of
their number to call such meeting at the expense of the Company, and such
meeting may be called by the Person so designated upon the notice required for
the annual meetings of shareholders of the Company and shall be held at the
place
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designated in such notice, or (y) the Holders of record of at least a majority
in principal amount of outstanding Notes may elect such members to the Board of
Directors without a meeting, without prior notice, and without a vote, if such
Holders sign a consent or consents in writing electing such members to the Board
of Directors.
(iii) At the meeting held for the purpose of
electing directors at which the Holders of Notes shall have the right to elect
directors as aforesaid, the presence in person or by proxy of the Holders of at
least a majority of the outstanding principal amount of Notes shall be required
to constitute a quorum of such Notes.
(iv) Notwithstanding the foregoing, in the event
Holders of Notes shall have the concurrent right to elect members of the Board
of Directors under this Section 6.4 and under Section 6.4 of the Tranche B
Notes, the number of directors provided for in this Section 6.4 shall be reduced
to one during, but only during, any period such concurrent right exists and,
upon termination of any such right under the Tranche B Notes, such number shall
be returned to two directors. The right of Holders of Notes to elect directors
pursuant to this Section 6.4 shall be in addition to, and not in substitution
for or diminution of, the rights of Wingate and its assigns or Affiliates to
appoint members of the Board of Directors under the terms of the Purchase
Agreement.
ARTICLE 7
SUBSIDIARY GUARANTEES
Section 7.1 Subsidiary Guarantees.
(a) Subject to the provisions of this Article 7 each
Subsidiary Guarantor, jointly and severally, hereby irrevocably unconditionally
guarantees to each Holder of a Note that: (i) the principal of, premium, if any,
and interest on the Notes shall be duly and punctually paid in full when due,
whether at stated maturity, by acceleration, call for redemption, upon a Change
of Control, or otherwise, and interest on overdue principal, premium, if any,
interest on any interest (to the extent permitted by law), if any, on the Notes
and all other obligations of the Company to Holders of Notes will be promptly
paid in full or performed, all in accordance with the terms hereof and thereof,
(ii) in case of any extension of time of payment or renewal of any Notes or any
of such other obligations, the same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration, call for redemption, upon a Change of Control,
or otherwise, and (iii) the prompt payment of any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Holder of Notes in
successfully enforcing any rights under the Notes. Failing payment when due of
any amount so guaranteed or failing performance of any other obligation of the
Company to the Holders of Notes, for whatever reason, each Subsidiary Guarantor
shall be jointly and severally obligated to pay, or to perform or to cause the
performance of, the same immediately. An Event of Default under the Notes shall
constitute an event of default under the Subsidiary Guarantees, and shall
entitle the Holders of Notes to accelerate the obligations of each Subsidiary
Guarantor hereunder in the same manner and to the same extent as the obligations
of the Company. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity, or
enforceability of the Notes, the absence of any action to enforce the same, any
waiver or consent by any Holder of Notes with respect to any thereof, the entry
of any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise
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constitute a legal or equitable discharge or defense of a Subsidiary Guarantor.
Each Subsidiary Guarantor hereby waives and relinquishes: (A) any right to
require the Holders of Notes or the Company (each, a "Benefitted Party") to
proceed against the Company, the Subsidiary Guarantors, or any other Person or
to proceed against or exhaust any security held by a Benefitted Party at any
time or to pursue any other remedy in any secured party's power before
proceeding against the Subsidiary Guarantor; (B) any defense that may arise by
reason of the incapacity, lack of authority, death, or disability of any other
Person or Persons or the failure of a Benefitted Party to file or enforce a
claim against the estate (in administration, bankruptcy, or any other
proceeding) of any other Person or Persons; (C) demand, protest, and notice of
any kind (except as expressly required by this Note), including but not limited
to notice of the existence, creation, or incurring of any new or additional
Indebtedness or obligation or of any action or non-action on the part of the
Subsidiary Guarantors, the Company, any Benefitted Party, any creditor of the
Subsidiary Guarantors, the Company or on the part of any other Person whomsoever
in connection with any obligations the performance of which are hereby
guaranteed; (D) any defense based upon an election of remedies by a Benefitted
Party, including but not limited to an election to proceed against the
Subsidiary Guarantors for reimbursement; (E) any defense based upon any statute
or rule of law which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that of the
principal; (F) any defense arising because of a Benefitted Party's election, in
any proceeding instituted under the Bankruptcy Law, of the application of
Section 1111(b)(2) of the Bankruptcy Code; and (G) any defense based on any
borrowing or grant of a security interest under Section 364 of the Bankruptcy
Code. The Subsidiary Guarantors hereby covenant that the Subsidiary Guarantors
shall not be discharged except by payment in full of all principal, premium, if
any, and interest on the Notes and all other costs provided for under this Note.
(b) If any Holder of Notes is required by any court or
otherwise to return to either the Company or the Subsidiary Guarantors, or any
trustee or similar official acting in relation to either the Company or the
Subsidiary Guarantors, any amount paid by the Company or the Subsidiary
Guarantors to such Holder of Notes, the Subsidiary Guarantors, to the extent
theretofore discharged, shall be reinstated in full force and effect.
(c) Each of the Subsidiary Guarantors agrees that it shall not
be entitled to any right of subrogation in relation to the Holders of Notes in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Subsidiary Guarantor agrees that, as between
it, on the one hand, and the Holders of Notes, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 5 for the purposes hereof, notwithstanding any stay, injunction, or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article 5, such obligations (whether or not due and payable)
shall forthwith become due and payable by such Subsidiary Guarantor for the
purpose of its Subsidiary Guarantee.
Section 7.2 Releases Following Sale of Assets and Restricted Subsidiary
Stock. In the event of a sale, assignment, transfer, lease, conveyance, or other
disposition of all of the Equity Interests in, or all or substantially all of
the assets of, a Subsidiary Guarantor to any Person that is not the Company or
any of its Subsidiaries, whether by way of merger, consolidation, or otherwise,
if (i) the Net Proceeds of such sale or other disposition are applied in
accordance with the provisions of Section 4.07 of the Indenture, (ii) no Default
or Event of Default exists or would exist under this Note after giving effect to
such transaction, (iii) all obligations of such
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Subsidiary Guarantor under any other Indebtedness of the Company or any of its
Subsidiaries shall have been terminated (including, without limitation, all
Guarantees of any such Indebtedness), (iv) all Liens on assets of such
Subsidiary that secure any other Indebtedness of the Company or any of its
Subsidiaries shall have been terminated, and (v) all obligations of the Company
and its Subsidiaries under other Indebtedness of such Subsidiary Guarantor shall
have been terminated (including, without limitation, all Guarantees of such
Indebtedness), then (A) in the case of such a sale or other disposition, whether
by way of merger, consolidation, or otherwise, of all of the Equity Interests in
such former Subsidiary Guarantor, such former Subsidiary Guarantor will be
released and relieved of any obligations under its Subsidiary Guarantee, or (B)
in the case of a sale or other disposition of all or substantially all of the
assets of such Subsidiary Guarantor, the Person acquiring such assets will not
be required to assume the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee.
Section 7.3 Limitation of Subsidiary Guarantor's Liability. Each
Subsidiary Guarantor, and by its acceptance hereof each Holder of Notes, hereby
confirms that it is the intention of all such parties that the guarantee by such
Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any
similar federal or state law. To effectuate the foregoing intention, the Holders
of Notes and each Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under this Article 7 shall be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
this Article 7, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee of such Subsidiary Guarantor not constituting a fraudulent
transfer or conveyance.
Section 7.4 Application of Certain Terms and Provisions to the
Subsidiary Guarantors.
(a) For purposes of any provision of this Note which provides
for the delivery by any Subsidiary Guarantor of an Officer's Certificate and/or
an Opinion of Counsel, the definitions of such terms shall apply to such
Subsidiary Guarantor as if references therein to the Company were references to
such Subsidiary Guarantor.
(b) Any request, direction, order, or demand which by any
provision of this Note is to be made by any Subsidiary Guarantor, shall be
sufficient if evidenced as described in Section 9.1 as if references therein to
the Company were references to such Subsidiary Guarantor.
(c) Any notice or demand which by any provision of this Note
is required or permitted to be given or served by the Holders of Notes to or on
any Subsidiary Guarantor may be given or served as described in Section 9.1 as
if references therein to the Company were references to such Subsidiary
Guarantor.
Section 7.5 Release of Subsidiary Guarantees. Upon the sale or
disposition of a Subsidiary Guarantor (or substantially all of its assets)
pursuant to and in compliance with the terms of this Note and the Indenture,
such Subsidiary Guarantor will be released from and relieved of its obligations
under its Subsidiary Guarantee. Such release shall be conditional upon the
delivery to the Holders of an Officers' Certificate and an Opinion of Counsel,
each
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stating that such release of the Subsidiary Guarantee complies with the
provisions of this Note and the Indenture and that all conditions precedent to
such release of the Subsidiary Guarantee have been complied with.
Section 7.6 Subordination of Subsidiary Guarantees. The obligations of
each Subsidiary Guarantor under its Subsidiary Guarantee pursuant to this
Article 7 is subordinated in right of payment to the prior payment in full in
cash or Cash Equivalents of all Senior Indebtedness of the Subsidiary Guarantor
on the same basis as the Notes are subordinated to Senior Indebtedness of the
Company. For the purposes of the foregoing sentence, the Holders of Notes shall
have the right to receive and/or retain payments by any of the Subsidiary
Guarantors only at such times as they may receive and/or retain payments in
respect of the Notes pursuant to this Note, including Article 7. In the event
that the Holders receive any Subsidiary Guarantor payment at a time when such
payment is prohibited by the foregoing sentence, such Subsidiary Guarantor
payment shall be paid over and delivered to the holders of the Senior
Indebtedness of the Subsidiary Guarantor remaining unpaid, to the extent
necessary to pay in full in cash or Cash Equivalents all such Senior
Indebtedness of the Subsidiary Guarantor. Each Holder of a Note by its
acceptance thereof agrees to and shall be bound by the provisions of this
Section 7.6.
ARTICLE 8
SUBORDINATION
Section 8.1 Notes Subordinated to Senior Indebtedness. The Company
covenants and agrees, and each Holder of Notes by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article 8, and each Person holding any Note, whether upon
original issue or upon transfer, assignment, or exchange thereof, accepts and
agrees that all payments of the principal of and premium, if any, and interest
on the Notes will, to the extent and in the manner set forth in this Article 8,
be subordinated in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Indebtedness, whether outstanding on the date of the
Note or thereafter incurred.
Section 8.2 No Payment on Notes in Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the
Company of principal of, premium, if any, and interest on the Notes, whether
pursuant to the terms of the Notes, upon acceleration, pursuant to a Change of
Control or otherwise, shall be made to the Holders of Notes (except that Holders
of Notes may receive payments made in Junior Securities) if (i) a default in the
payment of the principal of or premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Holders
receive a written notice (with a copy to the Company) of such other default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Indebtedness. Payments on the Notes may and shall be resumed (A) in the
case of a payment default, upon the date on which such default is cured or
waived and (B) in case of a nonpayment default, on the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received by the Holders (such
period being referred to herein as the "Payment Blockage Period"), unless
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the maturity of any Designated Senior Indebtedness has been accelerated (and
written notice of such acceleration has been received by the Holders).
(b) Notwithstanding anything herein or in the Notes to the
contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Payment Blockage Period is in effect and (z) not more than one Payment
Blockage Period may be commenced with respect to the Notes during any period of
360 consecutive days. No new Payment Blockage Period may be commenced unless and
until all scheduled payments of principal, premium, if any, and interest on the
Notes that have come due have been paid in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Holders shall be, or be made, the basis for a subsequent Payment Blockage
Notice (it being understood that any subsequent action, or any breach of any
covenant for a period commencing after the date of receipt by the Holders of
such Payment Blockage Notice, that, in either case, would give rise to such a
default pursuant to any provisions under which a default previously existed or
was continuing shall constitute a new default for this purpose).
(c) In the event that, notwithstanding the foregoing, any
payment shall be received any Holder of Notes when such payment is prohibited by
Section 8.2(a), such payment shall be held for the benefit of, and shall be paid
over or delivered to, the holders of Designated Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Designated Senior Indebtedness may have been
issued, as their respective interests may appear, but only to the extent that,
upon notice from the Holders to the holders of Designated Senior Indebtedness
that such prohibited payment has been made, the holders of the Designated Senior
Indebtedness (or their representative or representatives or a trustee) notify
the Holders in writing of the amounts then due and owing on the Designated
Senior Indebtedness, if any, and only the amounts specified in such notice to
the Holders shall be paid to the holders of Designated Senior Indebtedness.
Section 8.3 Payment Over of Proceeds Upon Dissolution, Etc.
(a) Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership, or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash or Cash Equivalents of all
obligations due in respect of such Senior Indebtedness (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, and until all obligations with respect to
Senior Indebtedness are paid in full in cash or Cash Equivalents, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Indebtedness (except that Holders of Notes may receive
Junior Securities).
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash,
property, or securities, shall be received by any Holder of Notes at a time when
such payment or distribution is prohibited by Section 8.3(a) and before
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all obligations in respect of Senior Indebtedness are paid in full in cash or
Cash Equivalents, or payment provided for, such payment or distribution shall be
received and held for the benefit of, and shall be paid over or delivered to,
the holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
respective representatives, or to the trustee or trustees or agent or agents
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full in cash or Cash Equivalents after giving
effect to any prior or concurrent payment, distribution, or provision therefor
to or for the holders of such Senior Indebtedness.
(c) The consolidation of the Company with, or the merger of
the Company with or into, another corporation or the liquidation or dissolution
of the Company following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another Person upon the terms and
conditions provided in Article 5 of the Indenture shall not be deemed a
dissolution, winding-up, liquidation, or reorganization for the purposes of this
Section 8.3 if such other Person shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article 5 of the
Indenture.
Section 8.4 Subrogation.
(a) Upon the payment in full in cash or Cash Equivalents of
all Senior Indebtedness, or provision for payment, the Holders of the Notes
shall be subrogated to the rights of the holders of Senior Indebtedness and pari
passu with the other unsecured Indebtedness of the Company to receive payments
or distributions of cash, property or securities of the Company made on such
Senior Indebtedness until the principal of, premium, if any, and interest on the
Notes shall be paid in full in cash; and, for the purposes of such subrogation,
no payments or distributions to the holders of the Senior Indebtedness of any
cash, property or securities to which the Holders of Notes would be entitled
except for the provisions of this Article 8, and no payment over pursuant to the
provisions of this Article 8 to the holders of Senior Indebtedness by Holders of
Notes as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of Notes, be deemed to be a payment by the Company
to or on account of the Senior Indebtedness. It is understood that the
provisions of this Article 8 are and are intended solely for the purpose of
defining the relative rights of the Holders of Notes, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders of
Notes would otherwise have been entitled but for the provisions of this Article
8 shall have been applied, pursuant to the provisions of this Article 8, to the
payment of all amounts payable under Senior Indebtedness, then and in such case,
the Holders of Notes shall be entitled to receive from the holders of such
Senior Indebtedness any payments or distributions received by such holders of
Senior Indebtedness in excess of the amount required to make payment in full, or
provision for payment, of such Senior Indebtedness.
Section 8.5 Obligations of Company Unconditional.
(a) Nothing contained in this Article 8 or elsewhere in the
Notes is intended to or shall impair, as between the Company and the Holders of
Notes, the obligation of the
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Company, which is absolute and unconditional, to pay to the Holders of Notes the
principal of, premium, if any, and interest on the Notes as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders of Notes and creditors of the
Company other than the holders of the Senior Indebtedness, nor shall anything
herein or therein prevent the Holder of any Note from exercising all remedies
otherwise permitted by applicable law upon default under this Note, subject to
the rights, if any, under this Article 8 of the holders of the Senior
Indebtedness in respect of cash, property, or securities of the Company received
upon the exercise of any such remedy.
(b) Without limiting the generality of the foregoing, nothing
contained in this Article 8 shall restrict the right of the Holders of Notes to
take any action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Article 5 or to pursue any rights or remedies hereunder;
provided, however, that all Senior Indebtedness then due and payable shall first
be paid in full before the Holders of Notes are entitled to receive any direct
or indirect payment from the Company of principal of, premium, if any, and
interest on the Notes.
Section 8.6 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets or securities referred to in
this Article 8, the Holders of Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation, or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent, or other person making such payment or distribution, delivered
to the Holders of Notes for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 8.
Section 8.7 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Note, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article 8 are intended to be
for the benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
Section 8.8 This Article Not to Prevent Event of Default. The failure
to make a payment on account of principal of, premium, if any, and interest on
the Notes by reason of any provision of this Article 8 shall not be construed as
preventing the occurrence of an Event of Default specified in Section 5.1(a) or
5.1(b).
Section 8.9 No Waiver of Subordination Provisions. Without in any way
limiting the generality of Section 8.7, the holders of Senior Indebtedness may,
at any time and from time to time, without the consent of or notice to the
Holders of Notes, without incurring responsibility to the Holders of Notes and
without impairing or releasing the subordination provided in this Article 8 or
the obligations hereunder of the Holders of Notes to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place,
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is
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outstanding or secured; (b) sell, exchange, release, or otherwise deal with any
property pledged, mortgaged, or otherwise securing Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against the
Company and any other Person.
Section 8.10 Acceleration of Notes. If payment of the Notes is
accelerated because of an Event of Default, the Company shall promptly notify
holders of the Senior Indebtedness of the acceleration.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices. Any notice or communication by the Company or any
Subsidiary Guarantor shall be considered duly given if in writing and delivered
in person or mailed by first-class mail, telecopier, or overnight air courier
guaranteeing next day delivery, to the address set forth below:
If to the Company or a Subsidiary Guarantor:
Kevco, Inc
1300 South University Drive
Suite 200
Fort Worth, Texas 76107
Attention: Chief Executive Officer
Telecopier No.: (817) 332-2765
with a copy of any notice given to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75201-3797
Attention: Byron F. Egan
Telecopier No.: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopier No.: (212) 225-3999
All notices and communications (other than those sent to
Holders of Notes) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. Any notice or communication to a Holder
of Notes shall be mailed by first-class mail to its address shown on the Note
register kept by the Company. If a notice or communication is mailed in the
manner provided above within the time prescribed, it is duly given, whether or
not the addressee receives it.
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Section 9.2 Legal Holidays. If a payment date is not a Business Day at
a place of payment, payment may be made at that place on the next succeeding
Business Day, and no interest shall accrue on such payment for the intervening
period.
Section 9.3 Savings Clause. Notwithstanding any other provision of this
Note to the contrary, in no event shall any Holder have the right to receive, or
to elect to receive, Series A Voting Preferred Stock or Voting Common Stock, as
the case may be, if, as a result thereof, a "change of control" would have been
deemed to occur under the Indenture, and, in lieu thereof, the Holder shall have
the right to receive, or the right to elect to receive, an equivalent number of
shares of Series B Nonvoting Preferred Stock (with respect to Series A Voting
Preferred Stock) or Nonvoting Common Stock (with respect to Voting Common
Stock), as the case may be.
Section 9.4 No Consent Payments. No Holder shall be paid or entitled to
receive any consideration or fee for or as an inducement to any consent, waiver,
or amendment of any provision of this Note.
Section 9.5 No Recourse Against Others. No director, officer, employee,
incorporator, or shareholder of the Company or any Guarantor Subsidiary, as
such, shall have any liability for any obligations of the Company or any
Guarantor Subsidiary under the Notes, or any Subsidiary Guarantee or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes and Subsidiary Guarantees.
Section 9.6 Governing Law. The internal law of the State of Texas shall
govern and be used to construe the Notes and the Subsidiary Guarantees (without
regard to conflicts of law provisions). Each party hereto irrevocably submits
itself to the non-exclusive jurisdiction of the state and federal courts of
Texas for purposes of this Note and agrees and consents that service of process
may be made upon it in any legal proceeding relating to this Note by any means
allowed under federal or Texas law. The parties hereto hereby waive and agree
not to assert, by way of motion, as a defense, or otherwise, that any such
proceeding is brought in an inconvenient forum or that the venue thereof is
improper.
Section 9.7 Successors. This Note shall inure to the benefit of and be
binding upon the parties hereto and each of their respective successors and
assigns, except that the Company may not assign this Note or its obligations
hereunder. Without limiting the generality of the foregoing, this Note shall
inure to the benefit of all Holders of Notes from time to time. Nothing
expressed or mentioned in this Note is intended or shall be construed to give
any Person, other than the parties hereto, their respective successors and
assigns, and the Holders of Notes, any legal or equitable right, remedy, or
claim under or in respect of this Note or any provision herein contained.
Section 9.8 Severability. In case any provision in this Note or the
Subsidiary Guarantees shall be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and in order to manifest the intent of the
parties, effect shall be given to such invalid, illegal, or unenforceable
provision to the maximum extent possible.
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Section 9.9 Headings. The headings of the Articles and Sections of this
Note have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
or provisions hereof. Unless the context otherwise requires, all references to
Articles and Sections contained herein are references to Articles and Sections
of this Note.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Note as of the Issue Date.
THE COMPANY:
KEVCO, INC.
By:
--------------------------------------
Name: Jerry E. Kimmel
Title: Chairman, CEO and President
SUBSIDIARY GUARANTORS:
KEVCO MANAGEMENT, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
KEVCO HOLDING, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
KEVCO GP, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
DCM DELAWARE, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
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150
KEVCO COMPONENTS, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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151
EXHIBIT C
TRANCHE B NOTE
152
THIS TRANCHE B SENIOR SUBORDINATED EXCHANGEABLE NOTE AND HE SECURITIES
REPRESENTED HEREBY HAVE BEEN PURCHASED PURSUANT TO A SECURITIES PURCHASE
AGREEMENT DATED AS OF JULY 14, 1999, BETWEEN THE COMPANY AND WINGATE PARTNERS
II, L.P. SUCH SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES
AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS TRANCHE B SENIOR
SUBORDINATED EXCHANGEABLE NOTE. THIS TRANCHE B SENIOR SUBORDINATED EXCHANGEABLE
NOTE WAS ISSUED ON THE DATE HEREOF WITH ORIGINAL ISSUE DISCOUNT. THE ISSUE PRICE
OF THIS NOTE IS _________________. THE AMOUNT OF ORIGINAL ISSUE DISCOUNT
ATTRIBUTABLE TO THIS NOTE IS $[8,256,826](1). THE ISSUE DATE OF THIS NOTE IS
JULY ___, 1999. THE YIELD TO MATURITY OF THIS NOTE IS ____%.
TRANCHE B SENIOR SUBORDINATED EXCHANGEABLE NOTE
$6,500,000.00 July ___, 1999
FOR VALUE RECEIVED, Kevco, Inc., a Texas corporation, hereby promises
to pay to the order of _______________________________________, the principal
sum of SIX MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($6,500,000.00),
together with interest, as hereinafter described.
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions.
"10 3/8% Senior Subordinated Notes" means the Company's 10 3/8% Senior
Subordinated Notes due December 1, 2007.
"Acceleration Notice" has the meaning specified in Section 5.2.
"Acquired Indebtedness" means, in respect of the Company or any of its
Subsidiaries, (i) Indebtedness of any other Person existing at the time such
other Person is merged with or into or becomes a Subsidiary of the Company or
any of its Subsidiaries, including, without limitation, Indebtedness Incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Subsidiary of the Company or any of its Subsidiaries and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by the Company or
any of its Subsidiaries.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause
- ---------------------
(1) Calculated as of July 12, 1999.
153
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement, or otherwise; provided, however,
that Beneficial Ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Aggregate Common Stock" means the Voting Common Stock and the
Nonvoting Common Stock.
"Amendment" has the meaning specified in the Purchase Agreement.
"Applicable Law" means the applicable laws of the State of Texas or
applicable laws of the United States, whichever laws allow the greater rate of
interest, as such laws now exist or may be changed or amended or come into
effect in the future.
"Asset Sale" means (a) the direct or indirect sale, lease, license,
conveyance, transfer, or other disposition of any assets or rights (including,
without limitation, by way of a sale and leaseback or similar arrangement, by
merger or consolidation) by the Company or any of its Subsidiaries (a
"disposition"), in one transaction or a series of transactions; provided,
however, that the disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the provisions
of Section 4.1 and/or the provisions of Section 4.8 and not by the provisions of
Section 4.2 and (b) the issuance or disposition by the Company or any of its
Subsidiaries of Equity Interests of the Company's Subsidiaries. Notwithstanding
the foregoing, none of the following will be deemed an Asset Sale: (i) a
disposition of assets by the Company to a Subsidiary of the Company or by a
Subsidiary of the Company to the Company or to another Subsidiary of the
Company; (ii) an issuance of Equity Interests by a Subsidiary of the Company to
the Company or to another Subsidiary of the Company; (iii) a Restricted Payment
that is permitted by Section 4.3; (iv) dispositions of $250,000 or less; (v)
dispositions of assets or rights in the ordinary course of business consistent
with past practices; (vi) the grant in the ordinary course of business of any
non-exclusive license of intellectual property rights; (vii) any liquidation of
any Cash Equivalents; (viii) any disposition of defaulted receivables for
collection; and (ix) the grant of any Lien securing Indebtedness (or any
foreclosure thereon) to the extent that such Lien is granted in compliance with
Section 4.5.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of the date of determination, in respect of
any security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Law" means Title II, U.S. Code or any similar federal or
state law for the relief of debtors.
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154
"Beneficial Owner" or "beneficial owner" (including, with correlative
meanings, the terms "Beneficial Ownership" and "Beneficially Owns") for purposes
of the definition of Change of Control has the meaning attributed to it in Rules
13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether
or not applicable, except that a "person" (as such term is used in Sections
13(d)(3) of the Exchange Act) shall be deemed to have "Beneficial Ownership" of
all shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time or is exercisable only
upon the occurrence of a subsequent condition.
"Benefitted Party" has the meaning specified in Section 7.1(a).
"Board of Directors" means the board of directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to each Holder.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday, and
Friday which is not a day on which banking institutions in Fort Worth, Texas are
authorized or obligated by law or executive order to close.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights, or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited), and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations
of such Person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) Government Securities having maturities of
not more than 12 months from the date of acquisition, (ii) certificates of
deposit and eurodollar time deposits with maturities of 12 months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any member bank of the
U.S. Federal Reserve System having capital and surplus in excess of
$500,000,000, (iii) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any financial institution meeting the qualifications specified
in clause (ii) above, and (iv) commercial paper having the rating of at least
P-1 from Moody's Investors Services, Inc. ("Moody's"), or any successor to its
rating business, or at least A-1 from Standard & Poor's Ratings Services
("S&P"), or any successor to its rating business, and in each case maturing
within 180 days after the date of acquisition.
"Change of Control" means the occurrence or existence of any of the
following events or circumstances after the Issue Date: (i) a "person" or
"group" (within the meaning of
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155
Sections 13(d) and 14(d)(2) of the Exchange Act) (other than any person or group
comprised solely of any or all of the Initial Investors or their Affiliates)
becomes the Beneficial Owner of 50% or more of the Voting Common Stock or Jerry
E. Kimmel, his family members, heirs, estate or Affiliates, individually or
collectively become the Beneficial Owners of more than 46% of the Voting Common
Stock (an "Acquiring Person"); or (ii) a sale or transfer of all or
substantially all of the assets of the Company and its Subsidiaries, taken as a
whole, to any person or group (other than any person or group consisting solely
of any or all of the Initial Investors or their respective Affiliates) has been
consummated; or (iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors (together
with any new directors whose election was approved by a vote of a majority of
the directors then still in office, who either were directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors of the
Company then in office, other than as a result of a reduction of the number of
directors comprising the Board of Directors, pursuant to the provisions of the
Company's Articles of Incorporation or under the terms of the Senior Credit
Facility. Notwithstanding the foregoing, for purposes of clause (i) above, a
Change of Control shall not be deemed to have occurred if any person or group
becomes an Acquiring Person through one or more transactions which includes the
acquisition, directly or indirectly, of any of the Voting Common Stock
Beneficially Owned by the Initial Investors or their Affiliates, unless such
action is part of a transaction, including a tender or exchange offer, merger,
consolidation, or other business combination, in which such person or group
acquires or offers to acquire, on substantially the same terms and conditions as
those applicable to the Initial Investors and their Affiliates, substantially
the same proportion of shares of the outstanding Voting Common Stock held by the
remaining shareholders; provided, however, that a Change of Control may occur
notwithstanding the fact that (i) holders of Voting Common Stock may elect more
than one form of consideration in such transaction or (ii) such holders may
receive cash in lieu of the purchase of fractional shares.
"Commission" means the U.S. Securities and Exchange Commission.
"Company" means Kevco, Inc., a Texas corporation, and any successor
thereto permitted pursuant to Section 4.8.
"Composite Tape" means in respect of any security, the reporting by the
National Association of Securities Dealers, Inc. (or any successor reporting
mechanism) of all trades of such security occurring on all exchanges on which
such security is traded.
"Consolidated Coverage Ratio" of any Person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(a) the aggregate amount of Consolidated EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses discounted or disposed of) for the Reference Period to
(b) the aggregate Consolidated Fixed Charges of such Person (exclusive of
amounts attributable to operations and businesses discontinued or disposed of,
but only to the extent that the obligations giving rise to such Consolidated
Fixed Charges would no longer be obligations contributing to such Person's
Consolidated Fixed Charges subsequent to the Transaction Date) during the
Reference Period; provided, however, that for purposes of such calculation, (i)
acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period, (ii) transactions giving
rise to the need to calculate the
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156
Consolidated Coverage Ratio shall be assumed to have occurred on the first day
of the Reference Period, (iii) the Incurrence of any Indebtedness or issuance of
any Disqualified Stock during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date (and the application of
the proceeds therefrom to the extent used to refinance or retire other
Indebtedness) shall be assumed to have occurred on the first day of such
Reference Period, and (iv) the Consolidated Fixed Charges of such Person
attributable to interest on any Indebtedness or dividends on any Disqualified
Stock bearing a floating interest (or dividend) rate shall be computed on a pro
forma basis as if the average rate in effect from the beginning of the Reference
Period to the Transaction Date had been the applicable rate for the entire
period, unless such Person or any of its Subsidiaries is a party to a Hedging
Obligation (which by its terms will remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used. For purposes of this definition whenever pro
forma effect is to be given to a transaction, the pro forma calculations of
Consolidated EBITDA and Consolidated Fixed Charges shall be made in accordance
with Article 11 of Regulation S-X of the Commission and subject to agreed-upon
procedures to be performed by the Company's independent accountants to determine
whether the pro forma calculations are made in accordance with Article 11 of
Regulations S-X.
"Consolidated EBITDA" means, in respect of the Company, for any period,
the Consolidated Net Income of the Company for such period adjusted to add
thereto (to the extent deducted in determining Consolidated Net Income), without
duplication, the sum of (i) consolidated income tax expense, (ii) consolidated
depreciation and amortization expense, and other non-cash charges required to be
reflected as expenses for such period on the books and records of the Company,
and (iii) Consolidated Fixed Charges, less the amount of all cash payments made
by the Company or any of its Subsidiaries during such period to the extent such
payments relate to non-cash charges that were added back in determining
Consolidated EBITDA for such period or any prior period.
"Consolidated Fixed Charges" means, in respect of the Company for any
period, the sum of (i) the consolidated interest expense of the Company and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capitalized
Lease Obligations, imputed interest in respect of Attributable Debt, interest
payments in respect of Indebtedness of another Person that is Guaranteed by the
Company or one or more of its Subsidiaries or secured by a Lien on assets of the
Company or one or more of its Subsidiaries, commissions, discounts, and other
fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the
consolidated interest expense of the Company and its Subsidiaries that was
capitalized during such period, in each case, on a consolidated basis and in
accordance with GAAP, and (iii) the product of (A) the aggregate amount of
dividends paid (to the extent not accrued in a prior period) or accrued on
Disqualified Stock of the Company and its Subsidiaries or preferred stock of the
Company's Subsidiaries, to the extent such Disqualified Stock or preferred stock
is owned by Persons other than the Company and its Subsidiaries and (B) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state, local, and foreign statutory tax
rate of the Company, expressed as a decimal.
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157
"Consolidated Net Income" means, in respect of the Company for any
period, the aggregate of the Net Income of the Company and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net Income (but not loss) of any Person that is
not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid in cash to the Company or any of its Subsidiaries as to which Consolidated
Net Income is being calculated, (ii) the Net Income of any Subsidiary of the
Company shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary of such Net Income would
not be permitted at the date of determination or, directly or indirectly,
pursuant to the terms of its charter and bylaws (or similar organizational and
governing documents) and all agreements, instruments, judgments, decrees,
orders, statutes, rules, or governmental regulations applicable to such
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded, (v) income or loss attributable to
discounted operations shall be excluded, and (vi) any gain (but not loss)
realized upon the sale or other disposition of any property, plant, or equipment
of the Company or its Subsidiaries (including pursuant to any sale and leaseback
transaction) which is not sold or otherwise disposed of in the ordinary course
of business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person shall be excluded.
"Convertible Preferred Stock" means collectively the Series A Voting
Preferred Stock and the Series B Nonvoting Preferred Stock.
"Custodian" means any receiver, trustee, assignee, liquidator, or
similar official under any Bankruptcy Law.
"Debt Incurrence Ratio" has the meaning specified in Section 4.4(a).
"Default" means any event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Indebtedness" means any Indebtedness outstanding
under the Senior Credit Facility.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Maturity Date.
"Dollars" and "$" mean lawful money or currency of the United States of
America.
"Equity Interests" means Capital Stock and all warrants, options, or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" has the meaning specified in Section 5.1.
"Excess Proceeds" has the meaning specified in Section 4.2(b).
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158
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Price" has the meaning specified in Section 6.1(a).
"Existing Indebtedness" means the 10 3/8% Senior Subordinated Notes and
all other Indebtedness of the Company and its Subsidiaries in existence on the
Issue Date, including the Tranche A Notes.
"Fair Market Value" means, in respect of any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy; provided, however, that if such value
exceeds $1,000,000, such determination shall be made in good faith by the Board
of Directors.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
fully guaranteed by, or participations in pools consisting solely of obligations
of or obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States of
America is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness (and "Guaranteed" shall have a meaning correlative to the
foregoing).
"Hedging Obligations" means, in respect of any Person, the obligations
of such Person under (i) interest or currency exchange rate swap agreements,
interest or currency exchange rate cap agreements, and interest or currency
exchange rate collar agreements and (ii) other agreements or arrangements, in
any case, designed to protect such Person against fluctuations in interest or
currency exchange rates (as appropriate, "Interest Rate Hedges" and "Currency
Hedges").
"Holder" means a Person in whose name a Note is registered.
"HSR Act" has the meaning specified in Section 3.2(e).
"Incur" means, in respect of any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange, or otherwise),
assume, Guarantee, or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence," "Incurred," "Incurrable," and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results
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159
in an obligation of such Person that exists at such time, and is not theretofore
classified as Indebtedness, becoming Indebtedness shall not be deemed an
Incurrence of such Indebtedness.
"Incurrence Date" has the meaning specified in Section 4.4(a).
"Indebtedness" means, in respect of any Person, (a) any liability of
such Person, whether or not contingent (i) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance, or
note purchase facility; (ii) evidenced by a bond, note, debenture, or similar
instrument (including a purchase money obligation); (iii) for the payment of
money relating to a Capitalized Lease Obligation; (iv) for or pursuant to
Disqualified Stock; (v) for or pursuant to preferred stock of any Subsidiary of
such Person (other than preferred stock held by such Person or any of its
Subsidiaries or in the case of the Company, any of its Subsidiaries); (vi)
representing the balance deferred and unpaid of the purchase price of any
property or services (except any such balance that constitutes a trade payable
or accrued liability in the ordinary course of business that is not overdue by
more than 90 days or is being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted); or (vii) under or in respect of
Hedging Obligations; (b) any liability of others described in the preceding
clause (a) that such Person has Guaranteed, that is recourse to such Person or
that is otherwise its legal liability, or the payment of which is secured by (or
for which the holder of such liability has an existing right to be secured by)
any Lien upon property owned by such Person, even though such Person has not
assumed or become liable for the payment of such liability; and (c) any
amendment, supplement, modification, deferral, renewal, extension, or refunding
of any liability of the types referred to in clauses (a) and (b) above. The
amount of any non-interest bearing or other discount Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer dated such date prepared in accordance with GAAP, but such
Indebtedness shall be deemed to have been Incurred only on the date of the
original issuance thereof.
"Indenture" means the Indenture dated December 1, 1997 between the
Company, the Subsidiary Guarantors, and the United States Trust Company of New
York, as amended or supplemented from time to time.
"Independent Director" means any director of the Company not affiliated
with Wingate or its assigns or Jerry E. Kimmel and who does not have any other
relationship (including any relationship, contractual or otherwise, with
Wingate, its assigns, or Jerry E. Kimmel) that would interfere with the exercise
of independent judgment in carrying out the responsibilities of a director.
"Initial Investor" means any "Purchasers" under the Purchase Agreement,
including any such Purchasers acquiring rights by way of assignment pursuant to
Section 13.8 thereof.
"Interest Payment Date" has the meaning specified in Section 2.1.
"Investments" means, in respect of any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations (but
excluding endorsements of negotiable instruments for collection in the ordinary
course of business)), advances or capital contributions (excluding commissions,
travel, and similar advances to directors, officers, and employees made in the
ordinary course of business), purchases or other acquisitions (for
consideration) of
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Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Issue Date" means July __, 1999, the date on which the Notes were
originally issued.
"Junior Securities" means, in respect of the Company or any of its
Subsidiaries, securities (including Capital Stock but excluding Disqualified
Stock) issued by the Company or any of its Subsidiaries to a Holder on account
of the Notes that (a) has an Average Life and maturity or mandatory redemption
obligation, if any, longer than, or occurring after the final maturity date of,
all Designated Senior Indebtedness of the Company, (b) by their terms or by law
are subordinated to Designated Senior Indebtedness of the Company outstanding on
the date of issuance of such Junior Securities at least to the same extent as
the Notes and (c) are not secured by any assets or property of the Company or
any of its Subsidiaries. As used herein, "Designated Senior Indebtedness" of the
Company outstanding on the date of issuance of such Junior Securities" shall
include securities issued in connection with a reorganization pursuant to the
Bankruptcy Law of any jurisdiction to Persons which held "Designated Senior
Indebtedness" in such reorganization proceeding.
"Kimmel Designees" means Jerry E. Kimmel, if he is a director of the
Company, and any other director of the Company elected or appointed at the
designation of Jerry E. Kimmel.
"Lien" means, in respect of any asset, any mortgage, lien, pledge,
charge, security interest, or encumbrance of any kind in respect of such asset,
whether or not filed, recorded, or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement or any lease
in the nature thereof).
"Mandatory Redemption Obligation" has the meaning specified in Section
4.1(b).
"Market Price" means, with respect to any Aggregate Common Stock, on a
per share basis and as of any date, an amount equal to the average, for each of
the ten (10) consecutive Trading Days immediately prior to such date, of the
closing prices for a share of Voting Common Stock on such Trading Day as
reported on the Composite Tape (as reported in The Wall Street Journal or, if
not reported thereby, any other authoritative source). If no price can be
determined under the foregoing, then the "Market Price" shall be deemed to be
the fair market value thereof, as determined by the Special Committee in good
faith as of a date which is within fifteen (15) days preceding the date as of
which the determination is to be made.
"Maturity Date" means the maturity of this Note, which is the date that
is seven (7) calendar years after the date hereof, as the same may be hereafter
accelerated pursuant to the provisions of this Note.
"Maximum Lawful Rate" means the maximum rate of interest permitted
under Applicable Law.
"Net Income" means, in respect of any Person, the net income (loss) of
such Person, determined in accordance with GAAP.
"Net Proceeds" means, in respect of any Asset Sale, the aggregate
amount of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment
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constituting interest, and including any amounts received as disbursements or
withdrawals from any escrow or similar account established in connection with
any such Asset Sale, but, in either case, only as and when so received) received
by the Company or any of its Subsidiaries in respect of such Asset Sale, net of:
(i) the cash expenses of such Asset Sale (including, without limitation, the
payment of principal of, and premium, if any, and interest on, Indebtedness
required to be paid as a result of such Asset Sale and legal, accounting,
management and advisory, and investment banking fees and sales commissions),
(ii) taxes paid or payable as a result thereof, (iii) any portion of cash
proceeds that the Company determines in good faith should be reserved for
post-closing adjustments, it being understood and agreed that on the day that
all such post-closing adjustments have been determined, the amount (if any) by
which the reserved amount in respect of such Asset Sale exceeds the actual
post-closing adjustments payable by the Company or any of its Subsidiaries shall
constitute Net Proceeds on such date, (iv) any relocation expenses and pension,
severance, and shutdown costs incurred as a result thereof, and (v) any cash
amounts actually set aside by the Company or any of its Subsidiaries as a
reserve in accordance with GAAP against any retained liabilities associated with
the asset disposed of in such transaction, including, without limitation,
pension and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"Nonvoting Common Stock" means the newly created class of nonvoting
common stock, par value $0.01 per share, to be created by the Amendment.
"Note or Notes" means this Tranche B Senior Subordinated Exchangeable
Note, including any Note issued upon transfer, assignment, or subdivision
thereof.
"Notice of Adjustment" has the meaning specified in Section 6.3(h).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, in respect of the Company, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary,
any Assistant Secretary, or any Vice President of the Company.
"Officer's Certificate" means a certificate signed on behalf of the
Company by two Officers of such Person, one of whom must be the principal
executive officer, the principal financial officer, or the principal accounting
officer of the Company.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Holders.
"Payment Blockage Notice" has the meaning specified in Section 8.2(a).
"Payment Blockage Period" has the meaning specified in Section 8.2(a).
"Payment Default" has the meaning specified in Section 5.1(f).
"Permitted Indebtedness" has the meaning specified in Section 4.4(b).
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"Permitted Investments" means (i) any Investment in the Company or in a
Subsidiary of the Company; (ii) any Investment in Cash Equivalents; (iii) any
Investment by the Company or any of its Subsidiaries in a Person engaged in a
Related Business if, as a result of such Investment, (A) such Person becomes a
Subsidiary of the Company or (B) such Person is merged, consolidated, or
amalgamated with or into, or transfers or conveys all or substantially all of
its assets to, or is liquidated into, the Company or a Subsidiary of the
Company; (iv) Investments the payment for which consists exclusively of Equity
Interests (excluding Disqualified Stock) of the Company; (v) Investments in
shares of money market mutual or similar funds having assets in excess of
$500,000,000; and (vi) Investments in negotiable instruments held for collection
in the ordinary course of business and lease, utility, and similar deposits.
"Permitted Liens" means (i) Liens securing Permitted Indebtedness
Incurred pursuant to clause (i) of the definition of such term; (ii) Liens in
favor of the Company and/or its Subsidiaries; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any of its Subsidiaries, provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company or any of its Subsidiaries; (iv) Liens securing any Acquired
Indebtedness and which exist at the time of acquisition thereof by the Company
or any of its Subsidiaries, provided that such Liens were in existence prior to
the contemplation of such acquisition; (v) Liens existing on the Issue Date or
arising since such date in compliance with this Note; (vi) Liens arising by
reason of (1) any judgment, decree, or order of any court not constituting an
Event of Default; (2) taxes not yet delinquent or which are being contested in
good faith by appropriate proceedings which suspend the collection thereof,
promptly instituted and diligently conducted, and for which adequate reserves
have been established to the extent required by GAAP; (3) security for payment
of workers' compensation or other insurance; (4) good faith deposits in
connection with tenders, leases and contracts (other than contracts for the
payment of money), bids, licenses, performance or similar bonds and other
obligations of a like nature, in the ordinary course of business; (5) zoning
restrictions, easements, licenses, reservations, provisions, covenants,
conditions, waivers, restrictions on the use of property or minor irregularities
of title (and in respect of leasehold interests, mortgages, obligations, Liens,
and other encumbrances incurred, created, assumed, or permitted to exist and
arising by, through or under a landlord or owner of the leased property, with or
without consent of the lessees), none of which materially impairs the use of any
parcel of property material to the operation of the business of the Company or
any of its Subsidiaries or the value of such property for the purpose of such
business; (6) deposits to secure public or statutory obligations or in lieu of
surety or appeal bonds; (7) surveys, exceptions, title defects, encumbrances,
easements, reservations of, or rights or others for, rights of way, sewers,
electric lines, telegraph or telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property not interfering with
the ordinary conduct of the business of the Company or any of its Subsidiaries;
or (8) operation of law or statute and incurred in the ordinary course of
business, including without limitation, those in favor of mechanics,
materialmen, suppliers, laborers or employees, and, if securing sums of money,
for sums which are not yet delinquent or are being contested in good faith by
appropriate proceedings which suspend the collection thereof, promptly
instituted and diligently conducted, and for which adequate reserves have been
established to the extent required by GAAP; (vii) Liens resulting from the
deposit of funds in trust for the purpose of decreasing or defeasing
Indebtedness of the Company and its Subsidiaries so long as such deposit of
funds and such decreasing or defeasing of Indebtedness are permitted under
Section 4.3; and (viii)
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any extension, renewal, or replacement (or successive extensions, renewals, or
replacements), in whole or in part, of any Lien referred to in the foregoing
clauses (iii), (iv), and (v) above; provided, however, that the principal amount
of the Indebtedness secured thereby shall not exceed the principal amount of
Indebtedness secured thereby immediately prior to the time of such extension,
renewal, or replacement, and that such extension, renewal, or replacement Lien
shall be limited to all or a part of the property that secured the Lien so
extended, renewed, or replaced (plus improvements on such property).
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used by such Person to extend, refinance, renew, replace, defease,
or refund other Indebtedness of such Person ("Old Indebtedness"); provided,
however, that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Old Indebtedness plus any premium or
penalty payable thereon and any reasonable expenses incurred in connection
therewith; (ii) such Permitted Refinancing Indebtedness has a final maturity
date equal to or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Old Indebtedness; (iii) if the Old Indebtedness is subordinated
in right of payment to the Notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the Notes on terms at least as favorable to
the Holders as those contained in the documentation governing the Old
Indebtedness; (iv) such Permitted Refinancing Indebtedness is on terms that are
no more restrictive, as a whole, than those governing such Old Indebtedness; and
(v) such Permitted Refinancing Indebtedness is Incurred only by the Company or
any of its Subsidiaries that is the obligor on the Old Indebtedness.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Plans" means any plan existing on the Issue Date or adopted by the
Company after the Issue Date providing for the issuance of Aggregate Common
Stock of any class or series or other options or rights to purchase stock,
warrants, or other securities.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of July 14, 1999 between Wingate and Kevco, Inc.
"Purchase Money Indebtedness" means, in respect of the Company or any
of its Subsidiaries, any Indebtedness of the Company or any of its Subsidiaries
to any seller or other Person incurred to finance the acquisition (including in
the case of a Capitalized Lease Obligation, the lease) of any real or personal
tangible property acquired after the Issue Date which, in the reasonable good
faith judgment of the Board of Directors or the board of directors (or similar
governing body) of any of its Subsidiaries, as applicable, is directly related
to a Related Business and which is Incurred within 180 days of such acquisition
and is secured only by the assets so financed.
"Purchase Rights" has the meaning specified in Section 6.3(e)(ii).
"Redemption Notice" has the meaning specified in Section 3.2(b).
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"Reference Period" in respect of any Person means the four full fiscal
quarters for which financial statements are available at the time of
determination (or such lesser period during which such Person has been in
existence) ended immediately preceding any date upon which any such
determination is to be made pursuant to the terms of this Note.
"Related Business" means the business conducted by the Company and its
Subsidiaries as of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors are materially related businesses.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payments" has the meaning specified in Section 4.3(a).
"Senior Credit Facility" means the Credit Agreement dated December 1,
1997, among the Company, the guarantors named therein, and NationsBank of Texas,
N.A., as agent and lender, and the other lenders party thereto, as amended to
the date hereof.
"Senior Indebtedness" means, in respect of any Person, (i) all
Indebtedness of such Person outstanding under the Senior Credit Facility and all
Hedging Obligations in respect thereof, (ii) any other Indebtedness of such
Person permitted to be issued under this Note, provided that Senior Indebtedness
shall not include any Indebtedness which by the terms of the instrument creating
or evidencing the same is on parity with or is subordinated or junior in right
of payment in any respect to any other Indebtedness of such Person or its
Subsidiaries or Affiliates and (iii) all Obligations in respect of the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include (i) any liability for federal, state, local,
foreign, or other taxes, (ii) any Indebtedness of any such Person to any of its
Subsidiaries or other Affiliates, (iii) any accounts payable or trade
liabilities arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (iv) any Indebtedness that
is incurred in violation of this Note, (v) Indebtedness of the Person to any
shareholder of the Person, (vi) Indebtedness to, or guaranteed by the Person or
any of its Subsidiaries for the benefit of, any director, officer, or employee
of the Person or any Subsidiary of the Person (including, without limitation,
amounts owed for compensation), (vii) Capital Stock of such Person and
Indebtedness represented by Disqualified Stock, (viii) Indebtedness which, when
Incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to such Person, (ix) any Indebtedness or
obligation which is subordinated in right of payment to any other Indebtedness
or obligation of such Person and (x) any Indebtedness under the 10 3/8% Senior
Subordinated Notes or any refinancings thereof. "Senior Indebtedness" when used
in respect of a Subsidiary Guarantor, shall have a meaning substantially
identical to that applied to the Indebtedness of the Person or its Subsidiaries.
"Series A Voting Preferred Stock" means the Company's "Series A 10 3/8%
Convertible Pay-in-Kind Voting Preferred Stock" to be established under the
terms of the Amendment.
"Series B Nonvoting Preferred Stock" means the Company's "Series B 10
3/8% Convertible Pay-in-Kind Nonvoting Preferred Stock" to be established under
the terms of the Amendment.
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"Special Committee" means a committee of the Board of Directors
composed solely of the Independent Directors and the Kimmel Designees then in
office; provided, however, that such committee shall be constituted such that a
majority of its members shall always be Independent Directors.
"Subordinated Indebtedness" means Indebtedness of the Company (or of
its Subsidiaries) that is subordinated in right of payment to the Notes (or a
Subsidiary Guarantee, as appropriate).
"subparagraph (d) adjustment" has the meaning specified in Section
6.3(e)(i).
"Subsidiary" means, in respect of any Person, (i) any corporation,
association, or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers, or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof). Unless indicated to the contrary,
"Subsidiary" refers to a direct or indirect Subsidiary of the Company.
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under this Note by any Person.
"Subsidiary Guarantors" means Kevco Management, Inc., Kevco Holding,
Inc., Kevco GP, Inc., DCM Delaware, Inc., Kevco Components, Inc., Kevco
Distribution, L.P., and Kevco Manufacturing, L.P. in each case until such time,
if any, as such Subsidiary is released from its Subsidiary Guarantee as
permitted by this Note.
"TBCA" means the Texas Business Corporation Act, as the same may be
amended from time to time.
"Trading Day" means any day on which the NASDAQ Stock Market is open
for trading, or if the shares of Voting Common Stock are not quoted on the
NASDAQ Stock Market, any day on which the principal national securities exchange
or national quotation system on which the shares of Voting Common Stock are
listed, admitted to trading, or quoted is open for trading.
"Tranche A Notes" means the Company's $17,000,000 principal amount
Tranche A Senior Subordinated Exchangeable Notes issued on the Issue Date.
"Transaction" has the meaning specified in Section 6.3(g).
"Voting Common Stock" means the voting common stock, par value $0.01
per share, of the Company.
"Voting Rights Triggering Event" has the meaning specified in Section
6.4(b)(i).
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"Warrants" means the following: (i) the warrant issued by the Company
dated July ___, 1999 to The Kevco Partners Investment Trust providing for the
purchase of 675,000 shares of Nonvoting Common Stock, (ii) the warrant issued by
the Company dated July ___, 1999 to The Kevco Partners Investment Trust
providing for the purchase of 772,727 shares of Nonvoting Common Stock, (iii)
the warrant issued by the Company dated July ___, 1999 to The Kevco Partners
Investment Trust providing for the purchase of 295,455 shares of Nonvoting
Common Stock, and (iv) all reissuances, transfers, and substitutions of the
foregoing.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wingate" means Wingate Partners II, L.P., a Delaware limited
partnership.
ARTICLE 2
PAYMENTS
Section 2.1 Interest Payments. The Company shall pay interest on this
Note quarterly on the last day of each June, September, December, and March
(each an, "Interest Payment Date"), commencing with September 30, 1999. Interest
will accrue on the unpaid principal balance hereof outstanding (and on any
accrued but unpaid interest as provided for below) at the lesser of (i) the
Maximum Lawful Rate or (ii) a rate per annum equal to eleven and one-half
percent (11.5%); provided, however, that on any Interest Payment Date such
interest may, in the sole discretion of the Company as determined by the Special
Committee, in lieu of the payment in whole of such interest in cash, be accrued
(in which case, interest shall also be payable on any accrued interest until
paid); provided, however, that if the Company elects to accrue interest pursuant
to the provisions of this Section 2.1, (i) the Company shall give Holders
written notice thereof at least one (1) Business Day prior to the applicable
Interest Payment Date, and (ii) the Holders shall have the right to elect to
have all accrued interest paid in shares of Series B Nonvoting Preferred Stock
with an aggregate liquidation preference equal to the amount of interest accrued
and unpaid through the applicable Interest Payment Date. The Holders shall make
such election by the delivery of written notice thereof to the Company within
ten (10) days after the applicable Interest Payment Date. Notwithstanding the
foregoing, at any time when an Event of Default has occurred and is continuing,
from such date until the date such Event of Default no longer exists, interest
shall accrue at the lesser of (i) the Maximum Lawful Rate or (ii) a rate per
annum equal to twelve and one-half percent (12.5%).
Section 2.2 Principal Payments. All principal and accrued but unpaid
interest shall be due and payable, in full, in cash, on the Maturity Date,
pursuant to Section 3.1 or 4.1.
Section 2.3 Computations. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
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Section 2.4 Prepayments. Except as provided for in Section 4.1, the
Notes may not be redeemed in whole or in part prior to the third anniversary of
the Issue Date.
Section 2.5 Certain Determinations. Notwithstanding any other provision
of this Note, all determinations with respect to interest and principal payments
on, and redemption of, the Notes requiring action by the Board of Directors
shall be taken by the Special Committee.
ARTICLE 3
REDEMPTION
Section 3.1 Optional Redemption. The Notes shall be subject to
redemption at any time after the third anniversary of the Issue Date at the
option of the Company as determined by the Special Committee, in whole or in
part, at a redemption price in cash equal to 100% of the principal amount of the
Notes together with accrued and unpaid interest thereon to the applicable
redemption date.
Section 3.2 Procedures for Redemption.
(a) In the event that fewer than all the outstanding Notes are to
be redeemed pursuant to Section 3.1, the amount of Notes to be redeemed shall be
determined by the Board of Directors following the recommendation of the Special
Committee and the Notes so redeemed shall be selected pro rata according to the
principal amount of Notes held by each Holder.
(b) In the event the Company shall redeem Notes pursuant to this
Article 3, notice of such redemption ("Redemption Notice") shall be given by
overnight courier not less than 10 Business Days nor more than 40 Business Days
prior to the redemption date, to each Holder of record of the Notes to be
redeemed at such Holder's address as the same appears on the Note register of
the Company; provided, however, that neither the failure to give the Redemption
Notice nor any defect therein shall affect the validity of the giving of notice
for the redemption of any Notes to be redeemed except as to the Holder to whom
the Company has failed to give the Redemption Notice or except as to the Holder
whose Redemption Notice was defective. Each Redemption Notice shall state: (i)
the redemption date; (ii) the principal amount of Notes to be redeemed and, if
less than all the principal amount of Notes held by such Holder are to be
redeemed, the principal amount of Notes to be redeemed from such Holder; (iii)
customary provisions regarding the surrender of Notes; (iv) the redemption price
and the estimated amount of accrued but unpaid interest on the Notes to the date
of redemption; (v) the place or places where Notes are to be surrendered for
redemption; and (vi) that interest on the Notes to be redeemed will cease to
accrue on such redemption date.
(c) In the case of a redemption pursuant to this Article 3, and
if the Redemption Notice has been properly provided in accordance with this
Article 3, from and after the redemption date (unless the Company shall default
in payment in cash of the redemption price for the Notes called for redemption),
interest on such Notes called for redemption shall cease to accrue, and all
rights of the Holders thereof as Note Holders of the Company (except the right
to receive the redemption price from the Company) shall cease. Upon surrender of
the Notes in accordance with the Redemption Notice, any Notes so redeemed shall
be redeemed in cash by the Company at the redemption price specified herein and
in the Redemption Notice.
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(d) Any such offer under this Article 3 shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes pursuant to this
Article 3. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Note relating to an offer under
this Article 3, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under such
provisions of this Note by virtue thereof.
(e) Notwithstanding any other provision of this Note to the
contrary, in the event the Company delivers a Redemption Notice under this
Article 3 and the Holder timely elects to exchange the Notes prior to the stated
redemption date pursuant to Sections 6.1 and 6.2, then, for purposes of a
redemption under this Article 3, the "redemption date" shall mean the latter of
(i) the redemption date set forth in the Redemption Notice and (ii) the date
upon which any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), shall have expired or
early termination thereof shall have been granted without limitation,
restriction, or condition.
ARTICLE 4
COVENANTS
Section 4.1 Offer to Repurchase Upon Change of Control.
(a) In the event of a Change of Control, the Company shall, to
the extent it shall have funds legally available for such payment, offer to
redeem for cash all of the Notes then outstanding, and shall redeem the Notes of
any Holder of such Notes that shall consent to such redemption, upon a date no
later than 30 Business Days following the Change in Control, at a redemption
price equal to 100% of the principal amount of the Notes, in cash, plus (without
duplication) accrued and unpaid interest thereon to the date fixed for
redemption.
(b) If the Company is unable or shall fail to discharge its
obligation to redeem all outstanding Notes pursuant to this Section 4.1 (a
"Mandatory Redemption Obligation"), such Mandatory Redemption Obligation shall
be discharged as soon as the Company is able to discharge such Mandatory
Redemption Obligation.
(c) In the case of a redemption pursuant to this Section 4.1,
notice of such redemption shall be given by overnight courier not more than ten
Business Days following the occurrence of the Change of Control and not less
than 20 Business Days prior to the redemption date, to each Holder of record of
the Notes to be redeemed at such Holder's address as the same appears on the
Note register of the Company; provided, however, that neither the failure to
give such notice nor any defect therein shall affect the validity of the giving
of notice for the redemption of any Notes to be redeemed, except as to the
Holder to whom the Company has failed to give said notice or except as to the
Holder whose notice was defective. Each such redemption notice shall state: (i)
that a Change of Control has occurred; (ii) the redemption date; (iii) the
redemption price and the estimated amount of accrued but unpaid interest to the
redemption date; (iv) customary provisions regarding the surrender of Notes; (v)
that such Holder may elect to cause the Company to redeem all or any of the
Notes held by such Holder; (vi) the place or places where Notes are to be
surrendered for redemption; and (vii) that interest on the Notes the Holder
elects to cause the Company to redeem will cease to accrue on such redemption
date.
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(d) Upon receipt of such redemption notice, Holders of Notes
shall, within 10 Business Days after receipt thereof, return such redemption
notice to the Company indicating the aggregate principal amount of Notes such
Holder shall elect to cause the Company to redeem, if any.
(e) In the case of a redemption pursuant to this Section 4.1, and
if notice thereof has been properly provided in accordance with this Section
4.1, from and after the redemption date (unless the Company shall default in
payment in cash of the redemption price for the Notes called for redemption),
interest on such Notes as the Holder elects to cause the Company to redeem shall
cease to accrue, and all rights of the electing Holders thereof as Note Holders
of the Company (except the right to receive the redemption price from the
Company) shall cease. Upon surrender of the Notes in accordance with such
redemption notice, any Notes so redeemed shall be redeemed in cash by the
Company at the redemption price specified herein and in such redemption notice.
(f) Notwithstanding anything in this Section 4.1 to the contrary,
prior to the commencement of an offer under Section 4.1, but in any event within
30 days following any Change of Control, the Company shall (i) repay in full and
terminate all commitments under Indebtedness under the Senior Credit Facility
and all other Senior Indebtedness the terms of which require repayment upon a
Change of Control or (ii) obtain the requisite consents under the Senior Credit
Facility and all such other Senior Indebtedness to permit the repurchase of the
Notes as provided herein.
(g) Any such offer under this Section 4.1 shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes pursuant to this
Section 4.1. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Note relating to a Change of
Control, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under such
provisions of this Note by virtue thereof.
(h) Notwithstanding any other provision of this Note to the
contrary, in the event the Company delivers a redemption notice under this
Section 4.1 and the Holder timely elects to exchange the Notes prior to the
stated redemption date pursuant to Sections 6.1 and 6.2, then, for purposes of a
redemption under this Section 4.1, the "redemption date" shall mean the latter
of (i) the date 30 Business Days after a Change of Control and (ii) the date
upon which any applicable waiting period under the HSR Act shall have expired or
early termination thereof shall have been granted without limitation,
restriction, or condition.
Section 4.2 Limitation on Sale of Assets and Subsidiary Stock.
(a) The Company will not, and will not permit any of its
Subsidiaries to, engage in an Asset Sale, unless (i) the Company or such
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value (which, if it exceeds $1,000,000,
shall be determined by the Board of Directors and set forth in a Board
Resolution delivered to the Holders) of the assets (including, if appropriate,
Equity Interests) disposed of or issued, as appropriate, and (ii) at least 75%
of the consideration therefor received by the Company or such Subsidiary is in
the form of cash or Cash Equivalents; provided, however, that the 75% limitation
referred to above shall not apply to
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any Asset Sale in which the cash portion of the consideration received therefor,
determined in accordance with the following sentence, is equal to or greater
than what the after-tax net proceeds would have been had such transaction
complied with the aforementioned 75% limitation. For purposes of this covenant
(and not for purposes of any other provision of this Note), the term "cash"
shall be deemed to include (A) any notes or other obligations received by the
Company or such Subsidiary as consideration as part of such Asset Sale that are
immediately converted by the Company or such Subsidiary into actual cash or Cash
Equivalents (to the extent of the actual cash or Cash Equivalents so received),
and (B) any liabilities of the Company or such Subsidiary (as shown on the most
recent balance sheet of the Company or such Subsidiary) that are payable in cash
and that (1) are assumed by the transferee of the assets which are the subject
of such Asset Sale as consideration therefor in a transaction the result of
which is that the Company and all of its Subsidiaries are released from all
liability for such assumed liability, (2) are not by their terms subordinated in
right of payment to the Notes, (3) are not owed to the Company or any Subsidiary
of the Company, and (4) constitute short-term liabilities (as determined in
accordance with GAAP).
(b) Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Company may apply, directly or indirectly, such Net Proceeds (i)
to repay permanently Senior Indebtedness of the Company or of its Subsidiaries,
or (ii) to the making of a capital expenditure or the acquisition of other
long-term assets, in each case, in a Related Business. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10,000,000, the Company may make an
offer to all holders of 10 3/8% Senior Subordinated Notes to the extent required
by Section 4.08(b) of the Indenture. Pending the final application of any such
Net Proceeds, the Company or its Subsidiaries, as the case may be, may
temporarily reduce Indebtedness under the Senior Credit Facility or otherwise
invest such Net Proceeds in any manner that is not prohibited by this Note. If
the aggregate principal amount of the 10 3/8% Senior Subordinated Notes tendered
by the holders thereof is less than the amount of Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
(c) The Company will not, and will not permit any of its
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of any of its Subsidiaries to any Person (other than the Company
or another Subsidiary of the Company), unless (i) such transfer, conveyance,
sale, lease or other disposition is of all of the Capital Stock of such
Subsidiary owned by the Company and its Subsidiaries or is otherwise permitted
under Section 4.7 and (ii) such transaction is conducted in accordance with
Sections 4.2(a) and (b).
Section 4.3 Limitation on Restricted Payments.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Subsidiary's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation) other than dividends or
distributions (A) paid or payable in Equity Interests (other than Disqualified
Stock) of the Company or (B) paid or payable to the Company or any Subsidiary of
the Company; (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the Company
or other Affiliate of the Company or
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any Subsidiary of the Company (other than any such Equity Interests owned by the
Company or any Subsidiary of the Company or upon redemption of the Series A
Voting Preferred Stock or the Series B Nonvoting Preferred Stock in accordance
with the terms of the Amendment); (iii) make any principal payment on, or
purchase, redeem, defease or otherwise acquire or retire for value prior to the
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Indebtedness (except, if no Default or Event of Default is
continuing or would result therefrom, any such payment, purchase, redemption,
defeasance or other acquisition or retirement for value made (A) out of Excess
Proceeds available for general corporate purposes if such payment or other
action is required by the indenture or other agreement or instrument pursuant to
which such Subordinated Indebtedness was issued, or (B) upon the occurrence of a
Change of Control if (1) such payment or other action is required by the
indenture or other agreement or instrument pursuant to which such Subordinated
Indebtedness was issued and (2) the Company has purchased all Notes properly
tendered pursuant to Section 4.1 resulting from such Change of Control); or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(i) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof;
(ii) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the
applicable Reference Period, have been permitted to Incur at
least $1.00 of additional Indebtedness pursuant to the Debt
Incurrence Ratio test set forth in Section 4.4(a); and
(iii) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments declared or made by the
Company and its Subsidiaries after the Issue Date shall not
exceed, at the date of determination, the sum of (1) 50% of
aggregate Consolidated Net Income of the Company from the
beginning of the first fiscal quarter commencing after the Issue
Date to the end of the Company's most recently ended fiscal
quarter for which financial statements are available at the time
of such Restricted Payment (or, if such aggregate Consolidated
Net Income for such period is a deficit, less 100% of such
deficit), plus (2) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale after the Issue
Date of Equity Interests of the Company or of Disqualified Stock
or debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified
Stock), plus (3) the aggregate net cash proceeds received by the
Company as capital contributions to the Company (other than from
a Subsidiary of the Company) after the Issue Date (other than
capital contributions from Wingate, its partners, or their
respective Affiliates).
(b) The foregoing provisions will not prohibit the following
Restricted Payments:
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(i) the payment of any dividend or other distribution within
60 days after the date of declaration thereof, if, at said date
of declaration, such payment would have complied with the
provisions of this Note;
(ii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company (other than
Disqualified Stock) in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of
the Company) of other Equity Interests of the Company (other than
Disqualified Stock or one or more sales of Equity Interests to
Wingate, its partners, or their respective Affiliates); provided
that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, or other
acquisition shall be excluded from clause (iii) of Section 4.3(a)
(both for purposes of determining the aggregate amount of
Restricted Payments made and for purposes of determining the
aggregate amount of Restricted Payments permitted);
(iii) the payment, purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness
with the net cash proceeds from a substantially concurrent
Incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (in each case other than to a
Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Stock or one or more sales of Equity
Interests to Wingate, its partners, or their respective
Affiliates); provided that the amount of any such net cash
proceeds that are utilized for any such payment, purchase,
redemption, defeasance or other acquisition or retirement shall
be excluded from clause (iii) of Section 4.3(a) (both for
purposes of determining the aggregate amount of Restricted
Payments made and for purposes of determining the aggregate
amount of Restricted Payments permitted);
(iv) so long as no Default or Event of Default is
continuing, the repurchase of Equity Interests of the Company
from former employees of the Company or any Subsidiary thereof
(or the estates, heirs or legatees of such former employees) for
consideration which does not exceed $500,000 in the aggregate in
any fiscal year;
(v) any Restricted Investment made with the net cash
proceeds from a substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Stock or one or more sales of Equity
Interests to Wingate, its partners, or their respective
Affiliates); and
(vi) so long as no Default or Event of Default is
continuing, any Restricted Investment which, together with all
other Restricted Investments outstanding made pursuant to this
clause (vi) does not exceed $5,000,000.
Except to the extent specifically noted above, Restricted
Payments made pursuant to this Section 4.3(b) shall be included in calculating
the amount of Restricted Payments made after the Issue Date.
(c) The amount of all Restricted Payments not made in cash shall
be the Fair Market Value (which, if it exceeds $1,000,000, shall be determined
in good faith by the Board
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of Directors and set forth in a Board Resolution delivered to the Holders) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or any Subsidiary thereof, as the case may be, pursuant to the
Restricted Payment. Not later than the date of making any Restricted Payment,
the Company shall deliver to the Holders an Officers' Certificate stating that
such Restricted Payments were permitted and setting forth the basis upon which
the calculations required by this Section 4.3 were computed, which calculations
may be based upon the Company's latest available financial statements.
Section 4.4 Limitation on Incurrence of Indebtedness.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness), except for Permitted Indebtedness; provided, however,
that the Company and its Subsidiaries may Incur Indebtedness (including Acquired
Indebtedness) if, at the time of Incurrence of such Indebtedness, after giving
pro forma effect to such Incurrence as of such date and to the use of proceeds
therefrom (including the application or the use of the net proceeds therefrom to
repay Indebtedness or make any Restricted Payment) (i) no Default or Event of
Default shall have occurred and be continuing at the time of, or would occur
after giving effect on a pro forma basis to, such Incurrence of Indebtedness and
(ii) on the date of such Incurrence (the "Incurrence Date"), the Consolidated
Coverage Ratio of the Company for the Reference Period immediately preceding the
Incurrence Date, after giving effect on a pro forma basis to such Incurrence of
Indebtedness and, to the extent set forth in the definition of Consolidated
Coverage Ratio, the use of proceeds thereof, would exceed 1.75 to 1 (the "Debt
Incurrence Ratio").
(b) "Permitted Indebtedness" means any and all of the following:
(i) Indebtedness of the Company Incurred pursuant to the
Senior Credit Facility in the aggregate principal amount at any
time outstanding not to exceed the sum of the aggregate
commitments pursuant to the Senior Credit Facility as in effect
on the date hereof;
(ii) Existing Indebtedness;
(iii) intercompany Indebtedness between or among the Company
and any of its Subsidiaries; provided that (A) if the Company is
an obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with
respect to the Notes and (B) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Subsidiary of the
Company, or any sale or other transfer of any such Indebtedness
to a Person that is not either the Company or a Subsidiary of the
Company, shall be deemed to constitute a new Incurrence of such
Indebtedness by the Company or such Subsidiary, as the case may
be;
(iv) Permitted Refinancing Indebtedness Incurred in exchange
for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund, (A) Indebtedness (other than
Permitted Indebtedness) that was Incurred in compliance with this
Note, (B) Indebtedness referred to in Section 4.4(b)(i) or
(b)(ii), or (C) Existing Indebtedness, other than Existing
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Indebtedness, if any, related to the Indebtedness refinanced by
the Senior Credit Facility;
(v) Indebtedness of a Subsidiary of the Company constituting
a Guarantee of Indebtedness of the Company or a Subsidiary
thereof which Indebtedness was Incurred pursuant to this Section
4.4(b) or the Debt Incurrence Ratio test set forth in Section
4.4(a);
(vi) the Incurrence by the Company or any of its
Subsidiaries of Hedging Obligations of the following types: (A)
Interest Rate Hedges with respect to any Indebtedness of such
Person that is permitted by the terms of this Note to be
outstanding, the notional principal amount of which does not
exceed the principal amount of the Indebtedness to which such
Interest Rate Hedge relates, and (B) Currency Hedges that do not
increase the outstanding loss potential or liabilities other than
as a result of fluctuations in foreign currency exchange rates;
and
(vii) other Indebtedness of the Company and its Subsidiaries
from time to time outstanding in an aggregate principal amount
not to exceed $20,000,000.
(c) Indebtedness of any Person which is outstanding at the time
such Person becomes a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company shall be deemed to
have been Incurred at the time such Person becomes such a Subsidiary of the
Company or is merged with or into or consolidated with the Company or a
Subsidiary thereof, as applicable.
Section 4.5 Limitation on Liens. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur,
affirm, assume or suffer to exist any Liens of any kind, other than Liens
securing Senior Indebtedness and Permitted Liens, against or upon any assets or
property now owned or hereafter acquired or any income or profits therefrom or
assign or convey any right to receive income therefrom, unless (i) in the case
of Liens securing Subordinated Indebtedness, the Notes are secured by a valid,
perfected Lien on such assets, property or proceeds that is senior in priority
to such Liens, (ii) in the case of Liens securing obligations subordinate to a
Subsidiary Guarantee, such Subsidiary Guarantee is secured by a valid, perfected
Lien on such assets, property or proceeds that is senior in priority to such
Liens, and (iii) in all other cases, the Notes (and, if such Lien secures
obligations of a Subsidiary of the Company, a Subsidiary Guarantee of such
Subsidiary) are equally and ratably secured.
Section 4.6 Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, assume or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any such Subsidiary to (i) (a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries on its Capital Stock or
with respect to any other interest or participation in, or measured by, its
profits or (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries, (iii) transfer any of its properties to the Company or any of its
Subsidiaries, (iv) grant any Liens in favor of the Holders of the Notes or (v)
guarantee the Notes or any renewals or refinancings thereof, except for such
encumbrances or restrictions existing under or by reason of (A) Existing
Indebtedness, (B) the Senior Credit Facility, (C) applicable law, (D) any
instrument governing Indebtedness or Capital Stock of a Person acquired
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by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was Incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties of any Person, other than the
Person, or the property of the Person, so acquired, provided that in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Note to be
Incurred, (E) customary non-assignment provisions in leases, licenses, sales
agreements or other contracts (but excluding contracts related to the extension
of credit) entered into in the ordinary course of business and consistent with
past practices, (F) restrictions imposed pursuant to a binding agreement for the
sale or disposition of all or substantially all of the Equity Interests or
assets of any Subsidiary of the Company, provided such restrictions apply solely
to the Equity Interests or assets being sold, (G) restrictions imposed by
Permitted Liens on the transfer of the assets that are subject to such Liens,
(H) Permitted Refinancing Indebtedness Incurred to refinance Existing
Indebtedness or Indebtedness of the type described in clause (D) above, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, as a whole, than those
contained in the agreements governing the Indebtedness being refinanced, and (I)
the terms of Purchase Money Indebtedness, but only to the extent such Purchase
Money Indebtedness encumbers or restricts the property acquired with such
Purchase Money Indebtedness.
Section 4.7 Limitation on Issuance, Sale and Ownership of Capital Stock
of Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries to, (i) sell, assign, transfer, convey or otherwise dispose of, any
Equity Interests of any Subsidiary of the Company, other than to the Company or
another Subsidiary of the Company, (ii) permit any Subsidiary of the Company to
issue any Equity Interests (including, without limitation, pursuant to any
merger, consolidation, recapitalization or similar transaction) other than to
the Company or another Subsidiary of the Company or (iii) permit any Person
other than the Company or its Subsidiaries to own any Equity Interests of any
Subsidiary of the Company, except that (A) the Company or its Subsidiaries may
consummate a sale to a Person of all of the Equity Interests of a Subsidiary of
the Company, if such sale is made by the Company or another Subsidiary of the
Company subject to, and in compliance with, Section 4.2, and (B) the Company may
issue and permit the subsequent ownership by directors of, directors' qualifying
shares.
Section 4.8 Limitation on Mergers, Consolidations, or Sale of Assets.
The Company will not merge or consolidate (whether or not the Company is the
surviving corporation), or sell, assign, transfer, lease, convey, or otherwise
dispose of all or substantially all of its properties or assets in one or more
related transactions, to another Person unless: (i) the Company is the surviving
corporation or the Person formed by or surviving any such merger or
consolidation (if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance, or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof, or the District of Columbia; (ii) the Person formed by or surviving any
such merger or consolidation (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance, or other disposition shall
have been made assumes all the obligations of the Company under the Notes and
pursuant to an assumption agreement reasonably satisfactory to the Holders;
(iii) immediately before or immediately after giving effect to such transactions
no Default or Event of Default shall have occurred and be continuing or would
result therefrom; and (iv) except in case of a merger of the Company with or
into a Subsidiary of the Company, the Company, any of its Subsidiaries, or any
Person formed by or surviving any such merger or consolidation, or to which such
sale, assignment, transfer, lease, conveyance, or other disposition shall have
been made will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had
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occurred at the beginning of the applicable Reference Period, be permitted to
Incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio test set forth in Section 4.4(a).
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1 Events of Default. Each of the following constitutes an
"Event of Default":
(a) default for 30 days in the payment when due of interest on
the Notes (whether or not prohibited by Article 8), provided that the accrual of
interest as permitted by Section 2.1 shall not be deemed to be a default;
(b) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by Article 8);
(c) failure by the Company to comply in all material respects
with any of the provisions of Section 4.1;
(d) failure by the Company for 30 days after written notice,
stating in reasonable detail the non-compliance, to the Company by Holders of at
least 25% in principal amount of the then outstanding Notes to the Company to
comply with any other covenant or agreement (except as provided in clauses (a),
(b), and (c) above) in the Notes;
(e) except as permitted by this Note, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Subsidiary Guarantor,
or any Person acting on behalf of any Subsidiary Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee;
(f) default under any mortgage, indenture, or instrument under
which there maybe issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Subsidiaries (or the payment of which
is Guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the Issue Date, which
default (i) is caused by a failure to pay principal when due at final stated
maturity (a "Payment Default") or (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default which has not
been cured or the maturity of which has been so accelerated, aggregates
$10,000,000 or more;
(g) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $10,000,000, which judgments are not
paid, discharged, or stayed for a period of 60 days and are not covered by
insurance;
(h) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law (i) commences a voluntary case, (ii) consents
to the entry of an order for relief against it in an involuntary case, (iii)
consents to the appointment of a Custodian of it or for all or substantially all
of its property, (iv) makes a general assignment for the benefit of its
creditors, or (v) generally is unable to pay its debts as the same become due;
or
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(i) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (i) is for relief against the Company or any of
its Subsidiaries in an involuntary case, (ii) appoints a Custodian of the
Company or any of its Subsidiaries or for all or substantially all of their
respective properties, or (iii) orders the liquidation of the Company or any of
its Subsidiaries, and the order or decree remains unstayed and in effect for 60
days.
To the extent that the last day of the period referred to in Section
5.1(a) or 5.1(d) is not a Business Day, then the first Business Day following
such day shall be deemed to be the last day of the period referred to in such
clauses. Any "day" will be deemed to end as of 11:59 p.m., Fort Worth, Texas
time.
Section 5.2 Acceleration.
(a) Notwithstanding any other provision of this Note to the
contrary, if any Event of Default occurs and is continuing (other than an Event
of Default specified in Section 5.1(b), 5.1(h), or 5.1(i)) prior to the
redemption, repurchase, or other repayment in full of the 10 3/8% Senior
Subordinated Notes, then the Holders shall not and shall not be entitled to
declare any outstanding Notes due and payable (as a result of such Event of
Default) prior to the delivery of an Acceleration Notice (as defined in the
Indenture) pursuant to Section 6.02 of the Indenture.
(b) If any Event of Default occurs and/or is continuing (other
than an Event of Default specified in Section 5.1(b), 5.1(h), or 5.1(i)) after
the redemption, repurchase, or other repayment of 10 3/8% Senior Subordinated
Notes or the delivery of an Acceleration Notice (as defined in the Indenture)
pursuant to Section 6.02 of the Indenture, or an Event of Default specified in
Section 5.1(b) occurs and is continuing at any time, then (i) if the Initial
Investors or their Affiliates Beneficially Own more than 50% of the aggregate
principal amount of the Notes then outstanding the Holders may, by notice in
writing to the Company, declare all outstanding Notes to be due and payable and
(ii) if the Initial Investors or their Affiliates Beneficially Own 50% or less
of the aggregate principal amount of the Notes then outstanding, then Holders of
at least 33 1/3% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company may declare all outstanding Notes to be due and
payable (in each case, an "Acceleration Notice"), and the same (x) if there are
no amounts outstanding under the Senior Credit Facility, shall become
immediately due and payable; or (y) if there are any amounts outstanding under
the Senior Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration under the Senior Credit Facility or five
Business Days after receipt by the Company and the representatives of the
holders of the Indebtedness under the Senior Credit Facility of such
Acceleration Notice, but only if such Event of Default is then continuing.
(c) Notwithstanding the foregoing, in the case of an Event of
Default specified in Section 5.1(h) or 5.1(i), all outstanding Notes will be
immediately due and payable without declaration or other action or notice on the
part of the Holders of Notes.
(d) In the event of a declaration of acceleration of the Notes
because an Event of Default has occurred and is continuing as a result of the
acceleration of any Indebtedness described in Section 5.1(f), the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
such Indebtedness described in Section 5.1(f) have rescinded the declaration of
acceleration in respect of such Indebtedness within thirty (30) days of the date
of
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such declaration and the Holders received written notice of such rescission and
if (a) the annulment of the acceleration of the Notes would not conflict with
any judgment or decree of a court of competent jurisdiction, and (b) all
existing Events of Default, except nonpayment of principal or interest that
became due solely because of the acceleration of the Notes, have been cured or
waived.
Section 5.3 Other Remedies. Subject to Section 5.2, if an Event of
Default occurs and is continuing, the Holders may pursue any available remedy by
proceeding at law or in equity to collect the payment of principal, premium, if
any, or interest on the Notes or to enforce the performance of any provision of
the Notes or the Subsidiary Guarantees.
Section 5.4 Waiver of Past Defaults. Subject to Section 5.2, Holders of
a majority in aggregate principal amount of the then outstanding Notes by notice
to the Company may, on behalf of the Holders of all of the Notes, waive any
acceleration of the Notes or any existing Default or Event of Default, except a
continuing Default or Event of Default in the payment of the principal of,
premium, if any, or interest, on the Notes which may only be waived with the
consent of each Holder of Notes affected.
Section 5.5 Control by Majority. The Holders of a majority in aggregate
principal amount of the then outstanding Notes may direct the time, method, and
place of conducting any proceeding for any remedy available to the Holders.
ARTICLE 6
EXCHANGE; VOTING RIGHTS
Section 6.1 Exchange. The Notes shall be exchangeable without the
payment of any additional consideration, in whole or in part, at any time and
from time to time at the option of the Holder, into either (i) shares of fully
paid, non-assessable Series B Nonvoting Preferred Stock, (ii) shares of fully
paid and non-assessable Nonvoting Common Stock, or (iii) any combination
thereof; provided, however, that any portion of the Notes then subject to an
offer to redeem under Article 3 shall not be exchangeable into Series B
Nonvoting Preferred Stock. On any such exchange, Holders of Notes shall receive,
as the case may be, (x) one (1) share of Series B Nonvoting Preferred Stock for
each $5.50 of outstanding principal and accrued but unpaid interest of Notes
exchanged to the date of such exchange (subject to adjustment as provided in
Section 6.3) or (y) one (1) share of Nonvoting Common Stock for each $5.50 of
principal and accrued but unpaid interest of Notes exchanged to the date of such
exchange (subject to adjustment as provided in Section 6.3) (such price, with
respect to the issuance of Series B Nonvoting Preferred Stock or Nonvoting
Common Stock, as the case may be, the "Exchange Price").
Section 6.2 Exchange Procedures.
(a) The Company will not issue any fractional shares of Series B
Nonvoting Preferred Stock or Nonvoting Common Stock upon an exchange pursuant to
this Article 6, but the Holder shall be entitled to be paid an amount in cash
equal to the Market Price of any fractional shares of Nonvoting Common Stock
otherwise issuable upon exchange (assuming for the purposes of calculating
payments in respect of fractional shares of Series B Nonvoting Preferred Stock
that any exchange of Notes resulting in the issuance of fractional shares of
Series B Nonvoting Preferred Stock were exchanged for Nonvoting Common Stock).
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(b) At the time of an exchange pursuant to this Article 6, the
Holder of Notes shall deliver to the office of the Company, Notes to be
exchanged and written notice to the Company stating that such Holder elects to
exchange such Notes and stating the name and addresses in which each certificate
for shares of Series B Nonvoting Preferred Stock or Nonvoting Common Stock, as
the case may be, issued upon such exchange is to be issued; provided, however,
that if the Holder has received an offer to redeem under Article 3, such Holder
must notify the Company within 10 Business Days after its receipt of the
Redemption Notice in order for such Holder to exchange all or any portion of the
Notes prior to the redemption date. Exchange shall be deemed to have been
effected on the latter of (i) the close of business on the date when such
delivery is made to the Company of Notes to be exchanged, and the Holder of
Notes subject to such exchange shall be deemed to be the Holder of record of the
number of shares of Series B Nonvoting Preferred Stock or Nonvoting Common
Stock, as the case may be, issuable upon such exchange at such time, and (ii)
the date upon which any applicable waiting period under the HSR Act shall have
expired or early termination thereof shall have been granted without limitation,
restriction, or condition.
Section 6.3 Antidilution Provisions. The Exchange Price from time to
time in effect and the number of shares of Series B Nonvoting Preferred Stock
and Nonvoting Common Stock issuable upon exchange of Notes shall be subject to
adjustments from time to time as hereinafter set forth in this Section 6.3.
(a) Common Stock Splits. Upon any subdivision by the Company on
or after the Issue Date of all of its outstanding shares of Aggregate Common
Stock into a greater number of shares or upon any issuance by the Company on or
after such date of a greater number of shares of Aggregate Common Stock in a pro
rata exchange for all of its outstanding shares of Aggregate Common Stock, then
in each case from and after the record date for such subdivision or exchange,
the number of shares of Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes shall be increased in proportion to
such increase in the number of outstanding shares of Aggregate Common Stock and
the Exchange Price shall be correspondingly decreased. Upon any pro rata
reduction by the Company on or after the Issue Date of its outstanding shares of
Aggregate Common Stock as a whole or upon any issuance by the Company after such
date of a lesser number of shares of Aggregate Common Stock in a pro rata
exchange for all of its outstanding shares of Aggregate Common Stock, then in
each case from and after the record date for such reduction or exchange, the
number of shares of Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes shall be decreased in proportion to
such reduction in the number of outstanding shares of Aggregate Common Stock and
the Exchange Price shall be correspondingly increased.
(b) Common Stock Dividends. Upon any declaration and payment by
the Company on or after the Issue Date of a dividend upon Aggregate Common Stock
payable in shares of either class of Aggregate Common Stock, then in each case
from and after the record date for the payment of such stock dividend, the
number of shares of Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes shall be increased in proportion to
the increase in the number of outstanding shares of Aggregate Common Stock
through such stock dividend and the Exchange Price shall be correspondingly
decreased.
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(c) Other Issues. Upon any issuance by the Company of shares of
Aggregate Common Stock on or after the Issue Date (other than issuances of stock
requiring adjustments hereunder pursuant to the immediately preceding
subparagraphs (a) and (b) of this Section 6.3) for a consideration lower than
the Market Price per share of stock in effect immediately prior to such
issuance, the Exchange Price then in effect shall be reduced to equal the
following amount:
[(D x E) + F]
G x -------------
C x E
where C equals the number of shares of Aggregate Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Aggregate Common Stock outstanding immediately prior to the issue of such
additional Aggregate Common Stock, E equals the Market Price per share of Voting
Common Stock in effect immediately prior to the issue of such additional
Aggregate Common Stock, F equals the aggregate consideration (before deducting
underwriting discounts, commissions, and other expenses) received or to be
received by the Company in connection with the issuance of such additional
Aggregate Common Stock, and G equals the Exchange Price which would have been in
effect immediately prior to such issuance had all previous adjustments (if any)
under this subparagraph (c) been made pursuant to the foregoing formula. Upon
any such reduction in the Exchange Price, the number of shares of Series B
Nonvoting Preferred Stock and Nonvoting Common Stock issuable upon the exchange
of Notes shall be correspondingly increased. The provisions of this subparagraph
(c) shall not be applicable to any issuance of Aggregate Common Stock upon
actual exercise or actual conversion of any option, warrant, right, or other
security convertible into or exercisable for Aggregate Common Stock if the
Exchange Price was fully and properly adjusted pursuant to the immediately
following subparagraph (d) at the time such option, warrant, right, or other
security was issued.
(d) Common Stock Options; Subscription Rights; Convertible
Securities. Upon any issuance by the Company on or after the Issue Date of
options, warrants, or rights to subscribe for shares of Aggregate Common Stock
or of any securities convertible into or exchangeable for shares of Aggregate
Common Stock or of any similar securities for a consideration per share other
than the Market Price in effect immediately prior to the issuance of such
options, warrants, rights, or securities, the Exchange Price shall be reduced
(and the number of shares of Series B Nonvoting Preferred Stock and Nonvoting
Common Stock issuable upon the exchange of Notes shall be appropriately
increased) by making computations in accordance with subparagraph (c) of this
Section 6.3; provided, however, that:
(i) The maximum number of shares of Aggregate Common Stock
deliverable under any such option, warrant, or right shall be considered to have
been delivered at the time such option, warrant, or right was issued, for a
consideration equal to the minimum purchase price per share of Aggregate Common
Stock provided for in such option, warrant, or right, plus the consideration, if
any, received by the Company for such option, warrant, or right (before
deducting underwriting discounts, commissions, and other expenses);
(ii) The aggregate maximum number of shares of Aggregate
Common Stock deliverable upon conversion of or exchange for any such securities
shall be considered to have been delivered at the time of issuance of such
securities, for a consideration
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equal to the consideration received by the Company for such securities (before
deducting underwriting discounts, commissions, and other expenses) plus the
minimum consideration (other than such securities) to be received by the Company
upon the exchange or conversion of such securities;
(iii) If the purchase or conversion price provided for in
any rights, options, or warrants referred to above, the additional
consideration, if any, payable upon the conversion or exchange of convertible
securities referred to above, or the rate at which any convertible securities
referred to above are convertible into or exchangeable for shares of Aggregate
Common Stock shall change (other than under or by reason of provisions designed
to protect against dilution), the Exchange Price (and the number of shares of
Series B Nonvoting Preferred Stock and Nonvoting Common Stock issuable upon the
exchange of Notes) in effect at the time of such event shall be readjusted to
the Exchange Price (and the number of shares of Series B Nonvoting Preferred
Stock and Nonvoting Common Stock issuable upon the exchange of Notes) which
would have been in effect at such time had such rights, options, warrants, or
convertible securities still outstanding provided for such new purchase or
conversion price, additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold. If the purchase or conversion
price provided for in any such right, option, or warrant referred to above, the
additional consideration, if any, payable upon the conversion or exchange of
convertible securities referred to above, or the rate at which any convertible
securities referred to above are convertible into or exchangeable for shares of
Aggregate Common Stock shall be changed at any time by reason of provisions
designed to protect against dilution, then when shares of Aggregate Common Stock
are delivered upon the exercise of any such right, option, or warrant or upon
conversion or exchange of any such convertible security, the Exchange Price (and
the number of shares of Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes) then in effect hereunder shall be
readjusted to such amount as would have been obtained had such right, option,
warrant, or convertible security never been issued as to such shares of
Aggregate Common Stock and had the adjustments required hereunder been made at
the time of the issuance of the shares of Aggregate Common Stock delivered as
aforesaid; and
(iv) On the expiration of any such options, warrants, or
rights or at the termination of any such rights to convert or exchange, the
Exchange Price (and the number of shares of Series B Nonvoting Preferred Stock
and Nonvoting Common Stock issuable upon the exchange of Notes) then in effect
shall be readjusted to the Exchange Price (and the number of shares of Series B
Nonvoting Preferred Stock and Nonvoting Common Stock issuable upon the exchange
of Notes) which would have been in effect had the adjustments (and
readjustments) made upon the issuance of such expired or terminated options,
warrants, rights, or securities (or upon the occurrence of any event with
respect thereto specified in the immediately preceding subparagraph (iii)) been
made without reference to the number of shares of Aggregate Common Stock subject
to such terminated or expired options, warrants, rights, or securities.
Notwithstanding the prior sentence, the Holder shall not be required to
surrender or adjust any shares of Series B Nonvoting Preferred Stock and
Nonvoting Common Stock theretofore received by the Holder upon exchange of
Notes.
(e) Special Dividends; Purchase Rights.
(i) If at any time on or after the Issue Date the Company
shall distribute to all holders of shares of Aggregate Common Stock of any class
evidences of its
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indebtedness or assets (excluding any regular periodic cash dividend) or a
distribution in partial liquidation, each payable otherwise than in shares of
Aggregate Common Stock or in securities to which the provisions of the
immediately following subparagraph (e)(ii) are applicable, the Company shall pay
to the Holder of Notes, upon the conversion thereof at any time on or after the
payment of such dividend or distribution, the securities and other property
(including cash) which such Holder would have received (together with all
subsequent dividends and distributions thereon) if such Holder had exchanged
such Notes for Nonvoting Common Stock on the record date fixed in connection
with such dividend or distribution, and the Company shall take whatever steps
are necessary or appropriate to keep in reserve at all times any securities and
other properties which are required to fulfill such obligations of the Company.
Notwithstanding the foregoing, the rights of the Holder hereof under this
subparagraph (e)(i) upon the Company's declaration of a dividend or distribution
in partial liquidation payable only in securities convertible into shares of
Aggregate Common Stock may be exercised only in lieu of any adjustment (in this
subparagraph (e) called a "subparagraph (d) adjustment") because of such
dividend or distribution called for under subparagraph (d) of this Section 6.3,
and upon exercise hereof, such holder must elect either such subparagraph (d)
adjustment or the rights and benefits provided for in this subparagraph (e)(i).
For the purposes of determining the Exchange Price from time to time in effect
and the number of shares from time to time subject hereto prior to the exchange
of Notes, it shall be assumed that the Holder hereof will so elect subparagraph
(d) adjustments, but upon any election of the rights and benefits provided for
in this subparagraph (e)(i) made at the time of exercise hereof the Exchange
Price then in effect (and the number of outstanding shares of Series B Nonvoting
Preferred Stock and Nonvoting Common Stock purchasable upon such exchange) shall
be redetermined to equal the amounts which would have been in effect had such
subparagraph (d) adjustments never been made. Notwithstanding the provisions of
this subparagraph (e)(i), in no event shall any Holder have the right to
receive, or to elect to receive, Voting Common Stock pursuant to this subsection
if, as a result thereof, a "change of control" could be deemed to occur under
the Indenture, and, in lieu thereof, the Holder shall have the right to receive,
or the right to elect to receive, an equivalent number of shares of Nonvoting
Common Stock.
(ii) If at any time on or after the Issue Date the Company
shall grant, issue, or sell any options or rights to purchase stock, warrants,
securities, or other property pro rata to the holders of Aggregate Common Stock
of all classes ("Purchase Rights"), then each Holder shall be entitled (but not
obligated) to acquire, in lieu of any subparagraph (d) adjustment and upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Holder could have acquired if it had held the number of shares of Nonvoting
Common Stock issuable upon exchange of Notes for Nonvoting Common Stock
immediately prior to the time or times at which the Company granted, issued, or
sold such Purchase Rights.
(f) Additional Adjustments.
(i) If at any time or from time to time conditions arise by
reason of action taken by the Company which are not adequately covered by the
provisions of this Section 6.3, and which might materially and adversely affect
the exercise rights of the Holders of Notes, upon the request of a majority in
interest of the Holders the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, of the number of shares issuable upon the exchange of Notes,
on a basis consistent with
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the standards established in the other provisions of this Section 6.3 and
assuming all other adjustments required pursuant to this Section 6.3 have been
made, necessary in order to preserve without diminution the rights of the
Holders of Notes. Upon receipt of such opinion, the Board of Directors shall
forthwith make the adjustments described therein.
(ii) Notwithstanding any other provision hereof, any
antidilution adjustments made pursuant to the terms hereof or of the Warrants,
the Tranche A Notes, and the Convertible Preferred Stock shall be deemed to be
made simultaneously, the intention being to avoid any iterative calculations.
(g) Effect of Reorganization and Asset Sales. If any capital
reorganization of the Company, reclassification of the capital stock of the
Company, statutory exchange, consolidation, or merger of the Company with
another Person, or sale of all or substantially all of the Company's assets to
another Person shall be effected in such a way that holders of Nonvoting Common
Stock shall be entitled to receive stock, securities, or assets (including cash)
of the Company or another Person with respect to or in exchange for Nonvoting
Common Stock (each such transaction being hereinafter referred to as a
"Transaction"), then, as a condition of the consummation of each Transaction,
lawful and adequate provisions shall then be made so that each Holder, upon the
exchange hereof at any time after the consummation of such Transaction, shall be
entitled to receive, and such Notes shall thereafter represent the right to
receive, in lieu of the Nonvoting Common Stock issuable upon exchange hereof but
otherwise upon and subject to all terms and conditions hereof, the cash,
securities, or other property to which such Holder would have been entitled upon
the consummation of such Transaction if such Holder had exchanged such Notes
immediately prior thereto (subject to adjustments from and after the
consummation date of such Transaction as nearly equivalent as possible to the
adjustments provided for in this Section 6.3). The Company shall not effect any
Transaction unless prior to the consummation thereof each Person (other than the
Company) which may be required to deliver any securities or other property upon
the exchange of the Notes as provided herein shall assume, by written instrument
delivered to each registered Holder of the Notes in form and substance
reasonably satisfactory to the Holders of at least a majority of the aggregate
principal amount of the Notes then outstanding, the obligation to continue to
honor the Notes and to deliver to such Holders such securities or other property
to which, in accordance with the foregoing provisions, such Holders may be
entitled, and such Person shall have similarly delivered to each registered
Holder an opinion of counsel for such Person, in substance and from such counsel
as is acceptable to the Holders, stating that the Notes shall thereafter
continue in full force and effect and shall be enforceable against such Person
in accordance with the terms hereof and thereof.
(h) Notice of Adjustment or Substitution. On the happening of an
event requiring an adjustment of the Exchange Price and upon each change in the
number of shares of Series B Nonvoting Preferred Stock and Nonvoting Common
Stock issuable upon the exchange of Notes, and in the event of any change in the
rights of the Holder of Notes by reason of other events herein set forth, the
Company shall as soon as practicable give written notice ("Notice of
Adjustment") to the registered Holder(s) of Notes: (i) describing the event;
(ii) stating the adjusted Exchange Price, the number of shares of Series B
Nonvoting Preferred Stock and Nonvoting Common Stock issuable based upon the
difference between the Exchange Price before and after such adjustment; and
(iii) stating how such adjustment of Exchange Price or number of shares of
Series B Nonvoting Preferred Stock and Nonvoting Common Stock was calculated and
the facts on which the calculation is based.
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(i) Accountant's Opinion. Upon each adjustment of the Exchange
Price and upon each change in the number of shares of Series B Nonvoting
Preferred Stock and Nonvoting Common Stock issuable upon the exchange of Notes,
and in the event of any change in the rights of the Holder of Notes by reason of
other events herein set forth, then and in each such case, upon the reasonable
written request of the Holders of at least 50% of the aggregate principal amount
of the Notes then outstanding given to the Company within thirty (30) days after
the Company has given the Notice of Adjustment, the Company will promptly obtain
an opinion of independent certified public accountants selected by the Company
and reasonably satisfactory to such Holder(s), stating the adjusted Exchange
Price and the new number of shares of Series B Nonvoting Preferred Stock and
Nonvoting Common Stock so issuable, or specifying the other shares of stock,
securities, or assets and the amount thereof receivable as a result of such
adjustment or change in rights, and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. The
Company will promptly mail a copy of such accountant's opinion to each
registered Holder of Notes. The costs of the accountant's opinion shall be borne
(i) by the Company, if the accountant's opinion reflects any change to the
adjusted Exchange Price or the number of shares of Series B Nonvoting Preferred
Stock and Nonvoting Common Stock so issuable set forth in the Notice of
Adjustment, or (ii) by the Holders, if the accountant's opinion reflects no
change to the adjusted Exchange Price or the number of shares of Series B
Nonvoting Preferred Stock and Nonvoting Common Stock so issuable set forth in
the Notice of Adjustment. Any dispute or controversy in respect of the
accountant's opinion shall be submitted to final and binding arbitration in
Dallas, Texas pursuant to the commercial arbitration rules of the American
Arbitration Association. All costs and expenses (including reasonable attorneys'
fees) incurred by the Company and the Holders in connection with any such
arbitration proceeding shall be paid by the non-prevailing party (as determined
by the arbitrator(s)).
(j) Adjustment of Less Than $.01. The Company shall not be
required to give any Notice of Adjustment of the Exchange Price in accordance
with subparagraph (h) above if the amount of such adjustment shall be less than
$.01, but in such case any such adjustment shall be carried forward and notice
thereof shall be given at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried forward, shall amount
to not less than $.01 per share; provided, however, that notice of each such
adjustment of the Exchange Price shall be given not later than three years from
the date such adjustment would have been required to be made except for the
provisions of this subparagraph (j).
(k) Treasury Shares. The number of shares of Aggregate Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company or any of its Subsidiaries, but the disposition
of any such shares to a third party shall be considered an issue or sale of
Aggregate Common Stock for the purposes of this Section 6.3.
(l) Adjustment Exceptions. Anything in this Section 6.3 to the
contrary notwithstanding, no adjustment of the Exchange Price or the number of
shares of Series B Nonvoting Preferred Stock and Nonvoting Common Stock issuable
upon the exchange of Notes shall be made upon (i) the issuance of any shares of
Aggregate Common Stock upon the exercise of any of the Warrants, the exchange of
any Convertible Preferred Stock, the exchange of any Tranche A Notes, or the
issuance of rights to acquire shares of Aggregate Common Stock under any of the
foregoing, (ii) the issuance of any shares of Aggregate Common Stock
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or other securities pursuant to any Plans, or (iii) the issuance of shares of
Aggregate Common Stock or rights to acquire such shares in connection with any
redemption pursuant to Article 3.
Section 6.4 Voting Rights.
(a) The Holders of Notes, except as set forth in this Section
6.4, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the shareholders of the Company.
(b) (i) If at any time when the Initial Investors and their
Affiliates Beneficially Own at least 50% of the principal amount of the
outstanding Notes (x) the Company fails to exchange all of the then outstanding
Notes under the provisions of Section 6.1 (after notice has been given), (y) the
Company fails to purchase Notes pursuant to Section 4.1, or (z) an Event of
Default has occurred and is continuing (each, a "Voting Rights Triggering
Event"), then the number of directors constituting the Board of Directors shall
be adjusted by the number, if any, necessary to permit the Holders of a majority
in principal amount of the Notes to appoint two directors of the Board of
Directors. Holders of a majority of the outstanding principal amount of the
Notes shall during the period set forth in Section 6.4(b)(ii) have the exclusive
right to appoint two directors of the Board of Directors at a meeting therefor
called upon occurrence of such Voting Rights Triggering Event and at every
subsequent meeting at which the terms of office of the directors so elected
expire.
(ii) The right of Holders of Notes to elect members of the
Board of Directors as set forth in Section 6.4(b)(i) shall continue until such
time as the failure, breach, or default giving rise to such Voting Rights
Triggering Event is remedied or is waived by Holders of at least a majority in
principal amount of outstanding Notes at which time (I) the special right of
Holders of Notes so to vote for the election of directors and (II) the term of
office of the additional directors elected by Holders of Notes shall terminate.
At any time after voting power to elect directors shall have become vested and
be continuing in Holders of Notes pursuant to Section 6.4(b)(i), or if vacancies
shall exist in the offices of directors elected by Holders of Notes, a proper
officer of the Company may, and upon the written request of the Holders of
record of at least twenty-five percent (25%) of the principal amount of Notes
then outstanding addressed to the secretary of the Company shall, call a special
meeting of the Holders of Notes for the purpose of electing the directors which
such Holders are entitled to elect. If such meeting shall not be called by a
proper officer of the Company within twenty (20) days after personal service of
said written request upon the secretary of the Company or within twenty (20)
days after mailing the same within the United States by certified mail,
addressed to the secretary of the Company at its principal executive offices,
then (x) the Holders of record of at least twenty-five percent (25%) of the
principal amount of Notes then outstanding may designate in writing one of their
number to call such meeting at the expense of the Company, and such meeting may
be called by the Person so designated upon the notice required for the annual
meetings of shareholders of the Company and shall be held at the place
designated in such notice, or (y) the Holders of record of at least a majority
in principal amount of outstanding Notes may elect such members to the Board of
Directors without a meeting, without prior notice, and without a vote, if such
Holders sign a consent or consents in writing electing such members to the Board
of Directors.
(iii) At the meeting held for the purpose of electing
directors at which the Holders of Notes shall have the right to elect directors
as aforesaid, the presence in
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person or by proxy of the Holders of at least a majority of the outstanding
principal amount of Notes shall be required to constitute a quorum of such
Notes.
(iv) Notwithstanding the foregoing, in the event Holders of
Notes shall have the concurrent right to elect members of the Board of Directors
under this Section 6.4 and under Section 6.4 of the Tranche A Notes, the number
of directors provided for in this Section 6.4 shall be reduced to one during,
but only during, any period such concurrent right exists and, upon termination
of any such right under the Tranche A Notes, such number shall be returned to
two directors. The right of Holders of Notes to elect directors pursuant to this
Section 6.4 shall be in addition to, and not in substitution for or diminution
of, the rights of Wingate and its assigns or Affiliates to appoint members of
the Board of Directors under the terms of the Purchase Agreement.
ARTICLE 7
SUBSIDIARY GUARANTEES
Section 7.1 Subsidiary Guarantees.
(a) Subject to the provisions of this Article 7, each Subsidiary
Guarantor, jointly and severally, hereby irrevocably unconditionally guarantees
to each Holder of a Note that: (i) the principal of, premium, if any, and
interest on the Notes shall be duly and punctually paid in full when due,
whether at stated maturity, by acceleration, call for redemption, upon a Change
of Control, or otherwise, and interest on overdue principal, premium, if any,
interest on any interest (to the extent permitted by law), if any, on the Notes
and all other obligations of the Company to Holders of Notes will be promptly
paid in full or performed, all in accordance with the terms hereof and thereof,
(ii) in case of any extension of time of payment or renewal of any Notes or any
of such other obligations, the same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration, call for redemption, upon a Change of Control,
or otherwise, and (iii) the prompt payment of any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Holder of Notes in
successfully enforcing any rights under the Notes. Failing payment when due of
any amount so guaranteed or failing performance of any other obligation of the
Company to the Holders of Notes, for whatever reason, each Subsidiary Guarantor
shall be jointly and severally obligated to pay, or to perform or to cause the
performance of, the same immediately. An Event of Default under the Notes shall
constitute an event of default under the Subsidiary Guarantees, and shall
entitle the Holders of Notes to accelerate the obligations of each Subsidiary
Guarantor hereunder in the same manner and to the same extent as the obligations
of the Company. Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity, or
enforceability of the Notes, the absence of any action to enforce the same, any
waiver or consent by any Holder of Notes with respect to any thereof, the entry
of any judgment against the Company, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Subsidiary Guarantor. Each Subsidiary Guarantor hereby waives and
relinquishes: (A) any right to require the Holders of Notes or the Company
(each, a "Benefitted Party") to proceed against the Company, the Subsidiary
Guarantors, or any other Person or to proceed against or exhaust any security
held by a Benefitted Party at any time or to pursue any other remedy in any
secured party's power before proceeding against the Subsidiary Guarantor; (B)
any defense that may arise by reason of the incapacity, lack of authority,
death, or disability of any other Person or
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Persons or the failure of a Benefitted Party to file or enforce a claim against
the estate (in administration, bankruptcy, or any other proceeding) of any other
Person or Persons; (C) demand, protest, and notice of any kind (except as
expressly required by this Note), including but not limited to notice of the
existence, creation, or incurring of any new or additional Indebtedness or
obligation or of any action or non-action on the part of the Subsidiary
Guarantors, the Company, any Benefitted Party, any creditor of the Subsidiary
Guarantors, the Company or on the part of any other Person whomsoever in
connection with any obligations the performance of which are hereby guaranteed;
(D) any defense based upon an election of remedies by a Benefitted Party,
including but not limited to an election to proceed against the Subsidiary
Guarantors for reimbursement; (E) any defense based upon any statute or rule of
law which provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal; (F) any
defense arising because of a Benefitted Party's election, in any proceeding
instituted under the Bankruptcy Law, of the application of Section 1111(b)(2) of
the Bankruptcy Code; and (G) any defense based on any borrowing or grant of a
security interest under Section 364 of the Bankruptcy Code. The Subsidiary
Guarantors hereby covenant that the Subsidiary Guarantors shall not be
discharged except by payment in full of all principal, premium, if any, and
interest on the Notes and all other costs provided for under this Note.
(b) If any Holder of Notes is required by any court or otherwise
to return to either the Company or the Subsidiary Guarantors, or any trustee or
similar official acting in relation to either the Company or the Subsidiary
Guarantors, any amount paid by the Company or the Subsidiary Guarantors to such
Holder of Notes, the Subsidiary Guarantors, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(c) Each of the Subsidiary Guarantors agrees that it shall not be
entitled to any right of subrogation in relation to the Holders of Notes in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Subsidiary Guarantor agrees that, as between
it, on the one hand, and the Holders of Notes, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article 5 for the purposes hereof, notwithstanding any stay, injunction, or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article 5, such obligations (whether or not due and payable)
shall forthwith become due and payable by such Subsidiary Guarantor for the
purpose of its Subsidiary Guarantee.
Section 7.2 Releases Following Sale of Assets and Restricted Subsidiary
Stock. In the event of a sale, assignment, transfer, lease, conveyance, or other
disposition of all of the Equity Interests in, or all or substantially all of
the assets of, a Subsidiary Guarantor to any Person that is not the Company or
any of its Subsidiaries, whether by way of merger, consolidation, or otherwise,
if (i) the Net Proceeds of such sale or other disposition are applied in
accordance with the provisions of Section 4.07 of the Indenture, (ii) no Default
or Event of Default exists or would exist under this Note after giving effect to
such transaction, (iii) all obligations of such Subsidiary Guarantor under any
other Indebtedness of the Company or any of its Subsidiaries shall have been
terminated (including, without limitation, all Guarantees of any such
Indebtedness), (iv) all Liens on assets of such Subsidiary that secure any other
Indebtedness of the Company or any of its Subsidiaries shall have been
terminated, and (v) all obligations of the Company and its Subsidiaries under
other Indebtedness of such Subsidiary Guarantor shall have been terminated
(including, without limitation, all Guarantees of such Indebtedness), then (A)
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in the case of such a sale or other disposition, whether by way of merger,
consolidation, or otherwise, of all of the Equity Interests in such former
Subsidiary Guarantor, such former Subsidiary Guarantor will be released and
relieved of any obligations under its Subsidiary Guarantee, or (B) in the case
of a sale or other disposition of all or substantially all of the assets of such
Subsidiary Guarantor, the Person acquiring such assets will not be required to
assume the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee.
Section 7.3 Limitation of Subsidiary Guarantor's Liability. Each
Subsidiary Guarantor, and by its acceptance hereof each Holder of Notes, hereby
confirms that it is the intention of all such parties that the guarantee by such
Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act, or any
similar federal or state law. To effectuate the foregoing intention, the Holders
of Notes and each Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under this Article 7 shall be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
this Article 7, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee of such Subsidiary Guarantor not constituting a fraudulent
transfer or conveyance.
Section 7.4 Application of Certain Terms and Provisions to the
Subsidiary Guarantors.
(a) For purposes of any provision of this Note which provides for
the delivery by any Subsidiary Guarantor of an Officer's Certificate and/or an
Opinion of Counsel, the definitions of such terms shall apply to such Subsidiary
Guarantor as if references therein to the Company were references to such
Subsidiary Guarantor.
(b) Any request, direction, order, or demand which by any
provision of this Note is to be made by any Subsidiary Guarantor, shall be
sufficient if evidenced as described in Section 9.1 as if references therein to
the Company were references to such Subsidiary Guarantor.
(c) Any notice or demand which by any provision of this Note is
required or permitted to be given or served by the Holders of Notes to or on any
Subsidiary Guarantor may be given or served as described in Section 9.1 as if
references therein to the Company were references to such Subsidiary Guarantor.
Section 7.5 Release of Subsidiary Guarantees. Upon the sale or
disposition of a Subsidiary Guarantor (or substantially all of its assets)
pursuant to and in compliance with the terms of this Note and the Indenture,
such Subsidiary Guarantor will be released from and relieved of its obligations
under its Subsidiary Guarantee. Such release shall be conditional upon the
delivery to the Holders of an Officers' Certificate and an Opinion of Counsel,
each stating that such release of the Subsidiary Guarantee complies with the
provisions of this Note and the Indenture and that all conditions precedent to
such release of the Subsidiary Guarantee have been complied with.
Section 7.6 Subordination of Subsidiary Guarantees. The obligations of
each Subsidiary Guarantor under its Subsidiary Guarantee pursuant to this
Article 7 is subordinated
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in right of payment to the prior payment in full in cash or Cash Equivalents of
all Senior Indebtedness of the Subsidiary Guarantor on the same basis as the
Notes are subordinated to Senior Indebtedness of the Company. For the purposes
of the foregoing sentence, the Holders of Notes shall have the right to receive
and/or retain payments by any of the Subsidiary Guarantors only at such times as
they may receive and/or retain payments in respect of the Notes pursuant to this
Note, including Article 7. In the event that the Holders receive any Subsidiary
Guarantor payment at a time when such payment is prohibited by the foregoing
sentence, such Subsidiary Guarantor payment shall be paid over and delivered to
the holders of the Senior Indebtedness of the Subsidiary Guarantor remaining
unpaid, to the extent necessary to pay in full in cash or Cash Equivalents all
such Senior Indebtedness of the Subsidiary Guarantor. Each Holder of a Note by
its acceptance thereof agrees to and shall be bound by the provisions of this
Section 7.6.
ARTICLE 8
SUBORDINATION
Section 8.1 Notes Subordinated to Senior Indebtedness. The Company
covenants and agrees, and each Holder of Notes by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article 8, and each Person holding any Note, whether upon
original issue or upon transfer, assignment, or exchange thereof, accepts and
agrees that all payments of the principal of and premium, if any, and interest
on the Notes will, to the extent and in the manner set forth in this Article 8,
be subordinated in right of payment to the prior payment in full in cash or Cash
Equivalents of all Senior Indebtedness, whether outstanding on the date of the
Note or thereafter incurred.
Section 8.2 No Payment on Notes in Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the Company
of principal of, premium, if any, and interest on the Notes, whether pursuant to
the terms of the Notes, upon acceleration, pursuant to a Change of Control or
otherwise, shall be made to the Holders of Notes (except that Holders of Notes
may receive payments made in Junior Securities) if (i) a default in the payment
of the principal of or premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Holders
receive a written notice (with a copy to the Company) of such other default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Indebtedness. Payments on the Notes may and shall be resumed (A) in the
case of a payment default, upon the date on which such default is cured or
waived and (B) in case of a nonpayment default, on the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received by the Holders (such
period being referred to herein as the "Payment Blockage Period"), unless the
maturity of any Designated Senior Indebtedness has been accelerated (and written
notice of such acceleration has been received by the Holders).
(b) Notwithstanding anything herein or in the Notes to the
contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Payment Blockage Period is in effect and
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(z) not more than one Payment Blockage Period may be commenced with respect to
the Notes during any period of 360 consecutive days. No new Payment Blockage
Period may be commenced unless and until all scheduled payments of principal,
premium, if any, and interest on the Notes that have come due have been paid in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Holders shall be, or be made, the
basis for a subsequent Payment Blockage Notice (it being understood that any
subsequent action, or any breach of any covenant for a period commencing after
the date of receipt by the Holders of such Payment Blockage Notice, that, in
either case, would give rise to such a default pursuant to any provisions under
which a default previously existed or was continuing shall constitute a new
default for this purpose).
(c) In the event that, notwithstanding the foregoing, any payment
shall be received any Holder of Notes when such payment is prohibited by Section
8.2(a), such payment shall be held for the benefit of, and shall be paid over or
delivered to, the holders of Designated Senior Indebtedness or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Designated Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that, upon notice from
the Holders to the holders of Designated Senior Indebtedness that such
prohibited payment has been made, the holders of the Designated Senior
Indebtedness (or their representative or representatives or a trustee) notify
the Holders in writing of the amounts then due and owing on the Designated
Senior Indebtedness, if any, and only the amounts specified in such notice to
the Holders shall be paid to the holders of Designated Senior Indebtedness.
Section 8.3 Payment Over of Proceeds Upon Dissolution, Etc.
(a) Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership, or similar proceeding relating to the Company or its
property, an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash or Cash Equivalents of all
obligations due in respect of such Senior Indebtedness (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, and until all obligations with respect to
Senior Indebtedness are paid in full in cash or Cash Equivalents, any
distribution to which the Holders of Notes would be entitled shall be made to
the holders of Senior Indebtedness (except that Holders of Notes may receive
Junior Securities).
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash,
property, or securities, shall be received by any Holder of Notes at a time when
such payment or distribution is prohibited by Section 8.3(a) and before all
obligations in respect of Senior Indebtedness are paid in full in cash or Cash
Equivalents, or payment provided for, such payment or distribution shall be
received and held for the benefit of, and shall be paid over or delivered to,
the holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
respective representatives, or to the trustee or trustees or agent or agents
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, for application to the
payment of Senior Indebtedness
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remaining unpaid until all such Senior Indebtedness has been paid in full in
cash or Cash Equivalents after giving effect to any prior or concurrent payment,
distribution, or provision therefor to or for the holders of such Senior
Indebtedness.
(c) The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another Person upon the terms and conditions
provided in Article 5 of the Indenture shall not be deemed a dissolution,
winding-up, liquidation, or reorganization for the purposes of this Section 8.3
if such other Person shall, as a part of such consolidation, merger, conveyance
or transfer, comply with the conditions stated in Article 5 of the Indenture.
Section 8.4 Subrogation.
(a) Upon the payment in full in cash or Cash Equivalents of all
Senior Indebtedness, or provision for payment, the Holders of the Notes shall be
subrogated to the rights of the holders of Senior Indebtedness and pari passu
with the other unsecured Indebtedness of the Company to receive payments or
distributions of cash, property or securities of the Company made on such Senior
Indebtedness until the principal of, premium, if any, and interest on the Notes
shall be paid in full in cash; and, for the purposes of such subrogation, no
payments or distributions to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders of Notes would be entitled except
for the provisions of this Article 8, and no payment over pursuant to the
provisions of this Article 8 to the holders of Senior Indebtedness by Holders of
Notes as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of Notes, be deemed to be a payment by the Company
to or on account of the Senior Indebtedness. It is understood that the
provisions of this Article 8 are and are intended solely for the purpose of
defining the relative rights of the Holders of Notes, on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders of Notes
would otherwise have been entitled but for the provisions of this Article 8
shall have been applied, pursuant to the provisions of this Article 8, to the
payment of all amounts payable under Senior Indebtedness, then and in such case,
the Holders of Notes shall be entitled to receive from the holders of such
Senior Indebtedness any payments or distributions received by such holders of
Senior Indebtedness in excess of the amount required to make payment in full, or
provision for payment, of such Senior Indebtedness.
Section 8.5 Obligations of Company Unconditional.
(a) Nothing contained in this Article 8 or elsewhere in the Notes
is intended to or shall impair, as between the Company and the Holders of Notes,
the obligation of the Company, which is absolute and unconditional, to pay to
the Holders of Notes the principal of, premium, if any, and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders of
Notes and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Holder of any
Note from exercising all remedies otherwise permitted by applicable law upon
default under this Note, subject to the rights, if
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any, under this Article 8 of the holders of the Senior Indebtedness in respect
of cash, property, or securities of the Company received upon the exercise of
any such remedy.
(b) Without limiting the generality of the foregoing, nothing
contained in this Article 8 shall restrict the right of the Holders of Notes to
take any action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Article 5 or to pursue any rights or remedies hereunder;
provided, however, that all Senior Indebtedness then due and payable shall first
be paid in full before the Holders of Notes are entitled to receive any direct
or indirect payment from the Company of principal of, premium, if any, and
interest on the Notes.
Section 8.6 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets or securities referred to in
this Article 8, the Holders of Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation, or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, agent, or other person making such payment or distribution, delivered
to the Holders of Notes for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 8.
Section 8.7 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness. No right of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Note, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article 8 are intended to be
for the benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
Section 8.8 This Article Not to Prevent Event of Default. The failure to
make a payment on account of principal of, premium, if any, and interest on the
Notes by reason of any provision of this Article 8 shall not be construed as
preventing the occurrence of an Event of Default specified in Section 5.1(a) or
5.1(b).
Section 8.9 No Waiver of Subordination Provisions. Without in any way
limiting the generality of Section 8.7, the holders of Senior Indebtedness may,
at any time and from time to time, without the consent of or notice to the
Holders of Notes, without incurring responsibility to the Holders of Notes and
without impairing or releasing the subordination provided in this Article 8 or
the obligations hereunder of the Holders of Notes to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place,
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release, or
otherwise deal with any property pledged, mortgaged, or otherwise securing
Senior Indebtedness; (c) release any Person liable in any manner for the
collection of Senior Indebtedness; and (d) exercise or refrain from exercising
any rights against the Company and any other Person.
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Section 8.10 Acceleration of Notes. If payment of the Notes is
accelerated because of an Event of Default, the Company shall promptly notify
holders of the Senior Indebtedness of the acceleration.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices. Any notice or communication by the Company or any
Subsidiary Guarantor shall be considered duly given if in writing and delivered
in person or mailed by first-class mail, telecopier, or overnight air courier
guaranteeing next day delivery, to the address set forth below:
If to the Company or a Subsidiary Guarantor:
Kevco, Inc.
1300 South University Drive
Suite 200
Fort Worth, Texas 76107
Attention: Chief Executive Officer
Telecopier No.: (817) 332-2765
with a copy of any notice given to:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75201-3797
Attention: Byron F. Egan
Telecopier No.: (214) 953-5822
and to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Daniel S. Sternberg
Telecopier No.: (212) 225-3999
All notices and communications (other than those sent to Holders of
Notes) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. Any notice or communication to a Holder
of Notes shall be mailed by first-class mail to its address shown on the Note
register kept by the Company. If a notice or communication is mailed in the
manner provided above within the time prescribed, it is duly given, whether or
not the addressee receives it.
Section 9.2 Legal Holidays. If a payment date is not a Business Day at a
place of payment, payment may be made at that place on the next succeeding
Business Day, and no interest shall accrue on such payment for the intervening
period.
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Section 9.3 No Consent Payments. No Holder shall be paid or entitled to
receive any consideration or fee for or as an inducement to any consent, waiver,
or amendment of any provision of this Note.
Section 9.4 No Recourse Against Others. No director, officer, employee,
incorporator, or shareholder of the Company or any Guarantor Subsidiary, as
such, shall have any liability for any obligations of the Company or any
Guarantor Subsidiary under the Notes, or any Subsidiary Guarantee or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes and Subsidiary Guarantees.
Section 9.5 Governing Law. The internal law of the State of Texas shall
govern and be used to construe the Notes and the Subsidiary Guarantees (without
regard to conflicts of law provisions). Each party hereto irrevocably submits
itself to the non-exclusive jurisdiction of the state and federal courts of
Texas for purposes of this Note and agrees and consents that service of process
may be made upon it in any legal proceeding relating to this Note by any means
allowed under federal or Texas law. The parties hereto hereby waive and agree
not to assert, by way of motion, as a defense, or otherwise, that any such
proceeding is brought in an inconvenient forum or that the venue thereof is
improper.
Section 9.6 Successors. This Note shall inure to the benefit of and be
binding upon the parties hereto and each of their respective successors and
assigns, except that the Company may not assign this Note or its obligations
hereunder. Without limiting the generality of the foregoing, this Note shall
inure to the benefit of all Holders of Notes from time to time. Nothing
expressed or mentioned in this Note is intended or shall be construed to give
any Person, other than the parties hereto, their respective successors and
assigns, and the Holders of Notes, any legal or equitable right, remedy, or
claim under or in respect of this Note or any provision herein contained.
Section 9.7 Severability. In case any provision in this Note or the
Subsidiary Guarantees shall be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and in order to manifest the intent of the
parties, effect shall be given to such invalid, illegal, or unenforceable
provision to the maximum extent possible.
Section 9.8 Headings. The headings of the Articles and Sections of this
Note have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
or provisions hereof. Unless the context otherwise requires, all references to
Articles and Sections contained herein are references to Articles and Sections
of this Note.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Note as of the Issue Date.
THE COMPANY:
KEVCO, INC.
By:
------------------------------------
Name: Jerry E. Kimmel
Title: Chairman, CEO and President
SUBSIDIARY GUARANTORS:
KEVCO MANAGEMENT, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KEVCO HOLDING, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KEVCO GP, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
DCM DELAWARE, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KEVCO COMPONENTS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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EXHIBIT D
AMENDMENT
198
RESTATED ARTICLES OF INCORPORATION
ARTICLE ONE
Kevco, Inc., pursuant to the provisions of Article 4.07 of the Texas Business
Corporation Act (the "TBCA"), hereby adopts restated articles of incorporation
which accurately copy the articles of incorporation and all amendments thereto
that are in effect to date and as further amended by such restated articles of
incorporation as hereinafter set forth and which contain no other change in any
provision thereof.
ARTICLE TWO
The articles of incorporation of the corporation are amended by the restated
articles of incorporation as follows:
(i) by amending and restating Article Four (Capitalization);
(ii) by amending and restating Article Nine (Business Combinations);
(iii) by amending and restating Article Fourteen (Registered Agent);
and
(iv) by amending and restating Article Fifteen (Directors).
ARTICLE THREE
Each amendment made by the restated articles of incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act
and such restated articles of incorporation and each such amendment made by the
restated articles of incorporation was duly adopted by the shareholders of the
corporation at a meeting duly called and held on the ______ day of _______,
1999.
ARTICLE FOUR
On the date of such meeting, the number of shares outstanding was _________; the
number of shares entitled to vote on the restated articles of incorporation as
so amended was ______; the number of shares voted for such restated articles as
so amended was __________; and the number of shares voted against such restated
articles as so amended was _________.
ARTICLE FIVE
The articles of incorporation and all amendments and supplements thereto are
hereby superceded by the following restated articles of incorporation which
accurately copy the entire text thereof and as amended as above set forth:
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF KEVCO, INC.-PAGE 1
199
Second Amended and Restated
Articles of Incorporation of Kevco, Inc.
ARTICLE ONE
The name of the corporation is Kevco, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the corporation is organized is to buy, sell and
deal in personal property, real property and services as well as to engage in
any and all other lawful business and activities authorized or permitted under
Texas law.
ARTICLE FOUR
The total number of shares of all classes of capital stock that the
corporation shall have authority to issue is 150,000,000 shares, consisting of
(a) 30,000,000 shares designated as preferred stock (the "Preferred Stock"),
including (i) a series of Series A 10 3/8% Convertible Pay-in-Kind Voting
Preferred Stock, par value $0.01 per share, and (ii) a series of Series B 10
3/8% Convertible Pay-in-Kind Nonvoting Preferred Stock, par value $0.01 per
share, (b) 100,000,000 shares of a class designated as common stock, par value
$.01 per share (the "Voting Common Stock"), and (c) 20,000,000 shares of a class
designated as nonvoting common stock, par value $.01 per share (the "Nonvoting
Common Stock" and together with the Voting Common Stock, or either class
thereof, the "Aggregate Common Stock").
Capitalized terms not otherwise defined elsewhere in this Article Four
have the meanings ascribed to them in Section III of this Article Four.
I. Designation of Classes of Capital Stock. The designations and the
powers, preferences, rights, qualifications, limitations, and restrictions of
the Preferred Stock, the Voting Common Stock and Nonvoting Common Stock are as
follows:
A. Provisions Relating to the Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or
more series, the shares of each series to have such designations, powers,
preferences and rights and such qualifications, limitations and restrictions
thereof as are stated and expressed herein and in
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the resolution or resolutions providing for the issue of such series adopted by
the Board of Directors as hereafter prescribed.
2. Authority is hereby expressly granted to and vested in the
Board of Directors to authorize the issuance of the Preferred Stock from time to
time in one or more series, and with respect to each series of the Preferred
Stock, to fix and state by the resolution or resolutions from time to time
adopted providing for the issuance thereof the following:
a. whether or not the series is to have voting rights, full,
special or limited, or is to be without voting rights, and whether or not such
series is to be entitled to vote as a separate class either alone or together
with the holders of one or more other series of stock;
b. the number of shares to constitute the series and the
designations thereof;
c. the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any series, including the
preferences, if any, and the amounts thereof that the holders of any series
thereof shall be entitled to receive upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the corporation;
d. whether or not the shares of any series shall be
redeemable at the option of the corporation or the holders thereof or upon the
happening of any specified event, and, if redeemable, the redemption price or
prices (which may be payable in the form of cash, notes, securities or other
property) and the time or times at which, and the terms and conditions upon
which, such shares shall be redeemable and the manner of redemption;
e. whether or not the shares of a series shall be subject to
the operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares for retirement, and, if such retirement or sinking
fund or funds are to be established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
f. the dividend rate, whether dividends are payable in cash,
securities of the corporation or other property, the conditions upon which and
the times when such dividends are payable, the preference to or the relation to
the payment of dividends payable on any other class or classes or series of
stock, whether or not such dividends shall be cumulative or noncumulative and,
if cumulative, the date or dates from which such dividends shall accumulate;
g. whether or not the shares of any series, at the option of
the corporation or the holder thereof or upon the happening of any specified
event, shall be convertible into or exchangeable for the shares of any other
class or classes or of any other series of the same or any other class or
classes of stock, securities, including debt securities, or other property of
the corporation and the conversion price or prices or ratio or ratios or the
rate or rates at which such exchange may be made, with such adjustments, if any,
as shall be stated and expressed or provided for in such resolution or
resolutions; and
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h. such other special rights and protective provisions with
respect to any series as may to the Board of Directors seem advisable.
3. The shares of each series of the Preferred Stock may vary from
the shares of any other series thereof in any or all of the foregoing respects.
The Board of Directors may increase the number of shares of the Preferred Stock
designated for any existing series by a resolution adding to such class or
series authorized and unissued shares of the Preferred Stock not designated for
any other series. The Board of Directors may decrease the number of shares of
the Preferred Stock designated for any existing series by a resolution
subtracting from such series authorized and unissued shares of the Preferred
Stock designated for such existing series, and the shares so subtracted shall
become authorized, unissued and undesignated shares of the Preferred Stock.
B. Provisions Relating to Common Stock.
1. Notwithstanding any other provision of these Articles of
Incorporation to the contrary, in no event shall any Holder of Series A 10 3/8%
Convertible Pay-in-Kind Voting Preferred Stock have the right to receive, or to
elect to receive, Voting Common Stock if, as a result thereof, a "change of
control" would have been deemed to occur under the Indenture, and, in lieu
thereof, such Holder shall have the right to receive, or the right to elect to
receive, an equivalent number of shares of Nonvoting Common Stock.
2. Except as otherwise provided in this Article Four, all shares
of Voting Common Stock and Nonvoting Common Stock shall be identical and shall
entitle the holder thereof to the same rights and privileges.
3. Subject to the prior rights and preferences, if any, applicable
to shares of the Preferred Stock or any series thereof, the holders of
outstanding shares of Voting Common Stock and Nonvoting Common Stock shall be
entitled to receive dividends on the shares of Voting Common Stock and Nonvoting
Common Stock when, as, and if declared by the Board of Directors, out of funds
legally available for such purpose. Subject to the prior rights and preferences,
if any, applicable to shares of the Preferred Stock or any series thereof, all
holders of shares of Voting Common Stock and Nonvoting Common Stock shall share
ratably, in accordance with the numbers of shares held by each such holder, in
all dividends or distributions on such shares whether payable in cash, in
property, or in securities of the corporation. No such dividend or distribution
shall be declared, set aside for payment, or paid unless and until a ratable
dividend or distribution is simultaneously declared and paid on all shares of
Voting Common Stock and Nonvoting Common Stock outstanding, and any such
dividend or distribution shall be declared and paid in identical property,
except as set forth in the following sentence. All dividends or distributions
declared on shares of Voting Common Stock and Nonvoting Common Stock that are
payable in shares of Voting Common Stock or Nonvoting Common Stock shall be
declared on both classes of shares at the same rate; provided, however, that any
such dividend or distribution shall be payable in shares of the class of Voting
Common Stock or Nonvoting Common Stock held by the shareholder to whom the
dividend or distribution is payable. The corporation shall not, nor shall it
permit any of its Subsidiaries to, redeem or repurchase or otherwise acquire
shares of Voting Common Stock unless and until it simultaneously redeems,
repurchases, or otherwise acquires shares of Nonvoting Common Stock on a pro
rata basis, in accordance with the numbers of shares held by each holder
thereof.
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4. The corporation shall not in any manner subdivide (by stock
split, stock dividend, or otherwise), or combine (by reverse stock split or
otherwise) the outstanding shares of Voting Common Stock or Nonvoting Common
Stock unless the outstanding shares of the other class shall be proportionately
subdivided or combined. No reclassification or any other adjustment or
modification of the rights or preferences shall be effected (including without
limitation pursuant to a merger, consolidation, share exchange, or liquidation
involving the corporation) with respect to either the Voting Common Stock or the
Nonvoting Common Stock unless both the Voting Common Stock and Nonvoting Common
Stock are reclassified or the rights or preferences are adjusted or modified in
exactly the same manner and at the same time. In this regard, and without
limiting the generality of the foregoing, in the case of any consolidation or
merger of the corporation with or into any other entity (other than a merger or
consolidation which does not result in any reclassification, conversion,
exchange, or cancellation of the Voting Common Stock or the Nonvoting Common
Stock), or in case of any sale or transfer of all or substantially all the
assets of the corporation, share exchange or the reclassification of the Voting
Common Stock or the Nonvoting Common Stock into any other form of capital stock
of the corporation, whether in whole or in part, the holder of each share of the
other class, whether Voting Common Stock or Nonvoting Common Stock, as the case
may be, shall, after such consolidation, merger, sale, share exchange, or
transfer or reclassification, have the right to convert into the kind and amount
of shares of stock and other securities and property which such holder would
have been entitled to receive upon such consolidation, merger, sale, share
exchange or transfer or reclassification if such holder had held such Voting
Common Stock (or Nonvoting Common Stock, as the case may be) immediately prior
to such consolidation, merger, sale, share exchange, or transfer or
reclassification. Notwithstanding the prior sentence, to the extent that receipt
of such stock and other securities and property may cause a "change of control"
(as defined in the Indenture), holders of the Nonvoting Common Stock will
receive stock and/or other securities and property as nearly equivalent to that
received by the holders of Voting Common Stock as possible that will not result
in a change of control.
5. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the corporation, after distribution
in full of the preferential amounts, if any, to be distributed to the holders of
shares of the Preferred Stock or any series thereof, the holders of shares of
Voting Common Stock and Nonvoting Common Stock shall be entitled to share
ratably, in accordance with the number of shares held by each such holder, in
all of the assets of the corporation available for distribution to the holders
of shares of Voting Common Stock.
6. Subject to the voting rights, if any, applicable to shares of
the Preferred Stock or any series thereof, except as otherwise provided herein
or by law, the entire voting power of the corporation shall be vested in the
holders of shares of Voting Common Stock and each holder of shares of Voting
Common Stock shall be entitled to one vote for each share of Voting Common Stock
held of record by such holder; provided, however, that without the consent of
the holders of record of at least 51% of Nonvoting Common Stock at the time
outstanding, given in writing or by the vote at any regular or special meeting
of shareholders of the corporation, the corporation shall not:
a. amend, alter, modify, or repeal any provision of these
Articles of Incorporation or the bylaws of the corporation in any manner which
adversely affects the relative
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rights, preferences, qualifications, powers, limitations or restrictions of the
Nonvoting Common Stock, or amend, alter, modify, or repeal paragraph II.B.5; or
b. voluntarily effect an exchange or reclassification of
shares of Nonvoting Common Stock into shares of another class of capital stock
of the corporation.
II. Provisions Relating to Convertible Preferred Stock. The designations and
the powers, preferences, rights, qualifications, limitations, and restrictions
of the Convertible Preferred Stock are as follows:
A. Designation. There is hereby created out of the authorized and
unissued shares of Preferred Stock of the corporation (i) a series of Series A
10 3/8% Convertible Pay-in-Kind Voting Preferred Stock, par value $0.01 per
share (the "Series A Voting Preferred Stock"), with an initial liquidation
preference of $5.50 per share, consisting of no more than 3,500,000 shares, and
(ii) a series of Series B 10 3/8% Convertible Pay-in-Kind Nonvoting Preferred
Stock, par value $0.01 per share (the "Series B Nonvoting Preferred Stock" and
collectively with the Series A Voting Preferred Stock, the "Convertible
Preferred Stock"), with an initial liquidation preference of $5.50 per share,
consisting of no more than 9,500,000 shares, in each case having the
designations, preferences, limitations, and relative rights, including voting
rights, as follows in this Section II.
B. Rank. The Convertible Preferred Stock shall, with respect to
dividends and distributions upon the liquidation, winding-up, and dissolution of
the corporation, rank senior to all classes of Voting Common Stock and Nonvoting
Common Stock, and each other class of Capital Stock or class or series of
Preferred Stock hereafter created which does not expressly provide that it ranks
senior to, or on a parity with, the Convertible Preferred Stock as to dividends
and distributions upon the liquidation, winding-up, and dissolution of the
corporation ("Junior Stock"). The Convertible Preferred Stock shall, with
respect to dividends and distributions upon the liquidation, winding-up, and
dissolution of the corporation, rank on a parity with any class of Capital Stock
or series of Preferred Stock hereafter created which expressly provides that it
ranks on a parity with the Convertible Preferred Stock as to dividends and
distributions upon the liquidation, winding-up, and dissolution of the
corporation ("Parity Stock"); provided, however, that any such Parity Stock that
was not approved by the Holders in accordance with paragraph II.F.2.a shall be
deemed to be Junior Stock and not Parity Stock. The Convertible Preferred Stock
shall, with respect to dividends and distributions upon the liquidation,
winding-up, and dissolution of the corporation, rank junior to each class of
Capital Stock or series of Preferred Stock hereafter created which has been
approved by the Holders in accordance with paragraph II.F.2.b and which
expressly provides that it ranks senior to the Convertible Preferred Stock as to
dividends or distributions upon the liquidation, winding-up, and dissolution of
the corporation ("Senior Stock").
C. Dividends.
1. Beginning on the applicable Issue Date, the Holders of the
outstanding shares of Convertible Preferred Stock being issued on such Issue
Date shall be entitled to receive, when, as, and if declared by the Special
Committee, out of funds legally available therefor, cash dividends on each share
of Convertible Preferred Stock, at the rate (the "Dividend Rate") of 10 3/8% per
annum multiplied by the then-effective liquidation preference per share of the
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Convertible Preferred Stock. Additional dividends, at the Dividend Rate, shall
accrue in respect of, and compound on, any dividends which are in arrears. All
dividends shall be cumulative, whether or not earned or declared, from the Issue
Date and shall compound to the extent not paid on the next succeeding Dividend
Payment Date, and shall be payable quarterly in arrears on each Dividend Payment
Date, commencing on the first Dividend Payment Date after the applicable Issue
Date. At the option of the corporation as determined by the Special Committee,
any dividend payable on any Dividend Payment Date may be declared and paid
wholly or partially "in kind" in lieu of cash, by issuing whole shares of Series
B Nonvoting Preferred Stock on such Dividend Payment Date with an aggregate
liquidation preference in an amount equal to the aggregate cash dividend
cumulated and unpaid to such date (or any portion thereof) with cash paid in
lieu of issuing fractional shares. The amount of any dividends payable on any
Dividend Payment Date not declared or paid in full in cash or by the issuance of
shares of Series B Nonvoting Preferred Stock shall be added to the liquidation
preference of the Convertible Preferred Stock on such date. Each dividend shall
be payable to Holders of record as they appear on the stock books of the
corporation on the Dividend Record Date immediately preceding the related
Dividend Payment Date.
2. All dividends paid with respect to shares of the Convertible
Preferred Stock pursuant to paragraph II.C.1 shall be paid pro rata to the
Holders entitled thereto. The corporation shall not pay any dividend on the
Convertible Preferred Stock "in kind" pursuant to the provisions of paragraph
II.C.1 unless it declares a pro rata dividend in kind on all then outstanding
shares of Convertible Preferred Stock.
3. Dividends in arrears for any past Dividend Period (including
any dividends compounding thereon) and dividends in connection with any
conversion pursuant to paragraph II.E may be declared and paid at any time,
without reference to any regular Dividend Payment Date, pro rata to Holders of
record on such date, not more than forty-five (45) days prior to the payment
thereof, as may be fixed by the Special Committee.
4. No dividends in cash or other property (other than dividends
paid in the same class or series of stock) shall be declared by the Board of
Directors or paid or set apart for payment by the corporation on any Parity
Stock for any period, nor shall the corporation or any Subsidiary thereof effect
any redemption or repurchase of Parity Stock, or distribution thereon unless
full compounded, cumulative dividends, plus amounts equal to any amounts added
to the liquidation preference pursuant to paragraph II.C.1, have been or
contemporaneously are declared and paid in full in cash or "in kind" by issuing
shares of Series B Nonvoting Preferred Stock as determined by the Special
Committee as provided in paragraph II.C.1 on the Convertible Preferred Stock.
Notwithstanding the prior sentence, the corporation shall nevertheless have the
right to pay cash dividends, provided that all cash dividends declared upon
shares of the Convertible Preferred Stock and any other Parity Stock shall be
declared pro rata so that the amount of dividends declared and paid per share on
the Convertible Preferred Stock and such Parity Stock shall in all cases bear to
each other the same ratio that accrued dividends per share on the Convertible
Preferred Stock and such Parity Stock bear to each other.
5. Holders of shares of the Convertible Preferred Stock shall be
entitled to receive the dividends provided for in paragraph II.C.1 in preference
to and in priority over any dividends upon any of the Junior Stock, or
redemption or repurchase of any Junior Stock by the
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corporation or any Subsidiary, and following payment of any unpaid dividends on
any Senior Stock.
6. Dividends payable on the Convertible Preferred Stock shall be
computed on the basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in the period for which payable.
D. Liquidation Preference.
1. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the corporation, the Holders of
shares of Convertible Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the corporation available for distribution to its
shareholders an amount in cash equal to the then-existing liquidation preference
for each share outstanding, plus, without duplication, an amount in cash equal
to accumulated and unpaid dividends thereon (including any compounded dividends)
to the date fixed for liquidation, dissolution, or winding up (including an
amount equal to a prorated dividend for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution, or winding up)
before any payment shall be made or any assets distributed to the holders of any
of Junior Stock including, without limitation, the corporation's Aggregate
Common Stock. Except as provided in the preceding sentence, Holders of
Convertible Preferred Stock shall not be entitled to any distribution in the
event of any liquidation, dissolution, or winding up of the affairs of the
corporation. If the assets of the corporation are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding shares of the
Convertible Preferred Stock and all Parity Stock, then the holders of all such
shares shall share equally and ratably in such distribution of assets in
proportion to the full liquidation preference, including, without duplication,
all accrued and unpaid dividends, to which each is entitled.
2. For the purposes of this paragraph II.D, neither the sale,
conveyance, exchange, or transfer (for cash, shares of stock, securities, or
other consideration) of all or substantially all of the property or assets of
the corporation nor the consolidation or merger of the corporation with or into
one or more entities shall be deemed to be a liquidation, dissolution, or
winding up of the affairs of the corporation.
E. Conversion.
1. Optional Conversion.
a. The shares of Series A Voting Preferred Stock shall be
convertible without the payment of any additional consideration, in whole or in
part, at any time and from time to time at the option of the Holder, into shares
of fully paid and non-assessable Voting Common Stock. On any such conversion,
Holders of Series A Voting Preferred Stock shall receive (subject to adjustment
as provided in paragraph II.E.3) one (1) share of Voting Common Stock for each
$5.50 (as adjusted, the "Series A Conversion Price") of liquidation preference
(including amounts added to the liquidation preference in accordance with
paragraph II.D.1) of Series A Voting Preferred Stock converted; provided,
however, that in no event shall any Holder of Series A Voting Preferred Stock
have the right to receive, or to elect to receive, Voting Common Stock if, as a
result thereof, a "change of control" would have been deemed to
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occur under the Indenture, and, in lieu thereof, such Holder shall have the
right to receive an equivalent number of shares of Nonvoting Common Stock.
b. The shares of Series A Voting Preferred Stock shall be
convertible without the payment of any additional consideration, in whole or in
part, at any time and from time to time at the option of the Holder, into shares
of fully paid and non-assessable Series B Nonvoting Preferred Stock. On any such
conversion Holders of Series A Voting Preferred Stock shall receive that number
of shares of Series B Nonvoting Preferred Stock equal to the Series A Voting
Preferred Stock liquidation preference at such time divided by the
then-effective Series A Conversion Price.
c. The shares of Series B Nonvoting Preferred Stock shall be
convertible without the payment of any additional consideration, in whole or in
part, at any time and from time to time at the option of the Holder, into shares
of fully paid and non-assessable Nonvoting Common Stock. On any such conversion,
Holders of Series B Nonvoting Preferred Stock shall receive (subject to
adjustment as provided in paragraph II.E.3) one (1) share of Nonvoting Common
Stock for each $5.50 (as adjusted, the "Series B Conversion Price" and, together
with the Series A Conversion Price, the "Conversion Price") of liquidation
preference (including amounts added to the liquidation preference in accordance
with paragraph II.D.1) of Series B Nonvoting Preferred Stock converted.
2. Conversion Procedures.
a. The corporation will not issue any fractional shares of Voting
Common Stock or Nonvoting Common Stock upon a conversion pursuant to this
paragraph II.E, but the Holder shall be entitled to be paid out of the assets of
the corporation available for distribution to its shareholders an amount in cash
equal to the Market Price of any fractional shares of Voting Common Stock or
Nonvoting Common Stock, as the case may be, otherwise issuable upon conversion,
plus, without duplication, an amount in cash equal to accumulated and unpaid
dividends thereon (including any compounded dividends) to the date of the
conversion.
b. At the time of a conversion pursuant to this paragraph II.E,
the Holder of Convertible Preferred Stock shall deliver to the office of the
corporation or any transfer agent for the corporation the certificate or
certificates representing the shares of Convertible Preferred Stock to be
converted, duly endorsed in blank or accompanied by duly executed proper
instruments of transfer and written notice to the corporation stating that such
Holder elects to convert such share or shares and stating the name and addresses
in which each certificate for shares of Voting Common Stock or Nonvoting Common
Stock, as the case may be, issued upon such conversion is to be issued;
provided, however, that if the Holder has received a redemption notice under
paragraph II.H.1, such Holder must notify the corporation within 10 Business
Days after its receipt of the redemption notice in order for such Holder to
convert in whole or part its shares of Convertible Preferred Stock into shares
of Aggregate Common Stock prior to the redemption date. Conversion shall be
deemed to have been effected at the close of business on the date when such
delivery is made to the corporation or the transfer agent of the shares to be
converted, and the Holder of shares of Convertible Preferred Stock subject to
such conversion shall be deemed to be the Holder of record of the number of
shares of Voting Common Stock or Nonvoting Common Stock, as the case may be,
issuable upon such conversion at such time.
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3. Antidilution Provisions. The Conversion Price from time to time
in effect and the number of shares of Voting Common Stock or Nonvoting Common
Stock, as the case may be, issuable upon conversion of Convertible Preferred
Stock shall be subject to adjustments from time to time after the Issue Date of
such Convertible Preferred Stock as hereinafter set forth in this paragraph
II.E.3.
a. Common Stock Splits. Upon any subdivision by the corporation
on or after the Issue Date of all of its outstanding shares of Aggregate Common
Stock into a greater number of shares or upon any issuance by the corporation on
or after such date of a greater number of shares of Aggregate Common Stock in a
pro rata exchange for all of its outstanding shares of Aggregate Common Stock,
then in each case from and after the record date for such subdivision or
exchange the number of shares of Voting Common Stock or Nonvoting Common Stock,
as the case may be, issuable upon the conversion of shares of Convertible
Preferred Stock shall be increased in proportion to such increase in the number
of outstanding shares of Aggregate Common Stock and the Conversion Price shall
be correspondingly decreased. Upon any pro rata reduction by the corporation on
or after the Issue Date of its outstanding shares of Aggregate Common Stock as a
whole or upon any issuance by the corporation after such date of a lesser number
of shares of Aggregate Common Stock in a pro rata exchange for all of its
outstanding shares of Aggregate Common Stock, then in each case from and after
the record date for such reduction or exchange the number of shares of Voting
Common Stock or Nonvoting Common Stock, as the case may be, issuable upon the
conversion of shares of Convertible Preferred Stock shall be decreased in
proportion to such reduction in the number of outstanding shares of Aggregate
Common Stock and the Conversion Price shall be correspondingly increased.
b. Common Stock Dividends. Upon any declaration and payment by
the corporation on or after the Issue Date of a dividend upon Aggregate Common
Stock payable in shares of either class of Aggregate Common Stock, then in each
case from and after the record date for the payment of such stock dividend, the
number of shares of Voting Common Stock or Nonvoting Common Stock, as the case
may be, issuable upon the conversion of shares of Convertible Preferred Stock
shall be increased in proportion to the increase in the number of outstanding
shares of Aggregate Common Stock through such stock dividend and the Conversion
Price shall be correspondingly decreased.
c. Other Issues. Upon any issuance by the corporation of shares
of Aggregate Common Stock on or after the Issue Date (other than issuances of
stock requiring adjustments hereunder pursuant to the immediately preceding
paragraphs II.E.3.a and II.E.3.b for a consideration lower than the Market Price
per share of stock in effect immediately prior to such issuance, the Conversion
Price then in effect shall be reduced to equal the following amount:
[(D x E)+ F]
G x ------------
C x E
where C equals the number of shares of Aggregate Common Stock to be outstanding
immediately after such additional issuance, D equals the number of shares of
Aggregate Common Stock outstanding immediately prior to the issue of such
additional Aggregate Common Stock, E equals the Market Price per share of
Aggregate Common Stock in effect immediately prior to the issue
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of such additional Aggregate Common Stock, F equals the aggregate consideration
(before deducting underwriting discounts, commissions, and other expenses)
received or to be received by the corporation in connection with the issuance of
such additional Aggregate Common Stock, and G equals the Conversion Price which
would have been in effect immediately prior to such issuance had all previous
adjustments (if any) under this paragraph II.E.3.c been made. Upon any such
reduction in the Conversion Price, the number of shares of Voting Common Stock
or Nonvoting Common Stock, as the case may be, issuable upon the conversion of
shares of Convertible Preferred Stock shall be correspondingly increased. The
provisions of this paragraph II.E.3.c shall not be applicable to any issuance of
Aggregate Common Stock upon actual exercise or actual conversion of any option,
warrant, right, or other security convertible into or exercisable for Aggregate
Common Stock if the Conversion Price was fully and properly adjusted pursuant to
the immediately following paragraph II.E.3.d at the time such option, warrant,
right, or other security was issued.
d. Common Stock Options; Subscription Rights; Convertible
Securities. Upon any issuance by the corporation on or after the Issue Date of
options, warrants, or rights to subscribe for shares of Aggregate Common Stock
or of any securities convertible into or exchangeable for shares of Aggregate
Common Stock or of any similar securities for a consideration per share other
than the Market Price in effect immediately prior to the issuance of such
options, warrants, rights, or securities, the Conversion Price shall be reduced
(and the number of shares of Voting Common Stock or Nonvoting Common Stock, as
the case may be, issuable upon the conversion of shares of Convertible Preferred
Stock shall be appropriately increased), by making computations in accordance
with paragraph (3)(c) of this Section II (E); provided, however, that:
(i) The maximum number of shares of Aggregate Common Stock
deliverable under any such option, warrant, or right shall be considered to have
been delivered at the time such option, warrant, or right was issued, for a
consideration equal to the minimum purchase price per share of Aggregate Common
Stock provided for in such option, warrant, or right, plus the consideration, if
any, received by the corporation for such option, warrant, or right (before
deducting underwriting discounts, commissions, and other expenses);
(ii) The aggregate maximum number of shares of Aggregate
Common Stock deliverable upon conversion of or exchange for any such securities
shall be considered to have been delivered at the time of issuance of such
securities, for a consideration equal to the consideration received by the
corporation for such securities (before deducting underwriting discounts,
commissions, and other expenses) plus the minimum consideration (other than such
securities) to be received by the corporation upon the exchange or conversion of
such securities;
(iii) If the purchase or conversion price provided for in
any rights, options, or warrants referred to above, the additional
consideration, if any, payable upon the conversion or exchange of convertible
securities referred to above, or the rate at which any options, warrants,
rights, or convertible securities referred to above are convertible into or
exchangeable for shares of Aggregate Common Stock shall change (other than under
or by reason of provisions designed to protect against dilution), the Conversion
Price (and the number of shares of Voting Common Stock or Nonvoting Common
Stock, as the case may be, issuable upon the conversion of shares of Convertible
Preferred Stock) in effect at the time of such event shall
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be readjusted to the Conversion Price (and the number of shares of Voting Common
Stock or Nonvoting Common Stock, as the case may be, issuable upon the
conversion of shares of Convertible Preferred Stock) which would have been in
effect at such time had such rights, options, warrants, or convertible
securities still outstanding provided for such new purchase or conversion price,
additional consideration, or conversion rate, as the case may be, at the time
initially granted, issued, or sold. If the purchase or conversion price provided
for in any such right, option, or warrant referred to above, the additional
consideration, if any, payable upon the conversion or exchange of convertible
securities referred to above, or the rate at which any convertible securities
referred to above are convertible into or exchangeable for shares of Aggregate
Common Stock shall be changed at any time by reason of provisions designed to
protect against dilution, then when shares of Aggregate Common Stock are
delivered upon the exercise of any such right, option, or warrant or upon
conversion or exchange of any such convertible security, the Conversion Price
(and the number of shares of Voting Common Stock or Nonvoting Common Stock, as
the case may be, issuable upon the conversion of shares of Convertible Preferred
Stock) then in effect hereunder shall be readjusted to such amount as would have
been obtained had such right, option, warrant, or convertible security never
been issued as to such shares of Aggregate Common Stock and had the adjustments
required hereunder been made at the time of the issuance of the shares of
Aggregate Common Stock delivered as aforesaid; and
(iv) On the expiration of any such options, warrants, or
rights, or at the termination of any such rights to convert or exchange, the
Conversion Price (and the number of shares of Voting Common Stock or Nonvoting
Common Stock, as the case may be, issuable upon the conversion of shares of
Convertible Preferred Stock) then in effect shall be readjusted to the
Conversion Price (and the number of shares of Voting Common Stock or Nonvoting
Common Stock, as the case may be, issuable upon the conversion of shares of
Convertible Preferred Stock) which would have been in effect had the adjustments
(and readjustments) made upon the issuance of such expired or terminated
options, warrants, rights, or securities (or upon the occurrence of any event
with respect thereto specified in the immediately preceding paragraph
II.E.3.d(iii)) been made without reference to the number of shares of Aggregate
Common Stock subject to such terminated or expired options, warrants, rights, or
securities. Notwithstanding the prior sentence, the Holder shall not be required
to surrender or adjust any shares of Voting Common Stock or Nonvoting Common
Stock, as the case may be, theretofore received by the Holder upon conversion of
shares of Convertible Preferred Stock.
e. Special Dividends; Purchase Rights.
(i) If at any time on or after the Issue Date the
corporation shall distribute to all holders of shares of Aggregate Common Stock
of any class evidences of its indebtedness or assets (excluding any regular
periodic cash dividend) or a distribution in partial liquidation, each payable
otherwise than in shares of Aggregate Common Stock or in securities to which the
provisions of the immediately following paragraph II.E.3.e(ii) are applicable,
the corporation shall pay to the Holder of Convertible Preferred Stock, upon the
conversion thereof at any time on or after the payment of such dividend or
distribution, the securities and other property (including cash) which such
Holder would have received (together with all subsequent dividends and
distributions thereon) if such Holder had converted such Convertible Preferred
Stock on the record date fixed in connection with such dividend or distribution,
and the corporation shall take whatever steps are necessary or appropriate to
keep in reserve at all times any securities and other properties which are
required to fulfill such obligations of the
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corporation. Notwithstanding the foregoing, the rights of the Holder under this
paragraph II.E.3.e(i) upon the corporation's declaration of a dividend or
distribution in partial liquidation payable only in securities convertible into
shares of Aggregate Common Stock may be exercised only in lieu of any adjustment
(in this paragraph II.E.3.e(i)) called a "subparagraph (d) adjustment") because
of such dividend or distribution called for under paragraph II.E.3.d, and upon
exercise hereof such Holder must elect either such subparagraph (d) adjustment
or the rights and benefits provided for in this paragraph II.E.3.e(i)). For the
purposes of determining the Conversion Price from time to time in effect and the
number of shares from time to time subject hereto prior to the conversion of
shares of Convertible Preferred Stock, it shall be assumed that the Holder
hereof will so elect subparagraph (d) adjustments, but upon any election of the
rights and benefits provided for in this paragraph II.E.3.e(i) made at the time
of exercise hereof the Conversion Price then in effect (and the number of
outstanding shares of Voting Common Stock or Nonvoting Common Stock, as the case
may be, purchasable upon such conversion) shall be redetermined to equal the
amounts which would have been in effect had such subparagraph (d) adjustments
never been made. Notwithstanding the other provisions of this paragraph
II.E.3.e(i), in no event shall any Holder have the right to receive, or to elect
to receive, Voting Common Stock pursuant to this subsection if, as a result
thereof, a "change of control" could be deemed to occur under the Indenture,
and, in lieu thereof, the Holder shall have the right to receive, or the right
to elect to receive, an equivalent number of shares of Nonvoting Common Stock.
(ii) If at any time on or after the Issue Date the
corporation shall grant, issue, or sell any options or rights to purchase stock,
warrants, securities, or other property pro rata to the holders of Aggregate
Common Stock of all classes ("Purchase Rights"), then each Holder shall be
entitled (but not obligated) to acquire, in lieu of any subparagraph (d)
adjustment and upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if it had held the number
of shares of Voting Common Stock or Nonvoting Common Stock, as the case may be,
issuable upon conversion of the Convertible Preferred Stock immediately prior to
the time or times at which the corporation granted, issued, or sold such
Purchase Rights.
f. Additional Adjustments.
(i) If at any time or from time to time conditions arise by
reason of action taken by the corporation which are not adequately covered by
the provisions of this paragraph II.E.3, and which might materially and
adversely affect the exercise rights of the Holders of Convertible Preferred
Stock, upon the request of at least a majority in interest of the Holders
(determined as a single series), the corporation shall appoint at its sole
discretion a firm of independent certified public accountants of recognized
national standing (which may be the regular auditors of the corporation), which
shall give their opinion upon the adjustment, if any, of the number of shares
issuable upon the conversion of the Convertible Preferred Stock, on a basis
consistent with the standards established in the other provisions of this
paragraph II.E.3 of and assuming all other adjustments required pursuant to this
paragraph II.E.3 have been made, necessary in order to preserve without
diminution the rights of the Holders of the Convertible Preferred Stock. Upon
receipt of such opinion, the Board of Directors shall forthwith make the
adjustments described therein.
(ii) Notwithstanding any other provision hereof, any
antidilution adjustments made pursuant to the terms hereof or of the Warrants
and the
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Subordinated Notes shall be deemed to be made simultaneously, the intention
being to avoid any iterative calculations.
g. Effect of Reorganization and Asset Sales. If any capital
reorganization of the corporation, reclassification of the Aggregate Common
Stock of the corporation, statutory exchange, consolidation, or merger of the
corporation with another Person, or sale of all or substantially all of the
corporation's assets to another Person shall be effected in such a way that
holders of Aggregate Common Stock shall be entitled to receive stock,
securities, or assets (including cash) of the corporation or another Person with
respect to or in exchange for Aggregate Common Stock (each such transaction
being hereinafter referred to as a "Transaction"), then, as a condition of the
consummation of each Transaction, lawful and adequate provisions shall then be
made so that each Holder, upon the conversion of the Convertible Preferred Stock
at any time after the consummation of such Transaction, shall be entitled to
receive, and such Convertible Preferred Stock shall thereafter represent the
right to receive, in lieu of Voting Common Stock or Nonvoting Common Stock, as
the case may be, issuable upon conversion thereof but otherwise upon and subject
to all terms and conditions hereof, the cash, securities, or other property to
which such Holder would have been entitled upon the consummation of such
Transaction if such Holder had converted such Convertible Preferred Stock
immediately prior thereto (subject to adjustments from and after the
consummation date of such Transaction as nearly equivalent as possible to the
adjustments provided for in this paragraph II.E.3). The corporation shall not
effect any Transaction unless prior to the consummation thereof each Person
(other than the corporation) which may be required to deliver any securities or
other property upon the conversion of the Convertible Preferred Stock as
provided herein shall assume, by written instrument delivered to each registered
Holder of the Convertible Preferred Stock in form and substance reasonably
satisfactory to at least a majority in interest of the Holders, the obligation
to continue to honor the terms of the Convertible Preferred Stock and to deliver
to such Holders such securities or other property to which, in accordance with
the foregoing provisions, such Holders may be entitled, and such Person shall
have similarly delivered to each registered Holder an opinion of counsel for
such Person, in substance and from such counsel as is acceptable to the Holders,
stating that the Convertible Preferred Stock shall thereafter continue in full
force and effect and shall be enforceable against such Person in accordance with
the terms hereof and thereof.
h. Notice of Adjustment or Substitution. On the happening of
an event requiring an adjustment of the Conversion Price and upon each change in
the number of shares of Voting Common Stock or Nonvoting Common Stock, as the
case may be, issuable upon the conversion of the Convertible Preferred Stock,
and in the event of any change in the rights of the Holder of Convertible
Preferred Stock by reason of other events herein set forth, the corporation
shall as soon as practicable give written notice (the "Notice of Adjustment") to
the registered Holder(s) of Convertible Preferred Stock: (i) describing the
event; (ii) stating the adjusted Conversion Price and the number of shares of
Voting Common Stock or Nonvoting Common Stock, as the case may be, issuable
based upon the difference between the Conversion Price before and after such
adjustment; and (iii) stating how such adjustment of Conversion Price or number
of shares of Voting Common Stock or Nonvoting Common Stock, as the case may be,
was calculated and the facts on which the calculation is based.
i. Accountant's Opinion. Upon each adjustment of the
Conversion Price and upon each change in the number of shares of Voting Common
Stock or Nonvoting
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Common Stock, as the case may be, issuable upon the conversion of the
Convertible Preferred Stock, and in the event of any change in the rights of the
Holder of Convertible Preferred Stock by reason of other events herein set
forth, then and in each such case, upon the reasonable written request of at
least 50% in interest of the registered Holders of Convertible Preferred Stock,
determined as a single series, given to the corporation within thirty (30) days
after the corporation has given the Notice of Adjustment, the corporation will
promptly obtain an opinion of independent certified public accountants selected
by the corporation and reasonably satisfactory to such Holder(s), stating the
adjusted Conversion Price and the new number of shares of Voting Common Stock or
Nonvoting Common Stock, as the case may be, so issuable, or specifying the other
shares of stock, securities, or assets and the amount thereof receivable as a
result of such adjustment or change in rights, and setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based. The corporation will promptly mail a copy of such accountant's opinion to
each registered Holder of Convertible Preferred Stock. The costs of the
accountant's opinion shall be borne (i) by the corporation, if the accountant's
opinion reflects any change to the adjusted Conversion Price or the number of
shares of Voting Common Stock or Nonvoting Common Stock, as the case may be, so
issuable set forth in the Notice of Adjustment, or (ii) by the Holders, if the
accountant's opinion reflects no change to the adjusted Conversion Price or the
number of shares of Voting Common Stock or Nonvoting Common Stock, as the case
may be, so issuable set forth in the Notice of Adjustment. Any dispute or
controversy in respect of the accountant's opinion shall be submitted to final
and binding arbitration in Dallas, Texas pursuant to the commercial arbitration
rules of the American Arbitration Association. All costs and expenses (including
reasonable attorneys' fees) incurred by the corporation and the Holders in
connection with any such arbitration proceeding shall be paid by the
non-prevailing party (as determined by the arbitrator(s)).
j. Adjustment of Less Than $.01. The corporation shall not
be required to give any Notice of Adjustment of the Conversion Price in
accordance with paragraph II.E.3.h if the amount of such adjustment shall be
less than $.01, but in such case any such adjustment shall be carried forward
and notice thereof shall be given at the time of and together with the next
subsequent adjustment, which, together with any adjustment so carried forward,
shall amount to not less than $.01 per share; provided, however, that notice of
each such adjustment of the Conversion Price shall be given not later than three
years from the date such adjustment would have been required to be made except
for the provisions of this paragraph II.E.3.j.
k. Treasury Shares. The number of shares of Aggregate Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the corporation or any of its Subsidiaries, but the
disposition of any such shares shall be considered an issue or sale of Aggregate
Common Stock for the purposes of this paragraph II.E.
l. Adjustment Exceptions. Anything in this paragraph II.E to
the contrary notwithstanding, no adjustment of the Conversion Price or the
number of shares of Voting Common Stock or Nonvoting Common Stock, as the case
may be, issuable upon the conversion of the Convertible Preferred Stock shall be
made upon (i) the issuance of any shares of Aggregate Common Stock upon the
exercise of any of the Warrants, exchange of the Subordinated Notes, conversion
of any Convertible Preferred Stock, or the issuance of rights to acquire shares
of Aggregate Common Stock under any of the foregoing, (ii) the issuance of any
shares of Aggregate Common Stock or other securities pursuant to any Plans or
(iii) the issuance
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of shares of Aggregate Common Stock or rights to acquire Aggregate Common Stock
in connection with any redemption pursuant to Article 3 of either of the
Subordinated Notes or in connection with any redemption of Convertible Preferred
Stock.
F. Voting Rights.
1. a. The Holders of shares of Series A Voting Preferred Stock
shall be entitled to vote with the holders of Voting Common Stock as a single
class on all matters requiring shareholder approval. Each share of the Series A
Voting Preferred Stock shall have a number of votes equal to the number of
shares of Common Stock into which such share of Series A Voting Preferred Stock
is convertible pursuant to paragraph II.E.1 hereof at the time the vote is
taken.
b. The Holders of Series B Nonvoting Preferred Stock, except
as required under Texas law or as set forth in paragraphs II.F.2, II.F.2 and
II.F.4, shall not be entitled or permitted to vote on any matter required or
permitted to be voted upon by the shareholders of the corporation.
2. a. In addition to the voting right of Series A Voting
Preferred Stock set forth in paragraph II.F.1.a, so long as any shares of the
Convertible Preferred Stock are outstanding, the corporation shall not authorize
any class of Parity Stock without the affirmative vote or consent of Holders of
at least a majority of the then outstanding shares of Convertible Preferred
Stock, voting or consenting, as the case may be, as one class, given in person
or by proxy, either in writing or by resolution adopted at an annual or special
meeting.
b. In addition to the voting right of Series A Voting
Preferred Stock set forth in paragraph II.F.1.a, so long as any shares of the
Convertible Preferred Stock are outstanding, the corporation shall not authorize
any class of Senior Stock, without the affirmative vote or consent of Holders of
at least a majority of the outstanding shares of Convertible Preferred Stock,
voting or consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or special
meeting.
c. In addition to the voting right of Series A Voting
Preferred Stock set forth in paragraph II.F.1.a, so long as any shares of
Convertible Preferred Stock are outstanding, the corporation shall not amend
these Articles of Incorporation so as to affect adversely the specified
designations, preferences, limitations and relative rights, including voting
rights, of the shares of Convertible Preferred Stock or to authorize the
issuance of any additional shares of Convertible Preferred Stock (other than
upon exchange of the Subordinated Notes or as dividends thereon) without the
affirmative vote or consent of Holders of at least a majority of the issued and
outstanding shares of Convertible Preferred Stock, voting or consenting, as the
case may be, as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting; provided, however that the
foregoing, with respect to provisions of these Articles of Incorporation that
affect adversely only the Series A Voting Preferred Stock or the Series B
Nonvoting Preferred Stock, as the case may be, shall only require the vote or
consent of such series so affected.
d. Except as set forth in paragraphs II.F.2.a, II.F.2.b and
II.F.2.c, (i) the creation, authorization, or issuance of any shares of any
Junior Stock, Parity Stock, or
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Senior Stock, including the designation thereof within the existing series of
Convertible Preferred Stock or (ii) the increase or decrease in the amount of
authorized Capital Stock of any class, including Preferred Stock, shall not
require the consent of Holders of Convertible Preferred Stock.
3. a. If so long as the Initial Investors or their Affiliates own
at least 50% of the aggregate number of shares of Convertible Preferred Stock
outstanding, in the event (i) the corporation fails to convert all of the then
outstanding shares of Convertible Preferred Stock under the conversion
provisions of paragraph II.E.1 (after notice has been given), (ii) the
corporation fails to purchase shares of Convertible Preferred Stock pursuant to
paragraph II.H.2, or (iii) the corporation violates the covenants set forth in
paragraph II.I in any material manner (each, a "Voting Rights Triggering
Event"), then the number of directors constituting the Board of Directors shall
be adjusted by the number, if any, necessary to permit the Holders of
Convertible Preferred Stock, voting as a single class, to elect two directors of
the Board of Directors. Holders of a majority of the issued and outstanding
Convertible Preferred Stock, voting as one class, shall for the periods set
forth in paragraph II.F.3.b have the exclusive right to elect two directors of
the Board of Directors at a meeting therefor called upon occurrence of such
Voting Rights Triggering Event and at every subsequent meeting at which the
terms of office of the directors so elected expire. The number of directors
elected by the Holders of Convertible Preferred Stock shall be reduced by the
number of directors, if any, elected to the Board of Directors by the Holders or
their Affiliates under the terms of the Subordinated Notes.
b. The right of Holders of Convertible Preferred Stock to
elect members of the Board of Directors as set forth in paragraph II.F.3.a shall
continue until such time as the failure, breach, or default giving rise to such
Voting Rights Triggering Event is remedied or is waived by Holders of at least a
majority of the shares of Convertible Preferred Stock then outstanding and
entitled to vote thereon, at which time (i) the special right of Holders of
Convertible Preferred Stock to vote for the election of directors and (ii) the
term of office of the directors elected by Holders of Convertible Preferred
Stock shall terminate. At any time after voting power to elect directors shall
have become vested and be continuing in Holders of Convertible Preferred Stock
pursuant to paragraph II.F.3.a, or if vacancies shall exist in the offices of
directors elected by Holders of Convertible Preferred Stock, a proper officer of
the corporation may, and upon the written request of the Holders of record of at
least twenty-five percent (25%) of the shares of Convertible Preferred Stock
then outstanding addressed to the secretary of the corporation shall, call a
special meeting of the Holders of Convertible Preferred Stock for the purpose of
electing the directors which such Holders are entitled to elect. If such meeting
shall not be called by a proper officer of the corporation within twenty (20)
Business Days after personal service of said written request upon the secretary
of the corporation, or within twenty (20) Business Days after mailing the same
within the United States by certified mail, addressed to the secretary of the
corporation at its principal executive offices, then (A) the Holders of record
of at least twenty-five percent (25%) of the outstanding shares of Convertible
Preferred Stock may designate in writing one of their number to call such
meeting at the expense of the corporation, and such meeting may be called by the
Person so designated upon the notice required for the annual meetings of
shareholders of the corporation and shall be held at the place designated in
such notice, or (B) the Holders of record of at least a majority of the
outstanding shares of Convertible Preferred Stock may elect such members to the
Board of Directors without a meeting, without prior notice, and without a vote,
if such Holders sign a consent or consents in writing electing such members to
the Board of Directors. Any Holder of Convertible Preferred
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Stock so designated shall have, and the corporation shall provide, access to
lists of shareholders to be called pursuant to the provisions hereof.
c. At any meeting held for the purpose of electing directors
at which the Holders of Convertible Preferred Stock shall have the right to
elect directors as aforesaid, the presence in person or by proxy of the Holders
of at least a majority of the outstanding shares of Convertible Preferred Stock
shall be required to constitute a quorum of such Convertible Preferred Stock.
4. In any case in which the Holders of Convertible Preferred Stock
shall be entitled to vote pursuant to this paragraph II.F (except as provided in
paragraph II.F.1.a) or pursuant to Texas law, each Holder of Convertible
Preferred Stock entitled to vote with respect to such matter shall be entitled
to one vote for each share of Convertible Preferred Stock held. The right of
Holders of Convertible Preferred Stock to elect directors pursuant to this
Section II (F) shall be in addition to, and not in substitution for or
diminution of, the rights of the Holder and its assigns or Affiliates to appoint
members of the Board of Directors under the terms of the Purchase Agreement.
G. Reissuance of Convertible Preferred Stock. Shares of Convertible
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed, shall (upon compliance with any applicable
provisions of the laws of Texas) have the status of authorized and unissued
shares of Preferred Stock undesignated as to series and may be redesignated and
reissued as part of any series of Preferred Stock; provided, however, that any
issuance of such shares as Convertible Preferred Stock must be in compliance
with the terms hereof.
H. Redemption.
1. Redemption at the Option of the Corporation. At any time after
[___________], 2002, to the extent the corporation shall have funds legally
available for such payment, the corporation may, at its option as determined by
the Special Committee and upon at least 10 Business Days prior written notice to
Holders, redeem shares of Convertible Preferred Stock in whole or in part, at a
redemption price per share in cash equal to 100% of the then liquidation
preference of such shares, plus (without duplication) accrued and unpaid cash
dividends thereon to the date fixed for redemption, without interest.
2. Redemption in the Event of a Change of Control. In the event of
a Change of Control, the corporation shall, to the extent it shall have funds
legally available for such payment, offer to redeem for cash all of the shares
of Convertible Preferred Stock then outstanding, and shall redeem the shares of
Convertible Preferred Stock of any Holder of such shares that shall consent to
such redemption upon a date no later than 30 Business Days following the Change
in Control, at a redemption price per share equal to 100% of the then
liquidation preference of such shares, in cash, plus (without duplication)
accrued and unpaid cash dividends thereon to the date fixed for redemption,
without interest.
3. Failure to Redeem. If the corporation is unable or shall fail
to discharge its obligation to redeem all outstanding shares of Convertible
Preferred Stock pursuant to paragraph II.H.2 (a "Mandatory Redemption
Obligation"), such Mandatory Redemption
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Obligation shall be discharged as soon as the corporation is able to discharge
such Mandatory Redemption Obligation. If and so long as any Mandatory Redemption
Obligation with respect to the Convertible Preferred Stock shall not be fully
discharged, neither the corporation nor any Subsidiary thereof shall (a)
directly or indirectly, redeem, purchase, or otherwise acquire any Parity Stock
or discharge any mandatory or optional redemption, sinking fund, or other
similar obligation in respect of any Parity Stock (except in connection with a
redemption, sinking fund, or other similar obligation to be satisfied pro rata
with the Convertible Preferred Stock) or (b) declare or make any dividend or
distribution on any Junior Stock, or, directly or indirectly, discharge any
mandatory or optional redemption, sinking fund, or other similar obligation in
respect of the Junior Stock.
4. Procedure for Redemption.
a. In the event that fewer than all the outstanding shares
of Convertible Preferred Stock are to be redeemed pursuant to paragraph II.H.1,
the number of shares to be redeemed shall be determined by the Board of
Directors and the shares so redeemed shall be selected pro rata (with any
fractional shares being rounded to the nearest whole share) according to the
number of whole shares held by each holder of Convertible Preferred Stock.
b. In the event the corporation shall redeem shares of
Convertible Preferred Stock pursuant to paragraph II.H.1, notice of such
redemption (the "Redemption Notice") shall be given by express delivery service
sent not more than 75 Business Days nor less than 40 Business Days prior to the
redemption date, to each Holder of record of the shares of Convertible Preferred
Stock to be redeemed at such Holder's address as the same appears on the stock
register of the corporation; provided, however, that neither the failure to give
the Redemption Notice nor any defect therein shall affect the validity of the
giving of notice for the redemption of any share of Convertible Preferred Stock
to be redeemed except as to the Holder to whom the corporation has failed to
give the Redemption Notice or except as to the Holder whose Redemption Notice
was defective. Each Redemption Notice shall state: (i) the redemption date; (ii)
the number of shares of Convertible Preferred Stock to be redeemed and, if fewer
than all the shares of Convertible Preferred Stock held by such Holder are to be
redeemed, the number of such shares to be redeemed from such Holder; (iii)
customary provisions regarding the surrender of certificates; (iv) the
redemption price; (v) the place or places where certificates for such shares are
to be surrendered for payment of the redemption price; and (vi) that dividends
on the shares to be redeemed will cease to accrue on such redemption date.
c. In the case of any redemption pursuant to paragraph
II.H.1, and if the Redemption Notice has been properly provided in accordance
with paragraph II.H.4.b, from and after the applicable redemption date (unless
the corporation shall default in providing money necessary for payment of the
redemption price for the shares of Convertible Preferred Stock called for
redemption), dividends on the shares of Convertible Preferred Stock so called
for redemption shall cease to accrue and all rights of the Holders thereof as
shareholders of the corporation (except the right to receive the redemption
price from the corporation) shall cease. Upon surrender in accordance with any
such redemption notice of the certificates for any shares of Convertible
Preferred Stock so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such shares
of Convertible Preferred Stock shall be redeemed by the corporation at the
redemption price specified herein and in the Redemption Notice. If fewer than
all the shares of Convertible Preferred Stock represented
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by any such certificate are redeemed, the corporation shall issue a new
certificate representing the unredeemed shares of Convertible Preferred Stock
without cost to the Holder thereof.
d. In the case of a redemption pursuant to paragraph (2) of
this Section II (H), notice of such redemption shall be given by express
delivery service sent not more than ten Business Days following the occurrence
of the Change of Control, to each Holder of record of the shares of Convertible
Preferred Stock to be redeemed at such Holder's address as the same appears on
the stock register of the corporation; provided, however, that neither the
failure to give such notice nor any defect therein shall affect the validity of
the giving of notice for the redemption of any share of Convertible Preferred
Stock to be redeemed, except as to the Holder to whom the corporation has failed
to give said notice or except as to the Holder whose notice was defective. Each
such redemption notice shall state: (i) that a Change of Control has occurred;
(ii) the redemption date; (iii) the redemption price; (iv) customary provisions
regarding the surrender of certificates; (v) that such Holder may elect to cause
the corporation to redeem all or any of the shares of Convertible Preferred
Stock held by such Holder; (vi) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (vii) that
dividends on the shares the Holder elects to cause the corporation to redeem
will cease to accrue on such redemption date. Upon receipt of such redemption
notice, the Holder of Convertible Preferred Stock shall, within 10 Business Days
of receipt thereof, return such redemption notice to the corporation indicating
the number of shares of Convertible Preferred Stock such Holder shall elect to
cause the corporation to redeem, if any.
e. In the case of a redemption pursuant to paragraph II.H.2,
and if notice thereof has been properly provided in accordance with paragraph
II.H.4.d, from and after the redemption date (unless the corporation shall
default in providing necessary money for the payment of the redemption price for
the shares of Convertible Preferred Stock called for redemption), dividends on
such shares of Convertible Preferred Stock as the Holder elects to cause the
corporation to redeem shall cease to accrue, and all rights of the electing
Holders thereof as shareholders of the corporation as to such Shares (except the
right to receive the redemption price from the corporation) shall cease. Upon
surrender in accordance with such redemption notice of the certificates for any
shares of Convertible Preferred Stock so redeemed (properly endorsed or assigned
for transfer, if the Board of Directors shall so require and the notice shall so
state), such shares of Convertible Preferred Stock shall be redeemed by the
corporation at the redemption price specified herein and in such redemption
notice.
f. Notwithstanding any other provision of these Articles of
Incorporation to the contrary, in the event the corporation (i) delivers a
Redemption Notice under paragraph II.H.1 and the Holder timely elects to convert
shares of Convertible Preferred Stock pursuant to paragraph II.E, then, for
purposes of a redemption under paragraph II.H.1, the "redemption date" shall
mean the latter of (A) the redemption date set forth in the Redemption Notice
and (B) the date upon which any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
shall have expired or early termination thereof shall have been granted without
limitation, restriction, or condition, and (ii) delivers a redemption notice
under paragraph II.H.2 and the Holder timely elects to convert shares of
Convertible Preferred Stock pursuant to paragraph II.E, then, for purposes of a
redemption under paragraph (2) of this paragraph II.H, the "redemption date"
shall mean the latter of (A) the date 40 Business Days after a Change of Control
and (B) the date upon which
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any applicable waiting period under the HSR Act shall have expired or early
termination thereof shall have been granted without limitation, restriction, or
condition.
I. Covenants.
1. Limitation on Sale of Assets and Subsidiary Stock.
a. For so long as any shares of Convertible Preferred Stock
are issued and outstanding, the corporation will not, and will not permit any of
its Subsidiaries to, engage in an Asset Sale, unless (i) the corporation or such
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value (which, if it exceeds $1,000,000,
shall be determined by (i) the Board of Directors and set forth in a Board
Resolution delivered to the Holders or (ii) to the extent any such Asset Sale
involves a sale to a Holder, the Special Committee and set forth in a resolution
delivered to the Holders) of the assets (including, if appropriate, Equity
Interests) disposed of or issued, as appropriate, and (ii) at least 75% of the
consideration therefor received by the corporation or such Subsidiary is in the
form of cash or Cash Equivalents; provided, however, that the 75% limitation
referred to above shall not apply to any Asset Sale in which the cash portion of
the consideration received therefor, determined in accordance with the following
sentence, is equal to or greater than what the after-tax net proceeds would have
been had such transaction complied with the aforementioned 75% limitation.
b. For purposes of this covenant (and not for purposes of
any other provision of these Articles of Incorporation), the term "cash" shall
be deemed to include (i) any notes or other obligations received by the
corporation or such Subsidiary as consideration as part of such Asset Sale that
are immediately converted by the corporation or such Subsidiary into actual cash
or Cash Equivalents (to the extent of the actual cash or Cash Equivalents so
received) and (ii) any liabilities of the corporation or such Subsidiary (as
shown on the most recent balance sheet of the corporation or such Subsidiary)
that are payable in cash and that (A) are assumed by the transferee of the
assets which are the subject of such Asset Sale as consideration therefor in a
transaction the result of which is that the corporation and all of its
Subsidiaries are released from all liability for such assumed liability, (B) are
not owed to the corporation or any Subsidiary of the corporation and (C)
constitute short-term liabilities (as determined in accordance with GAAP).
c. Within 360 days after the receipt of any Net Proceeds
from an Asset Sale, the corporation may apply, directly or indirectly, such Net
Proceeds (i) to repay permanently Senior Indebtedness of the corporation or of
its Subsidiaries or (ii) to the making of a capital expenditure or the
acquisition of other long-term assets, in each case, in a Related Business. Any
Net Proceeds from Asset Sales that are not applied or invested as provided in
the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
corporation may make an offer to all holders of the Notes to the extent required
by Section 4.08(b) of the Indenture. Pending the final application of any such
Net Proceeds, the corporation or its Subsidiaries, as the case may be, may
temporarily reduce Indebtedness under the Senior Credit Facility or otherwise
invest such Net Proceeds in any manner that is not prohibited by this Section
II. If the aggregate principal amount of Notes tendered by the holders thereof
is less than the amount of Excess Proceeds, the
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Company may use any remaining Excess Proceeds for general corporate purposes.
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
d. For so long as any shares of Convertible Preferred Stock
are issued and outstanding, the corporation will not, and will not permit any of
its Subsidiaries to, transfer, convey, sell, or otherwise dispose of any Capital
Stock of any of its Subsidiaries to any Person (other than the corporation or
another Subsidiary of the corporation), unless (i) such transfer, conveyance,
sale, or other disposition is of all of the Capital Stock of such Subsidiary
owned by the corporation and its Subsidiaries or is otherwise permitted under
paragraph II.I.4 and (ii) such transaction is conducted in accordance with
paragraphs II.I.1.a and II.I.1.b.
2. Limitation on Restricted Payments.
a. For so long as any shares of Convertible Preferred Stock
are issued and outstanding, the corporation will not, and will not permit any of
its Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or
make any other payment or distribution on account of the corporation's or any of
its Subsidiary's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation) other than dividends or
distributions (A) paid or payable in Equity Interests (other than Disqualified
Stock) of the corporation or (B) paid or payable to the corporation or any
Subsidiary of the corporation; (ii) purchase, redeem, or otherwise acquire or
retire for value any Equity Interests of the corporation or any direct or
indirect parent of the corporation or other Affiliate of the corporation or any
Subsidiary of the corporation (other than any such Equity Interests owned by the
corporation or any Subsidiary of the corporation); (iii) make any principal
payment on, or purchase, redeem, defease, or otherwise acquire or retire for
value prior to the scheduled maturity, scheduled repayment, or scheduled sinking
fund payment, any Subordinated Indebtedness (except, if no Voting Rights
Triggering Event is continuing or would result therefrom, any such payment,
purchase, redemption, defeasance, or other acquisition or retirement for value
made (A) out of Excess Proceeds available for general corporate purposes if such
payment or other action is required by the indenture or other agreement or
instrument pursuant to which such Subordinated Indebtedness was issued, (B) upon
the occurrence of a Change of Control if (1) such payment or other action is
required by the indenture or other agreement or instrument pursuant to which
such Subordinated Indebtedness was issued and (2) the corporation has purchased
all of the Subordinated Notes properly tendered pursuant to the terms thereof or
(3) upon the redemption of the Convertible Preferred Stock in accordance with
the terms of these Articles of Incorporation); or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(i) no Voting Rights Triggering Event shall have
occurred and be continuing or would occur as a consequence thereof;
(ii) cumulative dividends on the Convertible Preferred
Stock have been paid in full;
(iii) the corporation would, at the time of such
Restricted Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable Reference
Period, have been permitted to Incur at least $1.00 of
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additional Indebtedness pursuant to the Debt Incurrence Ratio test set forth in
paragraph II.I.3.a; and
(iv) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments declared or made by the
corporation and its Subsidiaries after the Issue Date shall not exceed, at the
date of determination, the sum of (a) 50% of aggregate Consolidated Net Income
of the corporation from the beginning of the first fiscal quarter commencing
after the Issue Date to the end of the corporation's most recently ended fiscal
quarter for which financial statements are available at the time of such
Restricted Payment (or, if such aggregate Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (b) 100% of the aggregate
net cash proceeds received by the corporation from the issue or sale after the
Issue Date of Equity Interests of the corporation or of Disqualified Stock or
debt securities of the corporation that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or convertible
debt securities) sold to a Subsidiary of the corporation and other than
Disqualified Stock or debt securities that have been converted into Disqualified
Stock), plus (c) the aggregate net cash proceeds received by the corporation as
capital contributions to the corporation (other than from a Subsidiary of the
corporation) after the Issue Date (other than capital contributions from
Wingate, its partners, or their respective Affiliates).
b. The foregoing provisions will not prohibit the following
Restricted Payments:
(i) the payment of any dividend or other distribution within
60 days after the date of declaration thereof, if, at said date of declaration,
such payment would have complied with the provisions of this Section II;
(ii) the redemption, repurchase, retirement, or other
acquisition of any Equity Interests of the corporation (other than Disqualified
Stock) in exchange for, or out of the proceeds of, the substantially concurrent
sale (other than to a Subsidiary of the corporation) of other Equity Interests
of the corporation (other than Disqualified Stock or one or more sales of Equity
Interests to Wingate, its partners, or their respective Affiliates); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, or other acquisition shall be excluded from
clause (iii) of paragraph II.I.2.a (both for purposes of determining the
aggregate amount of Restricted Payments made and for purposes of determining the
aggregate amount of Restricted Payments permitted);
(iii) the payment, purchase, redemption, defeasance, or
other acquisition or retirement for value of Subordinated Indebtedness with the
net cash proceeds from a substantially concurrent Incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (in each case
other than to a Subsidiary of the corporation) of Equity Interests of the
corporation (other than Disqualified Stock or one or more sales of Equity
Interests to Wingate, its partners, or their respective Affiliates); provided
that the amount of any such net cash proceeds that are utilized for any such
payment, purchase, redemption, defeasance, or other acquisition or retirement
shall be excluded from clause (iii) of paragraph II.I.2.a (both for purposes of
determining the aggregate amount of Restricted Payments made and for purposes of
determining the aggregate amount of Restricted Payments permitted);
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(iv) so long as no Voting Rights Triggering Event is
continuing, the repurchase of Equity Interests of the corporation from former
employees of the corporation or any Subsidiary thereof (or the estates, heirs,
or legatees of such former employees) for consideration which does not exceed
$500,000 in the aggregate in any fiscal year;
(v) any Restricted Investment made with the net cash
proceeds from a substantially concurrent sale (other than to a Subsidiary of the
corporation) of Equity Interests of the corporation (other than Disqualified
Stock or one or more sales of Equity Interests to Wingate, its partners, or
their respective Affiliates); and
(vi) so long as no Voting Rights Triggering Event is
continuing, any Restricted Investment which, together with all other Restricted
Investments outstanding made pursuant to this paragraph II.I.2.b does not exceed
$5,000,000.
Except to the extent specifically noted above, Restricted Payments
made pursuant to this paragraph II.I.2.b shall be included in calculating the
amount of Restricted Payments made after the Issue Date.
c. The amount of all Restricted Payments not made in cash shall
be the Fair Market Value (which, if it exceeds $1,000,000, shall be determined
in good faith by the Board of Directors and set forth in a Board Resolution
delivered to the Holders) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the corporation or any Subsidiary thereof, as the
case may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, the corporation shall deliver to the Holders an
Officer's Certificate stating that such Restricted Payments were permitted and
setting forth the basis upon which the calculations required by this paragraph
II.I.2 were computed, which calculations may be based upon the corporation's
latest available financial statements.
3. Limitation on Incurrence of Indebtedness.
a. For so long as any shares of Convertible Preferred Stock are
issued and outstanding, the corporation will not, and will not permit any of its
Subsidiaries to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness), except for Permitted Indebtedness; provided, however,
that the corporation and its Subsidiaries may Incur Indebtedness (including
Acquired Indebtedness) if, at the time of Incurrence of such Indebtedness, after
giving pro forma effect to such Incurrence as of such date and to the use of
proceeds therefrom (including the application or the use of the net proceeds
therefrom to repay Indebtedness or make any Restricted Payment) (i) no Voting
Rights Triggering Event shall have occurred and be continuing at the time of, or
would occur after giving effect on a pro forma basis to, such Incurrence of
Indebtedness and (ii) on the date of such Incurrence (the "Incurrence Date"),
the Consolidated Coverage Ratio of the corporation for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a pro forma
basis to such Incurrence of Indebtedness and, to the extent set forth in the
definition of Consolidated Coverage Ratio, the use of proceeds thereof, would
exceed 1.75 to 1 (the "Debt Incurrence Ratio").
b. "Permitted Indebtedness" means any and all of the following:
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(i) Indebtedness of the corporation Incurred pursuant to the
Senior Credit Facility in the aggregate principal amount at any time outstanding
not to exceed the sum of the aggregate commitments pursuant to the Senior Credit
Facility as in effect on the date hereof;
(ii) Existing Indebtedness, including the Subordinated
Notes;
(iii) intercompany Indebtedness between or among the
corporation and any of its Subsidiaries; provided that (a) if the corporation is
an obligor on such Indebtedness, such Indebtedness is expressly subordinate to
the payment in full of all Obligations with respect to the Convertible Preferred
Stock and (b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
corporation or a Subsidiary of the corporation, or any sale or other transfer of
any such Indebtedness to a Person that is not either the corporation or a
Subsidiary of the corporation, shall be deemed to constitute a new Incurrence of
such Indebtedness by the corporation or such Subsidiary, as the case may be;
(iv) Permitted Refinancing Indebtedness Incurred in exchange
for, or the net proceeds of which are used to extend, refinance, renew, replace,
defease, or refund, (a) Indebtedness (other than Permitted Indebtedness) that
was Incurred in compliance with these Articles of Incorporation, (b)
Indebtedness referred to in paragraph II.I.3.b(i) or II.I.3.b(ii) or (c)
Existing Indebtedness, other than Existing Indebtedness, if any, related to the
Indebtedness refinanced by the Senior Credit Facility;
(v) Indebtedness of a Subsidiary of the corporation
constituting a Guarantee of Indebtedness of the corporation or a Subsidiary
thereof, which Indebtedness was Incurred pursuant to this paragraph II.I.3.b or
the Debt Incurrence Ratio test set forth in paragraph II.I.3.a;
(vi) the Incurrence by the corporation or any of its
Subsidiaries of Hedging Obligations of the following types: (a) Interest Rate
Hedges with respect to any Indebtedness of such Person that is permitted by the
terms of these Articles of Incorporation to be outstanding, the notional
principal amount of which does not exceed the principal amount of the
Indebtedness to which such Interest Rate Hedge relates and (b) Currency Hedges
that do not increase the outstanding loss potential or liabilities other than as
a result of fluctuations in foreign currency exchange rates; and
(vii) other Indebtedness of the corporation and its
Subsidiaries from time to time outstanding in an aggregate principal amount not
to exceed $20,000,000.
c. Indebtedness of any Person which is outstanding at the time
such Person becomes a Subsidiary of the corporation or is merged with or into or
consolidated with the corporation or a Subsidiary of the corporation shall be
deemed to have been Incurred at the time such Person becomes such a Subsidiary
of the corporation or is merged with or into or consolidated with the
corporation or a Subsidiary thereof, as applicable.
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4. Limitation on Liens. For so long as any shares of Convertible
Preferred Stock are issued and outstanding, the corporation will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
affirm, assume, or suffer to exist any Liens of any kind, other than Liens
securing Senior Indebtedness, the Subordinated Indebtedness, and Permitted
Liens, against or upon any assets or property now owned or hereafter acquired or
any income or profits therefrom or assign or convey any right to receive income
therefrom.
5. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. For so long as any shares of Convertible Preferred Stock
are issued and outstanding, the corporation will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, assume, or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any such Subsidiary to (a) (i) pay dividends or make any other
distributions to the corporation or any of its Subsidiaries on its Capital Stock
or with respect to any other interest or participation in, or measured by, its
profits or (ii) pay any Indebtedness owed to the corporation or any of its
Subsidiaries, (b) make loans or advances to the corporation or any of its
Subsidiaries or (c) transfer any of its properties to the corporation or any of
its Subsidiaries, except for such encumbrances or restrictions existing under or
by reason of (i) Existing Indebtedness, (ii) the Senior Credit Facility, (iii)
applicable law, (iv) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the corporation or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
Incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties of
any Person, other than the Person, or the property of the Person, so acquired,
provided that in the case of Indebtedness, such Indebtedness was permitted by
the terms of these Articles of Incorporation to be Incurred, (v) customary
non-assignment provisions in leases, licenses, sales agreements, or other
contracts (but excluding contracts related to the extension of credit) entered
into in the ordinary course of business and consistent with past practices, (vi)
restrictions imposed pursuant to a binding agreement for the sale or disposition
of all or substantially all of the Equity Interests or assets of any Subsidiary
of the corporation, provided such restrictions apply solely to the Equity
Interests or assets being sold, (vii) restrictions imposed by Permitted Liens on
the transfer of the assets that are subject to such Liens, (viii) Permitted
Refinancing Indebtedness Incurred to refinance Existing Indebtedness or
Indebtedness of the type described in clause (iv) above, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, as a whole, than those contained in the
agreements governing the Indebtedness being refinanced, (ix) the terms of
Purchase Money Indebtedness, but only to the extent such Purchase Money
Indebtedness encumbers or restricts the property acquired with such Purchase
Money Indebtedness and (x) the Subordinated Notes.
6. Limitation on Issuance, Sale and Ownership of Capital Stock of
Subsidiaries. For so long as any shares of Convertible Preferred Stock are
issued and outstanding, the corporation will not, and will not permit any of its
Subsidiaries to, (a) sell, assign, transfer, convey or otherwise dispose of, any
Equity Interests of any Subsidiary of the corporation, other than to the
corporation or another Subsidiary of the corporation, (b) permit any Subsidiary
of the corporation to issue any Equity Interests (including, without limitation,
pursuant to any merger, consolidation, recapitalization or similar transaction)
other than to the corporation or another Subsidiary of the corporation or (c)
permit any Person other than the corporation or its Subsidiaries to own any
Equity Interests of any Subsidiary of the corporation, except that (i) the
corporation or its Subsidiaries may consummate a sale to a Person of all of the
Equity Interests of
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a Subsidiary of the corporation, if such sale is made by the corporation or
another Subsidiary of the corporation subject to, and in compliance with,
paragraph II.I.1 and (ii) the corporation may issue and permit the subsequent
ownership by directors of, directors' qualifying shares.
7. Limitation on Mergers, Consolidations, or Sales of Assets. For
so long as any shares of Convertible Preferred Stock are issued and outstanding,
the corporation will not merge or consolidate (whether or not the corporation is
the surviving corporation), or sell, assign, transfer, lease, convey, or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another Person unless: (a) the corporation is
the surviving corporation or the Person formed by or surviving any such merger
or consolidation (if other than the corporation) or to which such sale,
assignment, transfer, lease, conveyance, or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof, or the District of Columbia; (b) the Convertible Preferred
Stock shall be converted or exchanged for and shall become shares of such
successor, transferee, or resulting Person having in respect of such successor,
transferee, or resulting Person the same powers, preferences, and relative
participating, optional, or other special rights and qualifications,
limitations, or restrictions thereon, that the Convertible Preferred Stock had
immediately prior to that transaction; and (c) the corporation, any of its
Subsidiaries, or any Person formed by or surviving any such merger or
consolidation, or to which such sale, assignment, transfer, lease, conveyance,
or other disposition shall have been made will, at the time of such transaction
and after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable Reference Period, be permitted to Incur at least
$1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio test set
forth in paragraph II.I.3.a.
J. Business Day. If any payment or conversion shall be required by the
terms hereof to be made on a day that is not a Business Day, such payment or
conversion shall be made on the immediately succeeding Business Day.
K. The Special Committee. Notwithstanding any other provision of this
Article Four to the contrary, all determinations with respect to the payment of
dividends on the Convertible Preferred Stock requiring action by the
corporation's Board of Directors shall be taken by the Special Committee.
L. No Obligation to Repurchase. Notwithstanding any other provision of this
Article Four to the contrary, in no event shall the corporation be required to
repurchase any shares of Convertible Preferred Stock on or prior to the date
that is 91 days after the date on which the Notes mature.
III. Definitions. As used in this Article Four, including this Section III, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Acquired Indebtedness" means, in respect of the corporation or
any of its Subsidiaries, (i) Indebtedness of any other Person existing at the
time such other Person is merged with or into or becomes a Subsidiary of the
corporation or any of its Subsidiaries, including, without limitation,
Indebtedness Incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of the corporation or any
of its
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Subsidiaries and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by the corporation or any of its Subsidiaries.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Sale" means (i) the direct or indirect sale, lease,
license, conveyance, transfer, or other disposition of any assets or rights
(including, without limitation, by way of a sale and leaseback or similar
arrangement, by merger or consolidation) by the corporation or any of its
Subsidiaries (a "disposition"), in one transaction or a series of transactions;
provided, however, that the disposition of all or substantially all of the
assets of the corporation and its Subsidiaries taken as a whole will be governed
by the provisions of paragraph II.I.7 and not by the provisions of paragraph
II.I.1 and (ii) the issuance or disposition by the corporation or any of its
Subsidiaries of Equity Interests of the corporation's Subsidiaries.
Notwithstanding the foregoing paragraph, none of the following
will be deemed an Asset Sale: (i) a disposition of assets by the corporation to
a Subsidiary of the corporation or by a Subsidiary of the corporation to the
corporation or to another Subsidiary of the corporation; (ii) an issuance of
Equity Interests by a Subsidiary of the corporation to the corporation or to
another Subsidiary of the corporation; (iii) a Restricted Payment that is
permitted by paragraph II.I.2; (iv) dispositions of $250,000 or less; (v)
dispositions of assets or rights in the ordinary course of business consistent
with past practices; (vi) the grant in the ordinary course of business of any
non-exclusive license of intellectual property rights; (vii) any liquidation of
any Cash Equivalents; (viii) any disposition of defaulted receivables for
collection; and (ix) the grant of any Lien securing Indebtedness (or any
foreclosure thereon) to the extent that such Lien is granted in compliance with
paragraph II.I.4.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of the date of determination, in respect
of any security or instrument, the quotient obtained by dividing (i) the sum of
the products (A) of the number of years from the date of determination to the
date or dates of each successive scheduled principal (or redemption) payment of
such security or instrument and (B) the amount of each such respective principal
(or redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Law" means Title II, U.S. Code or any similar federal
or state law for the relief of debtors.
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"Beneficial Owner" or "beneficial owner" (including, with
correlative meanings, the terms "Beneficial Ownership" and "Beneficially Owns")
for purposes of the definition of Change of Control has the meaning attributed
to it in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the date
of these Articles of Incorporation), whether or not applicable, except that a
"person" (as such term is used in Sections 13(d)(3) of the Exchange Act) shall
be deemed to have "Beneficial Ownership" of all shares that any such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time or is exercisable only upon the occurrence of a
subsequent condition.
"Board of Directors" means the board of directors of the
corporation.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the corporation to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification and delivered to each Holder of Convertible Preferred Stock.
"Business Day" means any day except a Saturday, a Sunday, or any
day on which banking institutions in Fort Worth, Texas are required or
authorized by law or other governmental action to be closed.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights, or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) Government Securities having
maturities of not more than 12 months from the date of acquisition, (ii)
certificates of deposit and eurodollar time deposits with maturities of 12
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any member bank of the U.S. Federal Reserve System having capital and
surplus in excess of $500,000,000, (iii) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any financial institution meeting the
qualifications specified in clause (ii) above and (iv) commercial paper having
the rating of at least P-1 from Moody's Investors Services, Inc. ("Moody's"), or
any successor to its rating business, or at least A-1 from Standard & Poor's
Ratings Services ("S&P"), or any successor to its rating business, and in each
case maturing within 180 days after the date of acquisition.
"Change of Control" means the occurrence or existence of any of
the following events or circumstances after the date hereof: (i) a "person" or
"group" (within the meaning of
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Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Initial
Investors or their Affiliates) becomes the Beneficial Owner of 50% or more of
the Voting Common Stock or Jerry E. Kimmel, his family members, heirs, estate or
Affiliates, individually or collectively become the Beneficial Owners of more
than 46% of the Voting Common Stock (an "Acquiring Person"); or (ii) a sale or
transfer of all or substantially all of the assets of the corporation and its
Subsidiaries, taken as a whole, to any person or group (other than any person or
group consisting solely of any or all of the Initial Investors or their
respective Affiliates) has been consummated; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with any new directors whose election was
approved by a vote of a majority of the directors then still in office, who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the directors of the corporation then in office, other
than as a result of a reduction of the number of directors comprising the Board
of Directors, pursuant to the provisions of these Articles of Incorporation or
under the terms of the Senior Credit Facility. Notwithstanding the foregoing,
for purposes of clause (i) above, a Change of Control shall not be deemed to
have occurred if any person or group becomes an Acquiring Person through one or
more transactions which includes the acquisition, directly or indirectly, of any
of the Voting Common Stock Beneficially Owned by the Initial Investors or their
Affiliates, unless such action is part of a transaction, including a tender or
exchange offer, merger, consolidation, or other business combination, in which
such person or group acquires or offers to acquire, on substantially the same
terms and conditions as those applicable to the Initial Investors and their
Affiliates, substantially the same proportion of shares of the outstanding
Voting Common Stock of the corporation held by the remaining shareholders;
provided, however, that a Change of Control may occur notwithstanding the fact
that (A) holders of Voting Common Stock may elect more than one form of
consideration in such transaction or (B) such holders may receive cash in lieu
of the purchase of fractional shares.
"Composite Tape" means in respect of any security, the reporting
by the National Association of Securities Dealers, Inc. (or any successor
reporting mechanism) of all trades of such security occurring on all exchanges
on which such security is traded.
"Consolidated Coverage Ratio" of any Person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(i) the aggregate amount of Consolidated EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses discounted or disposed of) for the Reference Period to
(ii) the aggregate Consolidated Fixed Charges of such Person (exclusive of
amounts attributable to operations and businesses discontinued or disposed of,
but only to the extent that the obligations giving rise to such Consolidated
Fixed Charges would no longer be obligations contributing to such Person's
Consolidated Fixed Charges subsequent to the Transaction Date) during the
Reference Period; provided, however, that for purposes of such calculation, (A)
acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period, (B) transactions giving
rise to the need to calculate the Consolidated Coverage Ratio shall be assumed
to have occurred on the first day of the Reference Period, (C) the Incurrence of
any Indebtedness or issuance of any Disqualified Stock during the Reference
Period or subsequent to the Reference Period and on or prior to the Transaction
Date (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
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(D) the Consolidated Fixed Charges of such Person attributable to interest on
any Indebtedness or dividends on any Disqualified Stock bearing a floating
interest (or dividend) rate shall be computed on a pro forma basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
Person or any of its Subsidiaries is a party to a Hedging Obligation (which by
its terms will remain in effect for the 12-month period immediately following
the Transaction Date) that has the effect of fixing the interest rate on the
date of computation, in which case such rate (whether higher or lower) shall be
used. For purposes of this definition whenever pro forma effect is to be given
to a transaction, the pro forma calculations of Consolidated EBITDA and
Consolidated Fixed Charges shall be made in accordance with Article 11 of
Regulation S-X of the Commission and subject to agreed-upon procedures to be
performed by the corporation's independent accountants to determine whether the
pro forma calculations are made in accordance with Article 11 of Regulations
S-X.
"Consolidated EBITDA" means, in respect of the corporation, for
any period, the Consolidated Net Income of the corporation for such period
adjusted to add thereto (to the extent deducted in determining Consolidated Net
Income), without duplication, the sum of (i) consolidated income tax expense,
(ii) consolidated depreciation and amortization expense, and other non-cash
charges required to be reflected as expenses for such period on the books and
records of the corporation and (iii) Consolidated Fixed Charges, less the amount
of all cash payments made by the corporation or any of its Subsidiaries during
such period to the extent such payments relate to non-cash charges that were
added back in determining Consolidated EBITDA for such period or any prior
period.
"Consolidated Fixed Charges" means, in respect of the corporation
for any period, the sum of (i) the consolidated interest expense of the
corporation and its Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and original
issue discount, non cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capitalized Lease Obligations, imputed interest in respect of Attributable
Debt, interest payments in respect of Indebtedness of another Person that is
Guaranteed by the corporation or one or more of its Subsidiaries or secured by a
Lien on assets of the corporation or one or more of its Subsidiaries,
commissions, discounts, and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), (ii) the consolidated interest expense of the
corporation and its Subsidiaries that was capitalized during such period, in
each case, on a consolidated basis and in accordance with GAAP and (iii) the
product of (A) the aggregate amount of dividends paid (to the extent not accrued
in a prior period) or accrued on Disqualified Stock of the corporation and its
Subsidiaries or preferred stock of the corporation's Subsidiaries, to the extent
such Disqualified Stock or preferred stock is owned by Persons other than the
corporation and its Subsidiaries and (B) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state, local, and foreign statutory tax rate of the corporation, expressed as a
decimal.
"Consolidated Net Income" means, in respect of the corporation for
any period, the aggregate of the Net Income of the corporation and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) the Net Income (but not loss) of any
Person that is not a Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
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distributions paid in cash to the corporation or any of its Subsidiaries as to
which Consolidated Net Income is being calculated, (ii) the Net Income of any
Subsidiary of the corporation shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
of such Net Income would not be permitted at the date of determination or,
directly or indirectly, pursuant to the terms of its charter and bylaws (or
similar organizational and governing documents) and all agreements, instruments,
judgments, decrees, orders, statutes, rules, or governmental regulations
applicable to such Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative effect of a
change in accounting principles shall be excluded, (v) income or loss
attributable to discounted operations shall be excluded and (vi) any gain (but
not loss) realized upon the sale or other disposition of any property, plant, or
equipment of the corporation or its Subsidiaries (including pursuant to any sale
and leaseback transaction) which is not sold or otherwise disposed of in the
ordinary course of business and any gain (but not loss) realized upon the sale
or other disposition of any Capital Stock of any Person shall be excluded.
"Disqualified Stock" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Maturity Date (as defined in the Subordinated Notes).
"Dividend Payment Date" means the last day of June, September,
December, and March of each year (unless such day is not a Business Day, in
which case the Dividend Payment Date shall be the next succeeding Business Day).
"Dividend Period" means a quarterly period of three months.
"Dividend Record Date" means the 15th day of June, September,
December and March of each year.
"Dollars" and "$" mean lawful money or currency of the United
States of America.
"Equity Interests" means Capital Stock and all warrants, options,
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Indebtedness" means the Notes and all other Indebtedness
of the corporation and its Subsidiaries in existence on the Issue Date,
including the Subordinated Notes.
"Fair Market Value" means, in respect of any asset or property,
the sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy; provided, however, that if such value
exceeds $1,000,000, such determination shall be made in good faith by the Board
of Directors.
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"GAAP" means United States generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession in the United States as in effect on the Issue
Date.
"Government Securities" means direct obligations of, or
obligations fully guaranteed by, or participations in pools consisting solely of
obligations of or obligations guaranteed by, the United States of America for
the payment of which guarantee or obligations the full faith and credit of the
United States of America is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness (and "Guaranteed" shall have a meaning correlative to the
foregoing).
"Hedging Obligations" means, in respect of any Person, the
obligations of such Person under (i) interest or currency exchange rate swap
agreements, interest or currency exchange rate cap agreements, and interest or
currency exchange rate collar agreements and (ii) other agreements or
arrangements, in any case, designed to protect such Person against fluctuations
in interest or currency exchange rates (as appropriate, "Interest Rate Hedges"
and "Currency Hedges").
"Holder" means a record holder of shares of Convertible Preferred
Stock as reflected in the stock books of the corporation.
"Incur" means, in respect of any Indebtedness or other obligation
of any Person, to create, issue, incur (by conversion, exchange, or otherwise),
assume, Guarantee, or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "Incurrence," "Incurred," "Incurrable," and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in GAAP that
results in an obligation of such Person that exists at such time, and is not
theretofore classified as Indebtedness, becoming Indebtedness shall not be
deemed an Incurrence of such Indebtedness.
"Indebtedness" means, in respect of any Person, (i) any liability
of such Person, whether or not contingent (A) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance, or
note purchase facility; (B) evidenced by a bond, note, debenture, or similar
instrument (including a purchase money obligation); (C) for the payment of money
relating to a Capitalized Lease Obligation; (D) for or pursuant to Disqualified
Stock; (E) for or pursuant to preferred stock of any Subsidiary of such Person
(other than preferred stock held by such Person or any of its Subsidiaries or in
the case of the corporation, any of its Subsidiaries); (F) representing the
balance deferred and unpaid of the purchase price of any property or services
(except any such balance that constitutes a trade payable or accrued liability
in the ordinary course of business that is not overdue by more than 90 days or
is being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted); or (G) under or in respect of Hedging Obligations;
(ii) any liability of others described in the
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preceding clause (i) that such Person has Guaranteed, that is recourse to such
Person or that is otherwise its legal liability, or the payment of which is
secured by (or for which the holder of such liability has an existing right to
be secured by) any Lien upon property owned by such Person, even though such
Person has not assumed or become liable for the payment of such liability; and
(iii) any amendment, supplement, modification, deferral, renewal, extension, or
refunding of any liability of the types referred to in clauses (i) and (ii)
above. The amount of any non-interest bearing or other discount Indebtedness
shall be deemed to be the principal amount thereof that would be shown on the
balance sheet of the issuer dated such date prepared in accordance with GAAP,
but such Indebtedness shall be deemed to have been Incurred only on the date of
the original issuance thereof.
"Indenture" means the Indenture, dated December 1, 1997, governing
the Notes as amended or supplemented from time to time.
"Independent Director" means any director of the corporation not
affiliated with Wingate or its assigns or Jerry E. Kimmel and who does not have
any other relationship (including any relationship, contractual or otherwise,
with Wingate, its assigns or Jerry E. Kimmel) that would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director.
"Initial Investors" means any person or group comprised solely of
any or all of the "Purchasers" under the Purchase Agreement, including any such
Purchasers acquiring rights by way of assignment pursuant to Section 13.8
thereof.
"Investments" means, in respect of any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations (but
excluding endorsements of negotiable instruments for collection in the ordinary
course of business)), advances or capital contributions (excluding commissions,
travel, and similar advances to directors, officers, and employees made in the
ordinary course of business), purchases or other acquisitions (for
consideration) of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Issue Date" means the date of original issuance of the applicable
shares of Convertible Preferred Stock.
"Kimmel Designees" means Jerry E. Kimmel, if he is a director of
the corporation, and any other director of the corporation elected or appointed
at the designation of Jerry E. Kimmel.
"Lien" means, in respect of any asset, any mortgage, lien, pledge,
charge, security interest, or encumbrance of any kind in respect of such asset,
whether or not filed, recorded, or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement or any lease
in the nature thereof).
"Market Price" means, with respect to any Aggregate Common Stock,
on a per share basis and as of any date, an amount equal to the average, for
each of the ten (10) consecutive Trading Days immediately prior to such date, of
the closing prices for a share of
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Voting Common Stock on such Trading Day as reported on the Composite Tape (as
reported in The Wall Street Journal or, if not reported thereby, any other
authoritative source). If no price can be determined under the foregoing, then
the "Market Price" shall be deemed to be the fair market value thereof, as
determined by the Special Committee in good faith as of a date which is within
fifteen (15) days preceding the date as of which the determination is to be
made.
"Net Income" means, in respect of any Person, the net income
(loss) of such Person, determined in accordance with GAAP.
"Net Proceeds" means, in respect of any Asset Sale, the aggregate
amount of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in either case,
only as and when so received) received by the corporation or any of its
Subsidiaries in respect of such Asset Sale, net of: (i) the cash expenses of
such Asset Sale (including, without limitation, the payment of principal of, and
premium, if any, and interest on, Indebtedness required to be paid as a result
of such Asset Sale and legal, accounting, management and advisory, and
investment banking fees and sales commissions); (ii) taxes paid or payable as a
result thereof; (iii) any portion of cash proceeds that the corporation
determines in good faith should be reserved for post-closing adjustments, it
being understood and agreed that on the day that all such post-closing
adjustments have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale exceeds the actual post-closing adjustments
payable by the corporation or any of its Subsidiaries shall constitute Net
Proceeds on such date; (iv) any relocation expenses and pension, severance, and
shutdown costs incurred as a result thereof; and (v) any cash amounts actually
set aside by the corporation or any of its Subsidiaries as a reserve in
accordance with GAAP against any retained liabilities associated with the asset
disposed of in such transaction, including, without limitation, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"Notes" means the corporation's 10 3/8% Senior Subordinated Notes,
due December 1, 2007.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, in respect of the corporation, the Chief
Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary, any Assistant Secretary, or any Vice President of the corporation.
"Officer's Certificate" means a certificate signed on behalf of
the corporation by two Officers of such Person, one of whom must be the
principal executive officer, the principal financial officer, or the principal
accounting officer of the corporation.
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"Permitted Investments" means (i) any Investment in the
corporation or in a Subsidiary of the corporation, (ii) any Investment in Cash
Equivalents, (iii) any Investment by the corporation or any of its Subsidiaries
in a Person engaged in a Related Business if, as a result of such Investment,
(A) such Person becomes a Subsidiary of the corporation or (B) such Person is
merged, consolidated, or amalgamated with or into, or transfers or conveys all
or substantially all of its assets to, or is liquidated into, the corporation or
a Subsidiary of the corporation, (iv) Investments the payment for which consists
exclusively of Equity Interests (excluding Disqualified Stock) of the
corporation, (v) Investments in shares of money market mutual or similar funds
having assets in excess of $500,000,000, and (vi) Investments in negotiable
instruments held for collection in the ordinary course of business and lease,
utility, and similar deposits.
"Permitted Liens" means (i) Liens securing Permitted Indebtedness
Incurred pursuant to clause (i) of the definition of such term, (ii) Liens in
favor of the corporation and/or its Subsidiaries, (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
corporation or any of its Subsidiaries, provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the corporation or any of its Subsidiaries, (iv) Liens securing any
Acquired Indebtedness and which exist at the time of acquisition thereof by the
corporation or any of its Subsidiaries, provided that such Liens were in
existence prior to the contemplation of such acquisition, (v) Liens existing on
the Issue Date or arising since such date in compliance with Section II, (vi)
Liens arising by reason of (A) any judgment, decree, or order of any court not
constituting an Voting Rights Triggering Event; (B) taxes not yet delinquent or
which are being contested in good faith by appropriate proceedings which suspend
the collection thereof, promptly instituted and diligently conducted, and for
which adequate reserves have been established to the extent required by GAAP;
(C) security for payment of workers' compensation or other insurance; (D) good
faith deposits in connection with tenders, leases, and contracts (other than
contracts for the payment of money), bids, licenses, performance or similar
bonds and other obligations of a like nature, in the ordinary course of
business; (E) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of property
or minor irregularities of title (and in respect of leasehold interests,
mortgages, obligations, Liens, and other encumbrances incurred, created,
assumed, or permitted to exist and arising by, through or under a landlord or
owner of the leased property, with or without consent of the lessees), none of
which materially impairs the use of any parcel of property material to the
operation of the business of the corporation or any of its Subsidiaries or the
value of such property for the purpose of such business; (F) deposits to secure
public or statutory obligations or in lieu of surety or appeal bonds; (G)
surveys, exceptions, title defects, encumbrances, easements, reservations of, or
rights or others for, rights of way, sewers, electric lines, telegraph or
telephone lines and other similar purposes or zoning or other restrictions as to
the use of real property not interfering with the ordinary conduct of the
business of the corporation or any of its Subsidiaries; or (H) operation of law
or statute and incurred in the ordinary course of business, including without
limitation, those in favor of mechanics, materialmen, suppliers, laborers or
employees, and, if securing sums of money, for sums which are not yet delinquent
or are being contested in good faith by appropriate proceedings which suspend
the collection thereof, promptly instituted and diligently conducted, and for
which adequate reserves have been established to the extent required by GAAP,
(vii) Liens resulting from the deposit of funds in trust for the purpose of
decreasing or defeasing Indebtedness of the corporation and its Subsidiaries so
long as such deposit of funds and such decreasing or defeasing
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of Indebtedness are permitted under paragraph II.I.2, and (viii) any extension,
renewal, or replacement (or successive extensions, renewals, or replacements),
in whole or in part, of any Lien referred to in the foregoing clauses (iii),
(iv), and (v) above; provided, however, that the principal amount of the
Indebtedness secured thereby shall not exceed the principal amount of
Indebtedness secured thereby immediately prior to the time of such extension,
renewal, or replacement, and that such extension, renewal, or replacement Lien
shall be limited to all or a part of the property that secured the Lien so
extended, renewed, or replaced (plus improvements on such property).
"Permitted Refinancing Indebtedness" means any Indebtedness of the
corporation or any of its Subsidiaries issued in exchange for, or the net
proceeds of which are used by such Person to extend, refinance, renew, replace,
defease, or refund other Indebtedness of such Person ("Old Indebtedness");
provided, however, that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Old Indebtedness plus
any premium or penalty payable thereon and any reasonable expenses incurred in
connection therewith; (ii) such Permitted Refinancing Indebtedness has a final
maturity date equal to or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Old Indebtedness; (iii) such Permitted Refinancing
Indebtedness is on terms that are no more restrictive, as a whole, than those
governing such Old Indebtedness; and (iv) such Permitted Refinancing
Indebtedness is Incurred only by the corporation or any of its Subsidiaries that
is the obligor on the Old Indebtedness.
"Person" means any individual, corporation, limited liability
corporation, partnership, joint venture, association, joint-stock corporation,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plans" means any plan existing on the date hereof or adopted by
the corporation after the date hereof providing for the issuance of Aggregate
Common Stock of any class or series or other options or rights to purchase
stock, warrants, or other securities.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of June ___, 1999 between Wingate and Kevco, Inc.
"Purchase Money Indebtedness" means, in respect of the corporation
or any of its Subsidiaries, any Indebtedness of the corporation or any of its
Subsidiaries to any seller or other Person incurred to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease) of any real
or personal tangible property acquired after the Issue Date which, in the
reasonable good faith judgment of the Board of Directors or the board of
directors (or similar governing body) of any of its Subsidiaries, as applicable,
is directly related to a Related Business and which is Incurred within 180 days
of such acquisition and is secured only by the assets so financed.
"Reference Period" in respect of any Person means the four full
fiscal quarters for which financial statements are available at the time of
determination (or such lesser period during which such Person has been in
existence) ended immediately preceding any date upon which any such
determination is to be made pursuant to the terms of Section II.
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"Related Business" means the business conducted by the corporation
and its Subsidiaries as of the Issue Date and any and all businesses that in the
good faith judgment of the Board of Directors are materially related businesses.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Credit Facility" means the Credit Agreement, as amended,
entered into on December 1, 1997 among the corporation, the guarantors named
therein, and NationsBank of Texas, N.A., as agent and lender, and the other
lenders party thereto.
"Senior Indebtedness" means, in respect of any Person, (i) all
Indebtedness of such Person outstanding under the Senior Credit Facility and all
Hedging Obligations in respect thereof, (ii) any other Indebtedness of such
Person permitted to be issued under Section II, provided that Senior
Indebtedness shall not include any Indebtedness which by the terms of the
instrument creating or evidencing the same is on parity with or is subordinated
or junior in right of payment in any respect to any other Indebtedness of such
Person or its Subsidiaries or Affiliates and (iii) all Obligations in respect of
the foregoing.
Notwithstanding anything to the contrary in the foregoing
paragraph, Senior Indebtedness will not include (i) any liability for federal,
state, local, foreign, or other taxes, (ii) any Indebtedness of any such Person
to any of its Subsidiaries or other Affiliates, (iii) any accounts payable or
trade liabilities arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities), (iv) any
Indebtedness that is incurred in violation of Section II, (v) Indebtedness of
the Person to any shareholder of the Person, (vi) Indebtedness to, or guaranteed
by the Person or any of its Subsidiaries for the benefit of, any director,
officer, or employee of the Person or any Subsidiary of the Person (including,
without limitation, amounts owed for compensation), (vii) Capital Stock of such
Person and Indebtedness represented by Disqualified Stock, (viii) Indebtedness
which, when Incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to such Person, (ix) any
Indebtedness or obligation which is subordinated in right of payment to any
other Indebtedness or obligation of such Person and (x) any Indebtedness under
the Notes or any refinancings thereof.
"Special Committee" means a committee of the Board of Directors
composed solely of the Independent Directors and the Kimmel Designees then in
office; provided, however, that such committee shall be constituted such that a
majority of its members shall always be Independent Directors.
"Subordinated Indebtedness" means Indebtedness of the corporation
(or of its Subsidiaries) that is subordinated in right of payment to the
Convertible Preferred Stock.
"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
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Person or of one or more Subsidiaries of such Person (or any combination
thereof). Unless indicated to the contrary, "Subsidiary" refers to a direct or
indirect Subsidiary of the corporation.
"Subordinated Notes" means the corporation's Tranche A and Tranche
B Senior Subordinated Exchangeable Notes in the initial principal amounts of
$17,000,000 and $6,500,000, respectively.
"Trading Day" means any day on which the NASDAQ Stock Market is
open for trading, or if the shares of Voting Common Stock are not quoted on the
NASDAQ Stock Market, any day on which the principal national securities exchange
or national quotation system on which the shares of Voting Common Stock are
listed, admitted to trading or quoted is open for trading.
"Warrants" means the following: (i) the warrant issued by the
corporation dated _______________, 1999 to The Kevco Partners Investment Trust
providing for the purchase of 675,000 shares of Nonvoting Common Stock; (ii) the
warrant issued by the corporation dated _______________, 1999 to The Kevco
Partners Investment Trust providing for the purchase of 772,727 shares of
Nonvoting Common Stock; (iii) the warrant issued by the corporation dated
_______________, 1999 to The Kevco Partners Investment Trust providing for the
purchase of 295,455 shares of Nonvoting Common Stock; and (iv) all reissuances,
transfers and substitutions of the foregoing.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wingate" means Wingate Partners II, L.P., a Delaware limited
partnership.
ARTICLE FIVE
No shareholder of the corporation shall have any preemptive or
preferential right whatsoever to acquire additional, unissued, or treasury
shares of the corporation, or securities of the corporation convertible into or
carrying a right to subscribed to or acquire shares of any class of stock of the
corporation.
ARTICLE SIX
Directors shall be elected by a plurality of the votes cast by the
holders of shares entitled to vote in the election of directors at a meeting of
shareholders at which a quorum is present. Cumulative voting in the election of
directors of the corporation is expressly denied.
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ARTICLE SEVEN
With respect to any matter, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by the TBCA, the act of the shareholders
shall be the affirmative vote of at least a majority of the shares entitled to
vote on, and voted for or against, that matter at a meeting of shareholders at
which a quorum is present.
With respect to any matter for which the affirmative vote of the
holders of a specified portion of the shares entitled to vote is required by the
TBCA, the act of the shareholders on that matter shall be the affirmative vote
of the holders of at least a majority of the shares entitled to vote on that
matter, rather than the affirmative vote otherwise required by the TBCA.
ARTICLE EIGHT
I. Limitation of Liability.
A. In addition to any other limitation of liability for directors provided
for at law (including the TBCA), the Articles of Incorporation or the Bylaws, no
director of this corporation shall be personally liable to the corporation or
any of its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except that this Subsection A does not
eliminate or limit the liability of a director to the extent the director is
found liable for: (i) a breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) an act or omission not in good faith that
constitutes a breach of duty of the director to the corporation or an act or
omission that involves intentional misconduct or a knowing violation of the law;
(iii) a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office; or (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute. Neither the amendment
nor repeal of this Section I, nor the adoption of any provisions of the Articles
of Incorporation of this corporation inconsistent with this Section I, shall
eliminate or reduce the effect of this Section I in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Section I,
would accrue or arise, prior to such amendment, repeal or adoption of any
inconsistent provision. If, after approval of this Section I, the TBCA, the
Texas Miscellaneous Corporation Laws Act (the "TMCLA") or any other laws of the
State of Texas are enacted or amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of this corporation shall be eliminated or limited to the fullest
extent permitted by such laws as so enacted or amended from time to time.
II. Indemnification.
A. The corporation shall indemnify a person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding because the person is
or was a director to the fullest extent and manner permissible under the TBCA or
applicable rules, regulations or laws.
B. A person shall be indemnified under paragraph II.A against judgments,
penalties (including excise and similar taxes), fines, settlements, and
reasonable expenses actually incurred
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by the person in connection with the proceeding; but if the person is found
liable to the corporation or is found liable on the basis that personal benefit
was improperly received by the person, the indemnification (i) shall be limited
to reasonable expenses actually incurred by the person in connection with the
proceeding and (ii) shall not be made in respect of any proceeding in which the
person shall have been fund liable for willful or intentional misconduct in the
performance of his duty to the corporation.
C. The mandatory indemnification provision set forth in paragraph II.A
shall be deemed to constitute authorization of indemnification in the manner
required by the TBCA even though this provision may not have been adopted or
authorized in the same manner as the determination that indemnification is
permissible.
D. The corporation shall indemnify a director against reasonable expenses
incurred by him in connection with a proceeding in which he is a named defendant
or respondent because he is or was a director if he has been wholly successful,
on the merits or otherwise, in the defense of the proceeding.
E. Reasonable expenses incurred by a director who was, is, or is threatened
to be made a named defendant or respondent in a proceeding shall be paid or
reimbursed by the corporation in advance of the final disposition of the
proceeding (and without any prior determination or authorization being first
required) after (i) the corporation receives a written affirmation by the
director of his good faith belief that he has met the standard of conduct
necessary for indemnification under this Article Eight and the TBCA and (ii) a
written undertaking by or on behalf of the director to repay the amount paid or
reimbursed if it is ultimately determined that he has not met that standard or
if it is ultimately determined that indemnification of the director against
expenses incurred by him in connection with that proceeding is prohibited by the
TBCA. This mandatory payment or reimbursement provision shall be deemed to
constitute authorization of that payment or reimbursement.
F. The written undertaking required by paragraph II.E must be an unlimited
general obligation of the director that need not be secured. It may be accepted
without reference to financial ability to make repayment.
G. Notwithstanding any other provision of this Article Eight, the
corporation shall pay or reimburse expenses incurred by a director in connection
with is appearance as a witness or other participation in a proceeding at a time
when he is not a named defendant or respondent in the proceeding.
H. An officer of the corporation shall be indemnified as, and to the same
extent, provided by the TBCA and this Article Eight for a director and is
entitled to indemnification to the same extent as a director. The corporation
shall indemnify and advance expenses to an officer, and may indemnify and
advance expenses to an employee or agent, of the corporation to the same extent
that it is authorized to indemnify and advance expenses to directors under this
Article Eight.
I. The corporation may indemnify and advance expenses to persons who are
not or were not officers, employees or agent of the corporation, but who are or
were serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee,
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agent or similar functionary of another foreign or domestic corporation, a
partnership, joint venture, sole proprietorship, trust, employee benefit plan or
other enterprise to the same extent that it is authorized to indemnify and
advance expenses to directors under this Article Eight.
J. The corporation shall indemnify and advance expenses to an officer, and
may indemnify and advance expenses to an employee, agent or person indemnified
in paragraph II.I and who is not a director, to such further extent, consistent
with law, as may be provided by the Articles of Incorporation of this
corporation, the bylaws, general or specific action of the Board of Directors of
this corporation, or contract or is permitted or required by common law.
III. Insurance or Other Arrangement.
A. The corporation may purchase and maintain insurance or another
arrangement on behalf of any person who is or was a director, officer, employee
or agent of this corporation or who is or was serving at the request of this
corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, against any liability asserted against him and
incurred by him in such a capacity or arising out of his status as such a
person, whether or not the corporation would have the power to indemnify him
against that liability under this Article Eight. If the insurance or other
arrangement is with a person or entity that is not regularly engaged in the
business of providing insurance coverage, the insurance or arrangement may
provide for payment of a liability with respect to which the corporation would
not have the power to indemnify the person only if including coverage for the
additional liability has been approved by the shareholders of the corporation.
IV. Miscellaneous.
A. Any indemnification of or advance of expenses to a director in
accordance with this Article Eight shall be reported in writing to the
shareholders of this corporation with or before the notice or waiver of notice
of the next shareholders' meeting or with or before the next submission to
shareholders of a consent to action without a meeting pursuant to the TBCA and,
in any case, within the twelve month period immediately following the date of
the indemnification or advance.
B. For purposes of this Article Eight, the corporation is deemed to have
requested a director to serve an employee benefit plan whenever the performance
by him of his duties to the corporation also imposes duties on or otherwise
involve services by him to the plan or participants or beneficiaries of the
plan. Excise taxes assessed on a director with respect to an employee benefit
plan pursuant to applicable law are deemed fines. Action taken or omitted by him
with respect to a employee benefit plan in the performance of his duties for a
purpose reasonably believed by him to be in the best interest of the
participants and beneficiaries of the plan is deemed to before a purpose which
is not opposed to the best interest of the corporation.
V. Definitions.
As used in this Article Eight the following terms shall have the
following meanings:
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The terms "corporation," "director," "expenses," and "proceeding,"
shall have the meanings given such terms in Art. 2.02-1 of the TBCA.
The term "TBCA" means the Texas Business Corporation Act as now in
effect or as hereafter amended.
VI. Enforceability.
A. This Article Eight shall be given its broadest effect and application
permissible under the TBCA and other applicable law and only to such extent. If
it is finally determined by a court of competent jurisdiction that this Article
Eight is invalid, illegal or unenforceable in any respect or respects, it shall
nevertheless be enforceable to the extent and given its broadest effect and
application found by such court to be consistent with the TBCA and other
applicable law.
VII. Non-Exclusive Rights.
A. The rights of indemnification and reimbursement provided herein shall
not be exclusive of any other rights to which such person may be entitled by
law, agreement, general or specific action of the Board of Directors,
shareholders' vote or otherwise.
ARTICLE NINE
I. Business Combinations.
A. The corporation shall not, directly or indirectly, enter into or engage
in a business combination with an affiliated shareholder, or any affiliate or
associate of such affiliated shareholder, during the three year period
immediately following such affiliated shareholder's share acquisition date
unless:
1. The business combination or the purchase or acquisition of shares
of the corporation made by such affiliated shareholder on the affiliated
shareholder's share acquisition date is approved by the Board of Directors of
the corporation before the affiliated shareholder's share acquisition date; or
2. The business combination is approved, by the affirmative vote of
the holders of at least two-thirds of the issued and outstanding voting shares
of the corporation not beneficially owned by such affiliated shareholder or an
affiliate or associate of such affiliated shareholder, at a meeting of
shareholders and not by written consent, duly called for that purpose not less
than six months after the affiliated shareholder's share acquisition date.
B. Paragraph I.A of this Article Nine shall not apply to:
1. A business combination of the corporation with an affiliated
shareholder that became an affiliated shareholder inadvertently, if the
affiliated shareholder:
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a. as soon as practicable divests itself of a sufficient
number of the voting shares of the corporation so that it no longer is the
beneficial owner, directly or indirectly, of twenty percent or more of the
issued and outstanding voting shares of the corporation; and
b. would not at anytime within the three year period
preceding the announcement date of the business combination, have been an
affiliated shareholder but for the inadvertent acquisition:
2. A business combination with affiliated shareholder or an
affiliate or associate of an affiliated shareholder who became an affiliated
shareholder through the transfer of shares of the corporation by will or
intestate succession and continuously was such an affiliated shareholder until
the announcement date of the business combination; or
3. A business combination of the corporation with a domestic
wholly-owned subsidiary if the domestic subsidiary is not an affiliate or
associate of the affiliated shareholder other than by reason of the affiliated
shareholder's beneficial ownership of voting shares in the corporation.
II. Other Actions.
A. This Article Nine shall not affect, directly or indirectly, the validity
of any other action by the Board of Directors of the corporation, nor does it
preclude the Board of Directors from taking other action in accordance with law,
nor does the Board of Directors incur a liability for elections made or not made
under this Article Nine.
III. Best Interests.
A. In discharging the duties of director under the TCBA or otherwise, a
director, in considering the best interests of the corporation, may consider the
long-term as well as the short-term interests of the corporation and its
shareholders, including the possibility that those interests may be best served
by the continued independence of the corporation.
IV. Validity.
A. If any provision or clause of this Article Nine or application thereof
to any person or circumstance is held invalid, such invalidity shall not affect
other provisions or applications of this Article Nine that can be given effect
without the invalid provision or application and without being inconsistent with
the intent of this Article Nine, and to this end, the provisions of this Article
Nine are declared to be severable.
V. Definitions.
In this Article Nine:
"Affiliate" means a person who directly or indirectly through one or
more intermediaries controls, is controlled by, or is under common control with,
a specified person.
"Affiliated Shareholder" means a person, other than the corporation or
a wholly-owned subsidiary of the corporation, that is the beneficial owner of
twenty percent or more of the
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issued and outstanding voting shares of the corporation, or that, within the
preceding three year period, was the beneficial owner of twenty percent or more
of the then issued and outstanding voting shares of the corporation. For
purposes of determining whether a person is an affiliated shareholder, the
number of voting shares of the corporation considered outstanding includes
shares considered beneficially owned by a Beneficial Owner, but does not include
other unissued voting shares of the corporation that may be issuable pursuant to
an agreement, arrangement or understanding, or upon exercise or conversion of
rights, warrants, or options, or otherwise.
"Associate," when used to indicate a relationship with any person,
means:
1. a corporation or organization (other than the corporation or a
majority owned subsidiary of the corporation) of which such person is an
officer, director or partner or is, directly or indirectly, the beneficial owner
of ten percent or more of any class of equity securities;
2. any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
capacity; or
3. any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or officer of
such person or any subsidiary of such person.
"Beneficial Owner" means a person who, with respect to shares or
similar securities:
1. individually, or with or through an affiliate or associate,
beneficially owns the shares or similar securities, directly or indirectly;
2. individually, or with or through an affiliate or associate, has the
right to:
a. acquire the shares or similar securities, whether the right
may be exercised immediately or only after the passage of time, pursuant to an
agreement, arrangement, or understanding, whether or not in writing, or upon the
exercise of conversion rights, exchange rights, warrants, or options, or
otherwise, except that a person is not considered the beneficial owner of shares
or similar securities (i) tendered pursuant to a tender or exchange offer made
by the person or an affiliate or associate until the tendered shares or similar
securities are accepted for purchase or exchange or (ii) that may be subject to
an agreement, arrangement, or understanding that expressly conditions the
acquisition or purchase on the approval of the acquisition or purchase pursuant
to Section I of this Article as long as such person has no direct or indirect
rights of ownership or voting with respect to such shares until such time that
such approval is obtained, at which time such person shall be considered the
beneficial owner of such shares; or
b. vote the shares or similar securities pursuant to an
agreement, arrangement, or understanding, whether or not in writing, except that
a person is not considered the beneficial owner of shares or similar securities
for purposes of this subparagraph if the agreement, arrangement, or
understanding to vote the shares: (i) arises solely from an immediately
revocable proxy that authorizes the person named in the proxy to vote at a
meeting of shareholders that has been called when the proxy is delivered or at
any adjournment
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of the meeting, and (ii) is not then reportable on a Schedule 13D under the
Securities Exchange Act of 1934 or a comparable or successor report; or
c. has an agreement, arrangement, or understanding, whether
or not in writing, to acquire, hold, or dispose (except pursuant to an
agreement, arrangement, or understanding permitted by paragraph 2.a under the
definition of "Beneficial Owner" or to vote (except under an immediately
revocable proxy under paragraph 2.b under the definition of "Beneficial Owner"
of this Section V) the shares or similar securities with another person who
beneficially owns, or whose affiliate or associate beneficially owns, directly
or indirectly, the shares or similar securities.
"Business combination" means:
1. any merger, share exchange, or conversion of the corporation or
a subsidiary with:
a. an affiliated shareholder;
b. a foreign or domestic corporation or other entity that
is, or after the merger, share exchange, or conversion would be, an affiliate or
associate of the affiliated shareholder; or
c. another domestic or foreign corporation or other entity,
if the merger, share exchange, or conversion is caused by an affiliated
shareholder, or an affiliate or associate of an affiliated shareholder, and as a
result of the merger, share exchange or conversion this Article does not apply
to the surviving corporation or other entity;
d. a sale, lease, exchange, mortgage, pledge, transfer, or
other disposition, in one transaction or a series of transactions, including an
allocation of assets pursuant to a merger, to or with the affiliated
shareholder, or an affiliate or associate of the affiliated shareholder, of
assets of the corporation or any subsidiary that:
e. have an aggregate market value equal to 10 percent or
more of the aggregate market value of all the assets, determined on a
consolidated basis, of the corporation;
f. have an aggregate market value equal to 10 percent or
more of the aggregate market value of all the outstanding common stock of the
corporation; or
g. represent 10 percent or more of the earning power or net
income, determined on a consolidated basis, or the corporation;
h. the issuance or transfer by the corporation or a
subsidiary to an affiliated shareholder or an affiliate or associate of the
affiliated shareholder, in one transaction or a series of transactions, of
shares of the corporation or a subsidiary, except by the exercise of warrants or
rights to purchase shares of the corporation offered, or a share dividend paid,
pro rata to all shareholders of the corporation after the affiliated
shareholder's share acquisition date;
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i. the adoption of a plan or proposal for the liquidation or
dissolution of a corporation proposed by, or pursuant to any agreement,
arrangement, or understanding whether or not in writing, with an affiliated
shareholder or an affiliate or associate of the affiliated shareholder.
j. a reclassification of securities, including a reverse
share split or a share split-up, share dividend, or other distribution of
shares, a recapitalization of the corporation, a merger of the corporation with
a subsidiary or pursuant to which the assets and liabilities of the corporation
are allocated among two or more surviving or new domestic or foreign corporation
or other entities, or any other transaction, whether or not with, into, or
otherwise involving the affiliated shareholder, proposed by, or pursuant to an
agreement, arrangement, or understanding, whether or not in writing, with an
affiliated shareholder or an affiliate or associate of the affiliated
shareholder that has the effect, directly or indirectly, of increasing the
proportionate ownership percentage of the outstanding shares of a class or
series of voting shares or securities convertible into voting shares of the
corporation that is beneficially owned by the affiliated shareholder or an
affiliate or associate of the affiliated shareholder, except as a result of
immaterial changes due to fractional share adjustments; or
k. the direct or indirect receipt by an affiliated
shareholder or an affiliate or associate of the affiliated shareholder of the
benefit of a loan, advance, guarantee, pledge, or other financial assistance or
a tax credit or other tax advantage provided by or through the corporation,
except proportionately as a shareholder of the corporation.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of equity securities, by contract, or
otherwise. A person's beneficial ownership of 10 percent or more of a person's
outstanding voting shares or similar interests creates a presumption that the
person has control of such other person.
"Person" means an individual, trust, domestic or foreign
corporation or other entity, or a government, or a political subdivision,
agency, or instrumentality of a government. If two or more persons act as a
partnership, limited partnership, syndicate, or other group under an agreement,
arrangement, or other understanding, whether or not in writing, to acquire,
hold, vote, or dispose of shares of a corporation, all members of the
partnership, limited partnership, syndicate, or other group are considered to be
a person.
"Share acquisition date" means the date that a person first
becomes an affiliated shareholder of the corporation.
"Subsidiary" means a domestic or foreign corporation or other
entity of which a majority of the outstanding voting shares are owned, directly
or indirectly, by the corporation.
"Voting share" means a share of capital stock of a corporation
entitled to vote generally in the election of directors.
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ARTICLE TEN
Special meetings of the shareholders of the corporation may be called
by the holders of at least 25% of the issued and outstanding shares of the
corporation entitled to vote at the proposed special meeting of shareholders of
the corporation.
ARTICLE ELEVEN
Any action required by the TCBA to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holder or holders of shares having
not less than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on the
action were present and voted.
ARTICLE TWELVE
The Board of Directors of the corporation shall have the sole power to
alter, amend or repeal the bylaws of the corporation or adopt new bylaws.
ARTICLE THIRTEEN
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of at least ONE THOUSAND
AND NO/100 DOLLARS ($1,000.00) consisting of money paid, labor done or property
actually received.
ARTICLE FOURTEEN
The address of its initial registered office is: 1300 So. University
Drive, Suite 200, Fort Worth, Texas 76107 and the registered agent at such
address is _________________.
ARTICLE FIFTEEN
The number of directors of the corporation shall be fixed form time to
time by the bylaws of the corporation, and such number may from time to time be
increased or decreased in such manner as may be prescribed in the bylaws. The
names and addresses of the persons currently serving as directors are as
follows, and such persons shall serve as directors until the annual meeting of
the shareholders of the corporation or until their successors are duly elected
and qualified.
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Dated day of , 1999 KEVCO, INC.
------- ----------
By:
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Name:
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Title:
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Its Authorized Officer
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EXHIBIT E
MONITORING AND OVERSIGHT AGREEMENT
249
MONITORING AND OVERSIGHT AGREEMENT
This Monitoring and Oversight Agreement (this "Agreement") is made and
entered into effective as of July ___, 1999, among Kevco, Inc., a Texas
corporation ("Kevco" and, together with its subsidiaries, the "Clients"), and
Wingate Management Limited, L.L.C., a Delaware limited liability company
(together with its successors, "WML").
WHEREAS, the Clients have requested that WML render certain financial
oversight and monitoring services to them.
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by WML to the Clients, and to evidence the obligations of the Clients
to WML and the mutual covenants herein contained, the Clients hereby jointly and
severally agree as follows:
1. Retention. The Clients hereby acknowledge that they have retained
WML, and WML acknowledges that, subject to reasonable advance notice in order to
accommodate scheduling, WML will provide financial oversight and monitoring
services to the Clients as requested by the board of directors of each of the
Clients during the term of this Agreement, such services include (i) during such
times as no full-time chief executive officer shall be employed by Kevco,
providing a WML affiliate to perform the management and oversight duties
associated with such office; (ii) during such times as Kevco has employed a
full-time chief executive officer, providing a chairman of the board who will
take an active roll in the management and affairs of Kevco; (iii) providing
assistance in strategic planning for Kevco, including the analysis of Kevco's
and its subsidiaries' performance in various sectors of their respective
businesses and providing recommendations for growth strategies and opportunities
for new markets and products; (iv) providing guidance in regard to consolidation
and rationalization of acquired businesses; (v) providing assistance in
identifying, interviewing, and engaging suitable candidates for senior executive
positions; (vi) providing assistance in identifying and securing suitable
candidates to act as independent directors of Kevco, as required by the rules
promulgated in respect of the National Association of Securities Dealers
National Market System; (vii) providing assistance in Kevco's annual budgetary
process; (viii) providing assistance in the analysis of existing and proposed
credit arrangements for Kevco and, as and when appropriate, identifying lenders
and in negotiating credit documents; (ix) providing assistance in identifying
suitable consultants and advisors for Kevco's varying needs and negotiating
engagement arrangements for such consultants and advisors; and (x) providing
assistance in evaluating when and whether Kevco should access the public markets
for equity or debt capital and in identifying appropriate professionals to
assist in executing any strategy involving the public offering of equity or
debt.
2. Term. The term of this Agreement shall continue until the earlier to
occur of (i) the fifth anniversary of the delivery of a notice of termination of
this Agreement by either party hereto, or (ii) the date on which WML, Wingate
Partners II, L.P., Armbuck & Co., H C Crown Corp. and their respective
affiliates (the "Initial Investors") cease in the aggregate to own beneficially,
directly or indirectly, five percent of the outstanding voting securities of
Kevco or its successors.
3. Compensation.
(a) As compensation for WML's services under this Agreement,
the Clients shall be jointly and severally obligated to pay to WML an
annual fee (the "Monitoring Fee") of (i) $41,667.00 per month for each
of the first 24 months after the date hereof provided that the first
and last payments shall be prorated on a daily basis for a partial
calendar month commencing on the date hereof and (ii) thereafter,
through the end of the term of this Agreement, an annual fee (the "Base
Fee") of (a) $200,000, plus (b) 2.4% of Kevco's pre-tax income (on a
GAAP basis);
250
provided, however, that (i) in the case of fees under clause (b), the
pre-tax income of Kevco for such year is at least $5,000,000, and (ii)
in the case of fees under clauses (a) and (b), such fees shall be
prorated on a daily basis for any partial calendar month or year, as
the case may be during the term of this Agreement. The fee pursuant to
clause (a) shall be payable quarterly in arrears in equal quarterly
installments on each January 1, April 1, July 1, and October 1 (each, a
"Payment Date") during the term of this Agreement, beginning with the
first applicable Payment Date following the date hereof, and the fee
pursuant to clause (b) shall be payable annually in arrears within 30
days after certification of the Company's audited financial statements
by its auditors. All payments shall be made by wire transfer of
immediately available funds to the account described on EXHIBIT A
hereto (or such other account as WML may hereafter designate in
writing).
(b) All past due payments in respect of the Monitoring Fee
shall bear interest at the lesser of the highest rate of interest which
may be charged under applicable law or the prime commercial lending
rate per annum of Chase Manhattan Bank or its successors (which rate is
a reference rate and is not necessarily its lowest or best rate of
interest actually charged to any customer) (the "Prime Rate") as in
effect from time to time, plus five percent, from the due date of such
payment to and including the date on which payment is made to WML in
full, including such interest accrued thereon.
4. Reimbursement of Expenses. In addition to the compensation to be
paid pursuant to Section 3, the Clients jointly and severally shall pay or
reimburse WML for all "Reimbursable Expenses," which shall consist of all
reasonable disbursements and out-of-pocket expenses (including costs of travel,
postage, deliveries, communications, etc.) incurred by WML or its affiliates and
representatives for the account of any of the Clients, or in connection with the
performance by WML of the services contemplated by Section 1. Promptly (but not
more than ten days) after request by or notice from WML, the applicable Client
shall pay WML, by wire transfer of immediately available funds to the account
described on EXHIBIT A hereto (or such other account as WML may hereafter
designate in writing), the Reimbursable Expenses for which WML has provided such
Client invoices or reasonably detailed descriptions. All past due payments in
respect of the Reimbursable Expenses shall bear interest at the lesser of the
highest rate of interest which may be charged under applicable law or the Prime
Rate plus five percent from the Payment Date to and including the date on which
such Reimbursable Expenses plus accrued interest thereon are fully paid to WML.
5. Indemnification. The Clients jointly and severally shall indemnify
and hold harmless each of WML, its affiliates, and their respective directors,
partners, members, managers, officers, controlling persons (within the meaning
of Section 15 of the Securities Act of 1933, as amended, or Section 20(a) of the
Securities Exchange Act of 1934, as amended), if any, agents and employees
(collectively, the "Indemnified Persons") from and against any and all claims,
liabilities, losses, damages, and expenses incurred by any Indemnified Person
(including those arising out of an Indemnified Person's negligence and fees and
disbursements of the respective Indemnified Person's counsel) which (i) are
related to or arise out of (A) actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by any of the
Clients or (B) actions taken or omitted to be taken by an Indemnified Person
with any Client's consent or in conformity with any Client's instructions or any
Client's actions or omissions or (ii) are otherwise related to or arise out of
WML's engagement, and will reimburse each Indemnified Person for all costs and
expenses, including fees and disbursements of any Indemnified Person's counsel,
as they are incurred, in connection with investigating, preparing for,
defending, or appealing any action, formal or informal claim, investigation,
inquiry, or other proceeding, whether or not in connection with pending or
threatened litigation, caused by or arising out of or in
2
251
connection with WML's acting pursuant to the engagement, whether or not any
Indemnified Person is named as a party thereto and whether or not any liability
results therefrom. None of the Clients will, however, be responsible for any
claims, liabilities, losses, damages, or expenses pursuant to clause (i) or (ii)
of the preceding sentence that have resulted primarily from WML's bad faith,
gross negligence, or willful misconduct. Each of the Clients also agrees that
neither WML nor any other Indemnified Person shall have any liability to any
Client for or in connection with such engagement except for any such liability
for claims, liabilities, losses, damages, or expenses incurred by any Client
that have resulted primarily from WML's bad faith, gross negligence, or willful
misconduct. Each Client further agrees that it will not, without the prior
written consent of WML, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit, or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit,
or proceeding) unless such settlement, compromise, or consent includes an
unconditional release of WML and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit, or proceeding. EACH
CLIENT HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO
ALL CLAIMS, LIABILITIES, LOSSES, DAMAGES, OR EXPENSES THAT HAVE RESULTED FROM OR
ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT, OR
CONCURRENT ORDINARY NEGLIGENCE OF WML OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that WML and/or any other Indemnified Person may have at common law or otherwise
and shall remain in full force and effect following the completion or any
termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this Agreement is brought against WML or any other Indemnified
Person.
It is understood that, in connection with WML's engagement, WML may
also be engaged to act for any Client in one or more additional capacities, and
that the terms of this engagement or any such additional engagement may be
embodied in one or more separate written agreements. This indemnification shall
apply to the engagement specified in the first paragraph hereof as well as to
any such additional engagement(s) (whether written or oral) and any modification
of said engagement or such additional engagement(s) and shall remain in full
force and effect following the completion or termination of said engagement or
such additional engagement(s).
Each Client further understands that if WML is asked to furnish any
Client a financial opinion letter or act for any Client in any other formal
capacity, such further action may be subject to a separate agreement containing
provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance of the
services hereunder, WML shall not divulge any confidential information, secret
processes, or trade secrets disclosed by any Client to it solely in its capacity
as a financial advisor, unless such Client consents to the divulging thereof or
such information, secret processes, or trade secrets are publicly available or
otherwise available to WML without restriction or breach of any confidentiality
agreement or unless required by any governmental authority or in response to any
valid legal process.
7. Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained herein shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, neither this Agreement nor
any of the rights, interests, or obligations hereunder shall be assigned (other
than in respect of the rights and obligations of WML, which may be assigned to
any one
3
252
or more of its principals or affiliates) by any of the parties without the prior
written consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.
10. Entire Agreement. All discussions, understandings, and agreements
theretofore made between any of the parties hereto in respect of the subject
matter hereof are merged in this Agreement, which alone fully and completely
expresses the agreement of the parties hereto. All calculations of the
Monitoring Fee, the Base Fee, and Reimbursable Expenses shall be made by WML
and, in the absence of mathematical error, shall be final and conclusive.
11. Construction. Unless the context otherwise requires, (i) all
references to Sections and Exhibits contained in this Agreement are references
to Sections and Exhibits of or to this Agreement, (ii) words in the singular
shall include the plural and vice versa, (iii) words of any gender shall include
each other gender, (iv) "include," "including," and their derivatives shall mean
"including without limitation"; and (v) "person" shall mean any individual,
corporation, partnership, limited liability company, joint venture, trust,
unincorporated association, or other form of business or legal entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
4
253
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
WINGATE MANAGEMENT LIMITED, L.L.C.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
KEVCO, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
KEVCO MANAGEMENT, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
KEVCO HOLDINGS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
KEVCO GP, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
KEVCO COMPONENTS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
5
254
DCM DELAWARE, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
6
255
EXHIBIT A
WIRE TRANSFER INSTRUCTIONS
Chase Bank of Texas, N.A.
ABA #: 113000609
Account #: 08805134543
Credit: Wingate Partners II, L.P.
Reference: Payment of Monitoring Fees or Expenses by Kevco, Inc.
256
EXHIBIT F
FINANCIAL ADVISORY AGREEMENT
257
FINANCIAL ADVISORY AGREEMENT
This Financial Advisory Agreement (this "Agreement") is made and
entered into effective as of July ___, 1999, among Kevco, Inc., a Texas
corporation ("Kevco" and, together with its subsidiaries, the "Clients"), and
Wingate Management Limited, L.L.C., a Delaware limited liability company
(together with its successors, "WML").
WHEREAS, the Clients have requested that WML render financial
advisory, investment banking, and other similar services to them in respect of
any future proposals for a tender offer, acquisition, sale, merger, exchange
offer, recapitalization, restructuring, or other similar transaction directly
or indirectly involving the Clients or any of their respective subsidiaries,
and any other person (collectively, "Extraordinary Transactions").
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by WML to the Clients, and to evidence the obligations of the Clients
to WML and the mutual covenants herein contained, the Clients hereby jointly
and severally agree as follows:
1. Retention. Each of the Clients acknowledges that it has retained
WML as its non-exclusive financial advisor in connection with any Extraordinary
Transaction that may be consummated during the term of this Agreement. WML
shall provide such financial advisory, investment banking, and other similar
services in connection with any such Extraordinary Transaction as may be
requested from time to time by the board of directors of Kevco.
2. Term. The term of this Agreement shall continue until the earlier
to occur of (i) the fifth anniversary of the delivery of a notice of
termination of this Agreement by either party hereof or (ii) the date on which
WML, Wingate Partners II, L.P., Armbuck & Co., H C Crown Corp. and their
respective affiliates (the "Initial Purchasers") cease in the aggregate to own
beneficially, directly or indirectly, five percent of the outstanding
securities of Kevco or its successors.
3. Compensation. As compensation for WML's financial advisory,
investment banking, and other similar services rendered in connection with any
Extraordinary Transaction pursuant to Section 1, the applicable Client shall
pay to WML, at the closing of any such Extraordinary Transaction, (i) a cash
fee in the amount of 1.5% of the Transaction Value of such Extraordinary
Transaction if WML originates the Extraordinary Transaction and no fee or
commission is payable by the applicable Client to any other financial advisor
or investment banking firm in respect of the origination of such Extraordinary
Transaction, or (ii) a cash fee in the amount of 1.0% of the Transaction Value
of such Extraordinary Transaction if WML does not originate such Extraordinary
Transaction but serves as the principal financial advisor to the applicable
Client in respect of the Extraordinary Transaction. "Transaction Value" means
the total value of the Extraordinary Transaction, including, the aggregate
amount of the funds required to complete the Extraordinary Transaction
(excluding any fees payable pursuant to this Section 3(a)) including the amount
of any indebtedness, preferred stock, or similar items assumed (or remaining
outstanding).
4. Reimbursement of Expenses. In addition to the compensation to be
paid pursuant to Section 3, the applicable Client or Clients shall reimburse
WML, promptly following demand therefor, together with invoices or reasonably
detailed descriptions thereof, for all reasonable disbursements and
out-of-pocket expenses (including fees and disbursements of counsel) incurred
by WML in connection with the performance by it of the services contemplated by
Section 1.
258
5. Indemnification. The Clients jointly and severally shall indemnify
and hold harmless each of WML, its affiliates, and their respective directors,
officers, controlling persons (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20(a) of the Securities Exchange
Act of 1934, as amended), if any, agents, and employees (collectively, the
"Indemnified Persons") from and against any and all claims, liabilities,
losses, damages, and expenses incurred by any Indemnified Person (including
those resulting from the negligence of the Indemnified Person and fees and
disbursements of the respective Indemnified Person's counsel) which (i) are
related to or arise out of (A) actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by any Client
or (B) actions taken or omitted to be taken by an Indemnified Person with any
Client's consent or in conformity with any Client's instructions or any
Client's actions or omissions or (ii) are otherwise related to or arise out of
WML's engagement, and will reimburse each Indemnified Person for all costs and
expenses, including fees of any Indemnified Person's counsel, as they are
incurred, in connection with investigating, preparing for, defending, or
appealing any action, formal or informal claim, investigation, inquiry, or
other proceeding, whether or not in connection with pending or threatened
litigation, caused by or arising out of or in connection with WML's acting
pursuant to the engagement, whether or not any Indemnified Person is named as a
party thereto and whether or not any liability results therefrom. None of the
Clients will, however, be responsible for any claims, liabilities, losses,
damages, or expenses pursuant to clause (ii) of the preceding sentence that
have resulted primarily from WML's bad faith, gross negligence, or willful
misconduct. The Clients also agree that neither WML nor any other Indemnified
Person shall have any liability to any Client for or in connection with such
engagement except for any such liability for claims, liabilities, losses,
damages, or expenses incurred by any Client that have resulted primarily from
WML's bad faith, gross negligence, or willful misconduct. Each Client further
agrees that it will not, without the prior written consent of WML, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit, or proceeding in respect of which indemnification may be
sought hereunder (whether or not any Indemnified Person is an actual or
potential party to such claim, action, suit, or proceeding) unless such
settlement, compromise, or consent includes an unconditional release of WML and
each other Indemnified Person hereunder from all liability arising out of such
claim, action, suit, or proceeding. EACH CLIENT HEREBY ACKNOWLEDGES THAT THE
FOREGOING INDEMNITY SHALL BE APPLICABLE TO ALL CLAIMS, LIABILITIES, LOSSES,
DAMAGES, OR EXPENSES THAT HAVE RESULTED FROM OR ARE ALLEGED TO HAVE RESULTED
FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT, OR CONCURRENT ORDINARY
NEGLIGENCE OF WML OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that WML and/or any other Indemnified Person may have at common law or
otherwise and shall remain in full force and effect following the completion or
any termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this Agreement is brought against WML or any other Indemnified
Person.
It is understood that, in connection with WML's engagement, WML may
also be engaged to act for any Client in one or more additional capacities, and
that the terms of this engagement or any such additional engagement may be
embodied in one or more separate written agreements. This indemnification shall
apply to the engagement specified in the first paragraph hereof as well as to
any such additional engagement(s) (whether written or oral) and any
modification of said engagement or such additional engagement(s) and shall
remain in full force and effect following the completion or termination of said
engagement or such additional engagement(s).
2
259
Each Client further understands that if WML is asked to furnish any
Client a financial opinion letter or act for any Client in any other formal
capacity, such further action may be subject to a separate agreement containing
provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance of the
services hereunder, WML shall not divulge any confidential information, secret
processes, or trade secrets disclosed by any Client to it solely in its
capacity as a financial advisor, unless the applicable Client consents to the
divulging thereof or such information, secret processes, or trade secrets are
publicly available or otherwise available to WML without restriction or breach
of any confidentiality agreement or unless required by any governmental
authority or in response to any valid legal process.
7. Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained herein
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned
(other than in respect of the rights and obligations of WML, which may be
assigned to any one or more of its principals or affiliates) by any of the
parties without the prior written consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended
to, any other counterpart.
10. Entire Agreement. All discussions, understandings, and agreements
theretofore made between any of the parties hereto in respect of the subject
matter hereof are merged in this Agreement, which alone fully and completely
expresses the agreement of the parties hereto.
11. Construction. Unless the context otherwise requires, (i) all
references to Sections contained in this Agreement are references to Sections
of this Agreement, (ii) words in the singular shall include the plural and vice
versa, (iii) words of any gender shall include each other gender, (iv)
"include," "including," and their derivatives shall mean "including without
limitation"; and (v) "person" shall mean any individual, corporation,
partnership, limited liability company, joint venture, trust, unincorporated
association, or other form of business or legal entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
3
260
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
WINGATE MANAGEMENT LIMITED, L.L.C.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
KEVCO, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
KEVCO MANAGEMENT, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
KEVCO HOLDINGS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
KEVCO GP, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
KEVCO COMPONENTS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
4
261
DCM DELAWARE, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
5
262
EXHIBIT G
BYLAW AMENDMENTS
263
FIRST AMENDMENT TO BYLAWS OF KEVCO, INC.
ADOPTED JULY ___, 1999
I, ______________________, the duly elected and acting secretary of
Kevco, Inc. (the "Corporation") do hereby certify that the following amendments
to the Bylaws of the Corporation were duly and validly approved and adopted
pursuant to Bylaw 8.07 of the Corporation's Bylaws by resolution of the
Corporation's board of directors at a meeting duly called and held, such
amendment to be effective as of the ___ day of July, 1999.
-----------------------------------
Name:
------------------------------
Secretary:
-------------------------
The Bylaws of the Corporation, are hereby amended as follows:
1. Bylaw 3.02(a) is hereby amended by deleting Bylaw 3.02(a) in its
entirety and replacing in lieu thereof the following:
"(a) REGULAR DIRECTORS. Except as otherwise provided by the
Articles of Incorporation, including, without limitation, by the terms
of the provisions of the Corporation's Tranche A and Tranche B Senior
Subordinated Exchangeable Notes (the "Notes") and Series A and Series
B 10 3/8% Convertible Pay-in-Kind Preferred Stock (as it may be
subsequently authorized in Amended and Restated Articles of
Incorporation, the "Preferred Stock"), the number of directors shall
not be less than two (2) or more than nine (9) and shall be fixed from
time to time by the board of directors. Except as otherwise provided
by the Preferred Stock, or Bylaws 3.02(c), 3.03, and 3.05, such
directors shall be elected at the annual meeting of shareholders. Each
director shall hold office until his successor is elected and
qualified, or, if earlier, until his death, resignation, or removal
from office. None of the directors need be a stockholder of the
corporation or a resident of the State of Texas."
2. Bylaw 3.02(b) is hereby amended by deleting Bylaw 3.02(b) in its
entirety and replacing in lieu thereof the following:
"(b) CLASSIFICATION OF DIRECTORS. Subject to the last
sentence of this Bylaw 3.02(b), the board of directors shall be
classified in respect of the time for which they shall severally hold
office by dividing the board into three (3) classes, each class to be
as nearly equal in number as possible. Each director of the
corporation shall hold office until his successor is duly elected and
qualified, or if earlier, until his death, resignation, or removal
from office. Subject to the last sentence of this Bylaw 3.02(b), the
term of office of directors of the first class shall expire at the
first annual meeting of shareholders after their election, the term of
office of the second class of directors shall expire at the second
annual meeting of shareholders after their election, and the term of
office of the third
264
class of directors shall expire at the third annual meeting of
shareholders after their election. At each annual meeting of
shareholders after such classification, the number of directors equal
to the number of the class whose term expires at the time of such
meeting shall be elected to hold office until the third succeeding
annual meeting so that the term of office of one class of directors
shall expire each year. Notwithstanding any other provision of these
Bylaws to the contrary, any director or directors permitted to be
elected pursuant to the Notes and the Preferred Stock shall not be
classified and any directors so elected shall hold office for the term
provided for by Preferred Stock."
3. Bylaw 3.02(c) is hereby amended by deleting Bylaw 3.02(c) in its
entirety and replacing in lieu thereof the following:
"(b) ELECTION. At each election for directors, every
shareholder entitled to vote at such election shall have the right to
vote the number of shares owned by such shareholder for as many
persons as there are directors to be elected and for whose election he
has a right to vote. At each annual meeting of shareholders, the
holders of shares entitled to vote in the election of directors shall
elect directors to hold office until the next succeeding annual
meeting, except in the case of the classification of directors and
except as may otherwise be provided by the Notes and the Preferred
Stock."
4. Bylaw 3.03 is hereby amended by deleting Bylaw 3.03 in its entirety
and replacing in lieu thereof the following:
"CHANGE IN NUMBER. The number of directors may be increased
or decreased by resolution of the board of directors from time to
time, but no decrease shall have the effect of shortening the term of
any incumbent director. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election at an
annual meeting of shareholders or at a special meeting of shareholders
called for that purpose or may be filled by the board of directors for
a term of office continuing only until the next election of one or
more directors by the shareholders; provided, however, that the board
of directors may not fill more than two such directorships during the
period between any two successive annual meetings of shareholders. Any
director(s) elected in accordance with the terms of the Notes and the
Preferred Stock shall be excluded for the purpose of determining the
maximum number of directors under Bylaw 3.02(a)."
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265
5. Bylaw 3.04 is hereby amended by deleting Bylaw 3.04 in its entirety
and replacing in lieu thereof the following:
"REMOVAL. Except as otherwise provided by the Notes and the
Preferred Stock, any director or the entire board of directors may be
removed, for or without cause, at any meeting of shareholders called
expressly for that purpose by the affirmative vote of at least a
majority in number of the shares then entitled to vote at the election
of directors."
6. Bylaw 3.05 is hereby amended by deleting Bylaw 3.05 in its entirety
and replacing in lieu thereof the following:
"VACANCIES. Except as otherwise provided in the Notes and the
Preferred Stock, any vacancy occurring in the board of directors after
the issuance of shares (by death, resignation, or removal) may be
filled by an affirmative vote of a majority of the remaining directors
though less than a quorum of the board of directors. A director
elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office."
7. The first sentence of Bylaw 3.06 is hereby amended by deleting the
first sentence of Bylaw 3.06 in its entirety and replacing in lieu thereof the
following:
"Other than in respect of the initial directors and directors
elected pursuant to the Notes and the Preferred Stock, only persons
who are nominated in accordance with the procedure set forth in these
Bylaws shall be eligible for election as, and to serve as, directors."
8. The penultimate sentence of the first paragraph of Bylaw 3.06 is
hereby amended by deleting such sentence in its entirety and replacing in lieu
thereof the following:
"Other than directors chosen pursuant to the provisions of
Bylaw 3.05, and directors otherwise chosen in accordance with the
terms of the Notes and the Preferred Stock, no person shall be
eligible to serve as a director of the corporation unless nominated in
accordance with the procedures set forth in this Bylaw 3.06."
9. Bylaw 8.07 is hereby amended by deleting Bylaw 8.07 in its entirety
and replacing in lieu thereof the following:
"AMENDMENT OF BYLAWS. Except as otherwise provided in the
Notes and the Preferred Stock, these Bylaws may be altered, amended,
or repealed or new bylaws adopted at any meeting of the board of
directors at which a quorum is present by the affirmative vote of a
majority of the directors present at such meeting, provided notice of
the proposed alteration, amendment, or repeal is contained in the
notice of such meeting; provided, that for so long as the Notes and
the Preferred Stock or any portion thereof is outstanding, no such
amendment shall materially and adversely affect the rights of holders
of the Notes and the Preferred Stock."
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266
EXHIBIT H
CONSULTING AGREEMENT
267
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (this "Agreement") is made as of July ___,
1999 between Kevco, Inc, a Texas corporation (the "Company"), and Mr. Gerald E.
Kimmel (the "Consultant"). Capitalized terms used without definition herein
shall have the meanings assigned to such terms in the Securities Purchase
Agreement, dated as of July 14, 1999, between the Company and Wingate Partners
II, L.P. (the "Securities Purchase Agreement").
WHEREAS, prior to the date hereof, the Consultant has served as the
Chairman of the Board of Directors of the Company (the "Board") and President
and Chief Executive Officer of the Company and has contributed greatly to the
Company's growth and success;
WHEREAS, on the date hereof, in connection with certain business
transactions which the Company is completing and in consideration of the
Company's obligations hereunder, the Company and the Consultant have agreed to
terminate the Consultant's current Employment Agreement, dated as of October 1,
1996 (the "Existing Agreement"), and the Consultant is resigning from the
positions described above;
WHEREAS, the Company desires to ensure the availability to the Company
of the Consultant's expertise and experience;
WHEREAS, following the date hereof, the Consultant will continue to be
the beneficial owner of a substantial amount of the Company's outstanding voting
common stock;
WHEREAS, the Company wishes the Consultant to continue to serve as a
Director of the Company and to serve as the non-executive Vice Chairman of the
Board and the Consultant is willing to and desirous of serving in such
positions; and
WHEREAS, the Consultant is willing to provide such assistance and
assurance, all upon and subject to the terms and conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth in this Agreement, the Company and the Consultant agree as
follows:
1. Term of Consultancy Engagement; Duties.
(a) Term. The Company hereby agrees to engage the Consultant as a
consultant, and the Consultant hereby agrees to serve in such capacity, for a
period of four years commencing on the date hereof (the "Term").
(b) Engagement. In his capacity as a consultant hereunder, the
Consultant periodically will make himself reasonably available to the Company to
advise with respect to issues that may arise from time to time concerning
aspects of the Company's businesses with which the Consultant has particular
expertise or experience. In performing his duties hereunder, the Consultant
shall coordinate and communicate his efforts with the Board. The Consultant
shall not be required to follow any formal schedule of duties or assignments and
shall perform the consultancy in a manner that the Consultant determines is
reasonable.
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2. Compensation; Benefits.
(a) Compensation. In consideration for the Consultant's consulting
undertakings as set forth in paragraph 1, the Company shall pay the Consultant
an annual fee of $210,000.00 per year, which amount shall be payable in equal
installments not less than once each month during the Term. The Company shall
reimburse the Consultant promptly after receipt of an invoice evidenced by
appropriate receipts, for all reasonable business expenses (including travel
expenses) incurred by the Consultant in connection with performing consulting
services for the Company hereunder.
(b) Medical and Dental Benefits. Until the death of the survivor of the
Consultant and the Consultant's Spouse (the "Coverage Term"), the Company shall
use its reasonable best efforts to include the Consultant and Consultant's
spouse in all present and future group health, medical, dental, hospitalization,
and similar programs offered by the Company and its subsidiaries to their
respective employees generally (collectively the "Insurance Coverage"), and the
Company shall not take any action, or fail to take any action, the effect or
result of which would be to exclude or otherwise disqualify the Consultant or
Consultant's spouse from inclusion in the Insurance Coverage. During the Term,
the Company shall bear all costs and expenses of the Insurance Coverage for the
Consultant and the Consultant's spouse but at all times thereafter during the
Coverage Term, the Consultant shall bear the premium costs and shall be
responsible for all co-payments, deductibles, and all other costs in the same
manner and to the same extent as the active employees of the Company with
respect to such Insurance Coverage. During the Term, if the Consultant or
Consultant's spouse cannot be included in or covered by the Insurance Coverage
or if there is no Insurance Coverage or to the extent there is no Insurance
Coverage, the Company shall obtain for Consultant or Consultant's spouse and
shall keep in full force and effect during the Term, comparable or additional
coverage for such persons; provided, however, if any such coverage is not
available or to the extent any of such coverage is not available, the Company
shall, at its sole cost and expense, pay or reimburse the Consultant and
Consultant's spouse for, all health, medical, dental, hospitalization,
deductibles, and other similar costs and expenses (collectively, the "Health
Costs") incurred or sustained by such persons during the Term not covered or
paid for by the Insurance Coverage or such other coverage, including the
insurance premiums for the Insurance Coverage or other coverage. In determining
whether coverage is "comparable coverage" the following factors, among others,
shall be considered relevant: quality of care, freedom to select facilities,
physicians, and other health care providers, relative financial responsibility
of insured and insurer to cover Health Costs, benefits and illnesses covered by
the applicable insurance, and each of obtaining health care provider services.
If the Company desires to sell or otherwise transfer to a third party
all or substantially all of the assets or equity of the Company, the Company
covenants and agrees to and with the Consultant to cause such third party to
assume the obligations set forth in this paragraph 2(b), but any such assumption
shall not relieve the Company of its obligations hereunder. The obligations of
the Company under this paragraph 2(b) shall survive the expiration of the Term.
(c) Obligations Absolute. The Company's obligations in respect of the
compensation payments and medical and dental benefits provided herein shall be
an absolute obligation of the Company and shall be paid regardless of whether
the Consultant actually performs any consulting services during the Term and
such obligations shall not be subject to any claims or rights of set-off,
mitigation or otherwise.
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3. Directorship; Information; Indemnity for Certain Expenses.
(a) Directorship.
(i) For so long as the Consultant remains the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended) of at least twelve percent (12%) of the outstanding common
stock of the Company, the Company shall use its reasonable best efforts to
ensure that at all times the Consultant and one other person designated by the
Consultant and reasonably acceptable to the Company (such person or any
replacement designated by the Consultant, hereinafter the "Designee") shall be
directors of the Company and, to such end, the Company agrees to (acting through
the Board or otherwise) nominate the Consultant and the Designee to serve as
directors of the Company, to include the Consultant and the Designee in the
slate of nominees recommended by the Board to the Company's shareholders for
election as directors at such annual meetings (or special meetings) as
applicable and to use its reasonable best efforts to cause the election of the
Consultant and the Designee as directors of the Company, including by soliciting
proxies in favor of the election of the Consultant and the Designee.
(ii) For so long as the Consultant remains the "beneficial
owner" of at least five percent (5%) of the outstanding common stock of the
Company but less than twelve percent (12%) of the outstanding common stock of
the Company, the Company shall use its reasonable best efforts to ensure that at
all times the Consultant shall be a director of the Company and, to such end,
the Company agrees to (acting through the Board or otherwise) nominate the
Consultant to serve as a director of the Company, to include the Consultant in
the slate of nominees recommended by the Board to the Company's shareholders for
election as directors at such annual meetings (or special meetings) as
applicable and to use its reasonable best efforts to cause the election of the
Consultant as a director of the Company, including by soliciting proxies in
favor of the election of the Consultant.
(iii) At all times during which the Consultant serves as a
director of the Company, the Company agrees to (acting through the Board or
otherwise) appoint the Consultant to serve as the non-executive Vice Chairman of
the Board.
(b) Information. At any time during which the Consultant has the right
to be nominated as a director pursuant to Section 3(a) hereof, the Company will
make available to the Consultant such financial and other information concerning
the Company and its business and affairs as he may reasonably request in
connection with his status as a director of the Company.
(c) Reimbursement for Certain Expenses. The Company agrees that, in
addition to any rights the Consultant may have to indemnification or
reimbursement from the Company pursuant to the provisions of the Company's
charter, under applicable law or any applicable policy of insurance, in his
capacities as a present or former officer and/or director of the Company, the
Company will reimburse the Consultant for costs or expenses (including
reasonable attorney's fees and expenses) incurred in defending or responding to
any claim, action, suit, proceeding or investigation arising out of or
pertaining to this Agreement, the Securities Purchase Agreement or any of the
transactions contemplated hereby or thereby, provided the Consultant is
ultimately found not to be liable to the Company or its shareholders in any such
claim, action, suit, proceeding, or investigation.
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4. Nondisclosure of Confidential Information. The Consultant acknowledges
that he may have access, during the course of service as a Consultant to the
Company, to certain confidential and proprietary information and products of the
Company (collectively referred to herein as the "Confidential Information").
Consultant agrees not to disclose any Confidential Information unless (i)
expressly authorized in writing by the Company, (ii) such Confidential
Information is publicly available or (iii) disclosure is required by any
governmental authority or in response to any valid legal process.
5. Demand Registration.
(a) Upon receipt by the Company at any time following the second
anniversary of the Closing Date of a written request from the Consultant for
registration of the resale of any Registrable Shares (as defined herein), the
Company shall use its commercially reasonable efforts to cause a registration
statement to be filed under the Securities Act, and any other applicable Laws,
within 60 days after the receipt of such request. The Company shall use all
commercially reasonable efforts to cause any such registration statement to
become effective and to maintain the effectiveness of such registration
statement until (x) the date all Registrable Shares have been sold pursuant
thereto or (y) 180 days after the effective date of such registration statement.
The term "registration statement" means a registration statement filed under the
Securities Act, or any similar disclosure document, filing, or listing
particulars utilized in connection with a Public Equity Offering. "Registrable
Shares" means shares of Stock owned by Consultant and his Affiliates on the date
of this Agreement and all other shares of Stock acquired from time to time by
the Consultant or his Affiliates and any securities issued or issuable with
respect to any such shares of Stock by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, share exchange,
merger, consolidation, reorganization, Business Combination, or otherwise. As to
any particular Registrable Shares, such securities shall cease to be Registrable
Shares when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act (or under the
applicable Laws of the relevant jurisdiction) and such securities shall have
been disposed of in accordance with the plan of distribution set forth in such
registration statement, (ii) such securities shall have been distributed in
accordance with Rule 144 of the Securities Act, or (iii) such securities shall
have been otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered in exchange therefor by
the Company and subsequent disposition of such shares shall not require
registration or qualification under the Securities Act or any other applicable
Law.
(b) The Consultant shall be permitted to make two requests pursuant to
the provisions of Section 5(a), provided that no request will be (i) allowed
unless the Company and the security offering shall at that time satisfy the
eligibility requirements for use of Form S-1 or any successor form and (ii)
counted against this limit unless, it has become effective and remained
effective for a period of at least 30 days; provided, however, that if, within
180 days after it has become effective, an offering of Registrable Shares
pursuant to a registration is interfered with by any stop order, injunction, or
other order or requirement of the Securities and Exchange Commission (the
"Commission") or other Governmental Body, such registration will be deemed not
to have been effected and will not count as a Demand Registration. A
registration that is undertaken by the Company in response to a valid request
made by the Consultant pursuant to this Section 5 shall be referred to herein as
a "Demand Registration." Notwithstanding the foregoing provisions of this
Section 5(b), the Company shall not be required to register any Registrable
Shares pursuant this Section 5(b) at any time (i) within 120 days of the
effective date
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of any registration statement filed as a result of the exercise of any demand
registration rights by the Consultant or any other shareholder of the Company,
or (ii) in the event that the Company has registered shares of any class of its
capital stock pursuant to any demand registration rights on more than two
occasions in the preceding 12 months.
(c) The Company shall pay all registration expenses incurred with
respect to Section 5(a) (other than customary underwriting and broker
commissions), including, without limitation, the reasonable fees and
disbursements of one (but only one) legal firm or counsel to represent Purchaser
and the Consultant in the case of a Demand Registration.
(d) The offering of Registrable Shares pursuant to a Demand
Registration shall be in the form of a "firm commitment" underwritten offering.
The Board of Directors shall select the investment banking firm or firms to
manage the underwritten offering; provided, however, that such selection shall
be subject to the consent of the Consultant, which consent shall not be
unreasonably withheld or delayed.
6. Incidental or "Piggyback" Registration Rights.
(a) If the Company or any holder of shares of Stock proposes to sell
shares of Stock in a Public Equity Offering, the Company shall give written
notice, at least 15 days prior to the filing of a registration statement related
to such Public Equity Offering (other than a registration statement relating
solely to employee benefit plans or to effect any acquisition or combination
with another Person), of such proposed Public Equity Offering to the Consultant
which notice shall offer to the Consultant and his Affiliates the opportunity to
include in such Public Equity Offering such number of Registrable Shares as the
Consultant and his Affiliates may request. Within 20 days after receipt of such
notice, the Consultant and his Affiliates shall, subject to the following
sentence, have the right by notifying the Company in writing to require the
Company to include in the registration statement relating to such Public Equity
Offering such number of Registrable Shares as the Consultant or his Affiliates
may request. Notwithstanding the foregoing, (x) if at any time the managing
underwriter or underwriters of such Public Equity Offering (the "Managing
Underwriter") shall advise the Company in writing that, in its opinion, the
total number of shares proposed to be sold in such Public Equity Offering
(including the total number of Registrable Shares that the Consultant and his
Affiliates have requested to be sold in such Public Equity Offering and the
total number of shares of Stock requested to be included by any other selling
shareholder entitled to sell shares in such Public Equity Offering) exceeds the
maximum number of shares which the Managing Underwriter believes may be sold
without materially adversely affecting the price, timing, or distribution of the
Public Equity Offering, then the Company will be required to include in such
Public Equity Offering only that number of shares which the Managing Underwriter
believes may be sold without causing such adverse effect in the following order:
(i) all the shares that the Company proposes to sell in such Public Equity
Offering, (ii) all the shares that are proposed to be sold by any shareholder of
the Company who is exercising a demand registration right, if such Public Equity
Offering is being made pursuant to such demand, and (iii) shares of the
Consultant and his Affiliates and all other shares that are proposed to be sold
by any shareholder of the Company exercising a so-called "piggyback"
registration right on a pro rata basis in an aggregate number which is equal to
the difference between the maximum number of shares that may be distributed in
such Public Equity Offering as determined by the Managing Underwriter and the
number of shares to be sold in such Public Equity Offering pursuant to clauses
(i) and (ii) above, and (iv) any other shares of Stock requested to be included
in such Public Equity Offering.
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(b) The Company will have the right to postpone or withdraw any
registration statement relating to a Public Equity Offering described under this
Section 6 prior to the effective date of such registration statement without
obligation to the Consultant or his Affiliates. Purchaser shall, and shall cause
its Affiliates to, use their respective commercially reasonable efforts to cause
all registration expenses of the Consultant and his Affiliates (other than
customary underwriting and broker commissions) to be paid by the Company in the
case of any and all registrations governed by this Section 6.
7. Suspension. In connection with any proposed registration of Registrable
Shares pursuant to Section 5 or 6, during any consecutive 365-day period, the
Company shall be entitled to postpone the filing of or to suspend availability
of a registration statement for up to two 60-consecutive-day periods if (i) at
the time the Company receives a request for a Demand Registration, the Company
or any Subsidiary is engaged in confidential negotiations or other confidential
business activities, disclosure of which would be required in such registration
statement (but would not be required if such registration statement were not
filed), and the Board of Directors determines in good faith that such disclosure
would be materially detrimental to the Company and its shareholders or would
have a material adverse effect on any such confidential negotiations or other
confidential business activities, (ii) prior to receiving such request, the
Board of Directors were to have determined to effect a Public Equity Offering
for the Company's account and the Company had taken substantial steps
(including, but not limited to, selecting a managing underwriter for such
offering) and is proceeding with reasonable diligence to effect such offering,
or (iii) the Company shall furnish to Purchaser a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company and its shareholders
for such registration to be pursued at such time; provided, however, that any
suspension under clause (iii) shall not exceed 60 days.
8. Preparation and Filing.
(a) Whenever the Company seeks to effect the registration of any
Registrable Shares in accordance with the provisions of Section 5 or 6, the
Company shall:
(i) prepare and file with the Commission or other applicable
Governmental Body a registration statement with respect to such
Registrable Shares and use its commercially reasonable efforts to cause
such registration statement to promptly become and, subject to Section
7, remain effective for the period set forth in subsection (ii) below
and promptly notify the Consultant (x) when such registration statement
becomes effective, (y) when any amendment to such registration
statement becomes effective and (z) of any request by the Commission or
other applicable Governmental Body for any amendment or supplement to
such registration statement or any prospectus relating thereto or for
additional information;
(ii) prepare and file with the Commission or other applicable
Governmental Body such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act, and any other applicable
Laws, with respect to the sale or other disposition of all securities
covered by such registration statement for a period of not less than
180 days after the effective date of such registration statement (or
such shorter period to the extent necessary to permit the completion of
the sale or distribution of such securities within such period);
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(iii) furnish to the Consultant, prior to filing a
registration statement, copies of such registration statement as
proposed to be filed and thereafter, such number of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and financial statements, reports, and proxy
statements mailed to shareholders of the Company as the Consultant may
reasonably request in order to facilitate the disposition of the
Registrable Shares being sold;
(iv) use its commercially reasonable efforts to register or
qualify, not later than the effective date of any filed registration
statement, the Registrable Shares covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions
as the Consultant reasonably requests; provided, however, that the
Company will not be required to (A) qualify to do business as a foreign
corporation or as a dealer in any jurisdiction where it is not so
qualified, (B) subject itself to taxation in any jurisdiction where it
is not subject to taxation, (C) consent to general service of process
in any jurisdiction where it is not subject to general service of
process, or (D) take any action that would subject it to service of
process in suits other than those arising out of the offer or sale of
the Registrable Shares covered by the registration statement;
(v) make available, upon reasonable notice and during business
hours, for inspection by the managing underwriter(s) for the
Registrable Shares (and one counsel representing such managing
underwriter(s)) (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents, agreements, and
properties of the Company and its Subsidiaries and Affiliates as shall
be reasonably necessary to enable them to exercise their due diligence
responsibilities ("Records") and cause the Company's officers,
directors, and employees to supply all information reasonably requested
by any such Inspectors in connection with the registration statement;
provided, however, that, unless the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in the
registration statement or the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, the Company shall not be required to provide any
information under this subparagraph (v) if (A) the Company believes,
after consultation with counsel for the Company, that to do so would
cause the Company to forfeit an attorney-client privilege that was
applicable to such information or (B) if either (1) the Company has
requested and been granted from the Commission confidential treatment
of such information contained in any filing with the Commission or
documents provided supplementally or otherwise or (2) the Company
reasonably determines in good faith that such Records are confidential
and so notifies the Inspectors in writing unless prior to furnishing
any such information with respect to (A) or (B) such holder of
Registrable Shares requesting such information agrees to enter into a
confidentiality agreement in a form reasonably acceptable to the
Company; and, provided, further, that each holder of Registrable Shares
agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate
action and to prevent disclosure of the Records deemed confidential;
(vi) obtain a comfort letter from the Company's independent
public accountants dated within five business days prior to the
effective date of the registration statement (and as of such other
dates as the managing underwriter(s) for the Registrable Shares may
reasonably request) in customary form and covering such matters of the
type
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customarily covered by such comfort letters as such managing
underwriter(s) reasonably request;
(vii) opinion of counsel dated the effective date of the
registration statement (and as of such other dates as the managing
underwriter(s) for the Registrable Shares may reasonably request) in
customary form and covering such matters of the type customarily
covered by such opinions as counsel designated by such managing
underwriter(s) reasonably request;
(viii) during the period when the registration statement is
required to be effective, notify the Consultant of the happening of any
event as a result of which the prospectus included in the registration
statement contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company will
forthwith prepare a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(ix) in the case of an underwritten offering, enter into an
underwriting agreement containing customary terms, including such
indemnity and contribution provisions as the managing underwriter(s)
customarily require or may reasonably require;
(x) cause such Registrable Shares to be listed for trading on
the primary securities exchange or quotation system upon which the
Stock is then listed or traded; and
(xi) otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the Commission, and
other applicable Governmental Bodies, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(b) The Consultant shall timely furnish to the Company such information
(including affidavits) regarding the distribution of such Registrable Shares as
the Company may from time to time reasonably request. The Company may exclude
from such registration the securities of the Consultant or his Affiliates if he
or they fail to furnish such information within 10 days after such request;
provided, however, that the Company's registration statement relating to such
offering is effective within 60 days after the expiration of such 10-day period.
(c) The Consultant agrees that upon the receipt of any notice from the
Company of the happening of any event of the kind described in paragraph
(a)(viii) above, it will forthwith discontinue disposition of Registrable Shares
pursuant to the registration statement covering such Registrable Shares until
the Consultant's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (a)(viii) above. If the Company gives any such notice,
the Company shall keep any such registration statement pursuant to a Demand
Registration effective for that number of additional days equal to the number of
days during the period from and including the date of the giving of such notice
pursuant to paragraph (a)(viii) above to and including the date on which copies
of such supplemented or amended prospectus are made available to the Consultant.
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(d) Indemnification. In connection with the filing of a registration
statement providing for the registration of any Registrable Shares pursuant to
Section 5 or 6, the Company shall indemnify and hold harmless the Consultant and
his Affiliates, to the extent customary and reasonable, pursuant to
indemnification and contribution provisions to be entered into by the Company at
the time of filing of such registration statement. The Consultant and his
Affiliates shall indemnify the Company and its directors and officers and each
Person who controls the Company (within the meaning of the Securities Act or the
Exchange Act) against any and all Losses resulting from any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, prospectus, or any preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission is made in reliance upon and in strict
conformity with information furnished in writing to the Company by Consultant
for use in such registration statement; provided, however, that the obligation
to indemnify will be several and not joint and several, among such sellers of
Registrable Shares, and the liability of each such seller of Registrable Shares
will be in proportion to, and provided further that such liability will be
limited to, the net amount received by such seller from the sale of Registrable
Shares pursuant to such registration statement; further provided, that such
seller of Registrable Shares shall not be liable in any such case to the extent
that prior to the filing of any such registration statement or prospectus or
amendment thereof or supplement thereto, such seller has furnished in writing to
the Company information expressly for use in such registration statement or
prospectus or amendment thereof or supplement thereto which corrected or made
not misleading information previously furnished to the Company.
9. Miscellaneous.
(a) Entire Agreement. This Agreement contains, and is intended as, a
complete statement of all of the terms and the arrangements between the parties
hereto with respect to the matters provided for herein, and supersedes any
previous agreements and understandings between the Company and the Consultant,
including the Existing Agreement.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE IN
AND TO BE WHOLLY PERFORMED IN SUCH STATE.
(c) Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or by
overnight mail, or four days after being mailed by registered mail, return
receipt requested, to a party at the following address:
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If to the Consultant, to:
Mr. Gerald E. Kimmel
6400 Cleburne Highway
Granbury, Texas 76049
Facsimile: (817) 326-2203
If to the Company, to:
Kevco, Inc.
1300 South University Drive
Suite 200
Fort Worth, Texas 76107
Facsimile: (817) 332-3403
(d) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
(e) Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns. Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either party without the prior written consent of
the other party.
(f) Amendments. This Agreement may be amended, supplemented or
modified, and any provision hereof may be waived, only pursuant to a written
instrument making specific reference to this Agreement signed by each of the
parties hereto.
(g) Independent Contractor. The Consultant shall be an independent
contractor and the Company shall not withhold any income or other taxes from the
payments hereunder.
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IN WITNESS WHEREOF, the Company and the Consultant have executed this
Agreement as of the day and year first above written.
KEVCO, INC.
By:
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Name:
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Title:
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GERALD E. KIMMEL