1
EXHIBIT 10.8
MONITORING AND OVERSIGHT AGREEMENT
This Monitoring and Oversight Agreement (this "Agreement") is made and
entered into effective as of July 26, 1999, among Kevco, Inc., a Texas
corporation ("Kevco" and, together with its subsidiaries, the "Clients"), and
Wingate Management Limited, L.L.C., a Delaware limited liability company
(together with its successors, "WML").
WHEREAS, the Clients have requested that WML render certain financial
oversight and monitoring services to them.
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by WML to the Clients, and to evidence the obligations of the Clients
to WML and the mutual covenants herein contained, the Clients hereby jointly and
severally agree as follows:
1. Retention. The Clients hereby acknowledge that they have retained
WML, and WML acknowledges that, subject to reasonable advance notice in order to
accommodate scheduling, WML will provide financial oversight and monitoring
services to the Clients as requested by the board of directors of each of the
Clients during the term of this Agreement, such services include (i) during such
times as no full-time chief executive officer shall be employed by Kevco,
providing a WML affiliate to perform the management and oversight duties
associated with such office; (ii) during such times as Kevco has employed a
full-time chief executive officer, providing a chairman of the board who will
take an active roll in the management and affairs of Kevco; (iii) providing
assistance in strategic planning for Kevco, including the analysis of Kevco's
and its subsidiaries' performance in various sectors of their respective
businesses and providing recommendations for growth strategies and opportunities
for new markets and products; (iv) providing guidance in regard to consolidation
and rationalization of acquired businesses; (v) providing assistance in
identifying, interviewing, and engaging suitable candidates for senior executive
positions; (vi) providing assistance in identifying and securing suitable
candidates to act as independent directors of Kevco, as required by the rules
promulgated in respect of the National Association of Securities Dealers
National Market System; (vii) providing assistance in Kevco's annual budgetary
process; (viii) providing assistance in the analysis of existing and proposed
credit arrangements for Kevco and, as and when appropriate, identifying lenders
and in negotiating credit documents; (ix) providing assistance in identifying
suitable consultants and advisors for Kevco's varying needs and negotiating
engagement arrangements for such consultants and advisors; and (x) providing
assistance in evaluating when and whether Kevco should access the public markets
for equity or debt capital and in identifying appropriate professionals to
assist in executing any strategy involving the public offering of equity or
debt.
2. Term. The term of this Agreement shall continue until the earlier to
occur of (i) the fifth anniversary of the delivery of a notice of termination of
this Agreement by either party hereto, or (ii) the date on which WML, Wingate
Partners II, L.P., Armbuck & Co., H C Crown Corp. and their respective
affiliates (the "Initial Investors") cease in the aggregate to own beneficially,
directly or indirectly, five percent of the outstanding voting securities of
Kevco or its successors.
3. Compensation.
(a) As compensation for WML's services under this Agreement,
the Clients shall be jointly and severally obligated to pay to WML an
annual fee (the "Monitoring Fee") of (i) $41,667.00 per month for each
of the first 24 months after the date hereof provided that the first
and last payments shall be prorated on a daily basis for a partial
calendar month commencing on the date hereof and (ii) thereafter,
through the end of the term of this Agreement, an annual fee (the "Base
Fee") of (a) $200,000, plus (b) 2.4% of Kevco's pre-tax income (on a
GAAP basis);
2
provided, however, that (i) in the case of fees under clause (b), the
pre-tax income of Kevco for such year is at least $5,000,000, and (ii)
in the case of fees under clauses (a) and (b), such fees shall be
prorated on a daily basis for any partial calendar month or year, as
the case may be during the term of this Agreement. The fee pursuant to
clause (a) shall be payable quarterly in arrears in equal quarterly
installments on each January 1, April 1, July 1, and October 1 (each, a
"Payment Date") during the term of this Agreement, beginning with the
first applicable Payment Date following the date hereof, and the fee
pursuant to clause (b) shall be payable annually in arrears within 30
days after certification of the Company's audited financial statements
by its auditors. All payments shall be made by wire transfer of
immediately available funds to the account described on EXHIBIT A
hereto (or such other account as WML may hereafter designate in
writing).
(b) All past due payments in respect of the Monitoring Fee
shall bear interest at the lesser of the highest rate of interest which
may be charged under applicable law or the prime commercial lending
rate per annum of Chase Manhattan Bank or its successors (which rate is
a reference rate and is not necessarily its lowest or best rate of
interest actually charged to any customer) (the "Prime Rate") as in
effect from time to time, plus five percent, from the due date of such
payment to and including the date on which payment is made to WML in
full, including such interest accrued thereon.
4. Reimbursement of Expenses. In addition to the compensation to be
paid pursuant to Section 3, the Clients jointly and severally shall pay or
reimburse WML for all "Reimbursable Expenses," which shall consist of all
reasonable disbursements and out-of-pocket expenses (including costs of travel,
postage, deliveries, communications, etc.) incurred by WML or its affiliates and
representatives for the account of any of the Clients, or in connection with the
performance by WML of the services contemplated by Section 1. Promptly (but not
more than ten days) after request by or notice from WML, the applicable Client
shall pay WML, by wire transfer of immediately available funds to the account
described on EXHIBIT A hereto (or such other account as WML may hereafter
designate in writing), the Reimbursable Expenses for which WML has provided such
Client invoices or reasonably detailed descriptions. All past due payments in
respect of the Reimbursable Expenses shall bear interest at the lesser of the
highest rate of interest which may be charged under applicable law or the Prime
Rate plus five percent from the Payment Date to and including the date on which
such Reimbursable Expenses plus accrued interest thereon are fully paid to WML.
5. Indemnification. The Clients jointly and severally shall indemnify
and hold harmless each of WML, its affiliates, and their respective directors,
partners, members, managers, officers, controlling persons (within the meaning
of Section 15 of the Securities Act of 1933, as amended, or Section 20(a) of the
Securities Exchange Act of 1934, as amended), if any, agents and employees
(collectively, the "Indemnified Persons") from and against any and all claims,
liabilities, losses, damages, and expenses incurred by any Indemnified Person
(including those arising out of an Indemnified Person's negligence and fees and
disbursements of the respective Indemnified Person's counsel) which (i) are
related to or arise out of (A) actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by any of the
Clients or (B) actions taken or omitted to be taken by an Indemnified Person
with any Client's consent or in conformity with any Client's instructions or any
Client's actions or omissions or (ii) are otherwise related to or arise out of
WML's engagement, and will reimburse each Indemnified Person for all costs and
expenses, including fees and disbursements of any Indemnified Person's counsel,
as they are incurred, in connection with investigating, preparing for,
defending, or appealing any action, formal or informal claim, investigation,
inquiry, or other proceeding, whether or not in connection with pending or
threatened litigation, caused by or arising out of or in
2
3
connection with WML's acting pursuant to the engagement, whether or not any
Indemnified Person is named as a party thereto and whether or not any liability
results therefrom. None of the Clients will, however, be responsible for any
claims, liabilities, losses, damages, or expenses pursuant to clause (i) or (ii)
of the preceding sentence that have resulted primarily from WML's bad faith,
gross negligence, or willful misconduct. Each of the Clients also agrees that
neither WML nor any other Indemnified Person shall have any liability to any
Client for or in connection with such engagement except for any such liability
for claims, liabilities, losses, damages, or expenses incurred by any Client
that have resulted primarily from WML's bad faith, gross negligence, or willful
misconduct. Each Client further agrees that it will not, without the prior
written consent of WML, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit, or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
Indemnified Person is an actual or potential party to such claim, action, suit,
or proceeding) unless such settlement, compromise, or consent includes an
unconditional release of WML and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit, or proceeding. EACH
CLIENT HEREBY ACKNOWLEDGES THAT THE FOREGOING INDEMNITY SHALL BE APPLICABLE TO
ALL CLAIMS, LIABILITIES, LOSSES, DAMAGES, OR EXPENSES THAT HAVE RESULTED FROM OR
ARE ALLEGED TO HAVE RESULTED FROM THE ACTIVE OR PASSIVE OR THE SOLE, JOINT, OR
CONCURRENT ORDINARY NEGLIGENCE OF WML OR ANY OTHER INDEMNIFIED PERSON.
The foregoing right to indemnity shall be in addition to any rights
that WML and/or any other Indemnified Person may have at common law or otherwise
and shall remain in full force and effect following the completion or any
termination of the engagement. Each Client hereby consents to personal
jurisdiction and to service and venue in any court in which any claim which is
subject to this Agreement is brought against WML or any other Indemnified
Person.
It is understood that, in connection with WML's engagement, WML may
also be engaged to act for any Client in one or more additional capacities, and
that the terms of this engagement or any such additional engagement may be
embodied in one or more separate written agreements. This indemnification shall
apply to the engagement specified in the first paragraph hereof as well as to
any such additional engagement(s) (whether written or oral) and any modification
of said engagement or such additional engagement(s) and shall remain in full
force and effect following the completion or termination of said engagement or
such additional engagement(s).
Each Client further understands that if WML is asked to furnish any
Client a financial opinion letter or act for any Client in any other formal
capacity, such further action may be subject to a separate agreement containing
provisions and terms to be mutually agreed upon.
6. Confidential Information. In connection with the performance of the
services hereunder, WML shall not divulge any confidential information, secret
processes, or trade secrets disclosed by any Client to it solely in its capacity
as a financial advisor, unless such Client consents to the divulging thereof or
such information, secret processes, or trade secrets are publicly available or
otherwise available to WML without restriction or breach of any confidentiality
agreement or unless required by any governmental authority or in response to any
valid legal process.
7. Governing Law. This Agreement shall be construed, interpreted, and
enforced in accordance with the laws of the State of Texas, excluding any
choice-of-law provisions thereof.
8. Assignment. This Agreement and all provisions contained herein shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, neither this Agreement nor
any of the rights, interests, or obligations hereunder shall be assigned (other
than in respect of the rights and obligations of WML, which may be assigned to
any one
3
4
or more of its principals or affiliates) by any of the parties without the prior
written consent of the other parties.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and the signature of any
party to any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.
10. Entire Agreement. All discussions, understandings, and agreements
theretofore made between any of the parties hereto in respect of the subject
matter hereof are merged in this Agreement, which alone fully and completely
expresses the agreement of the parties hereto. All calculations of the
Monitoring Fee, the Base Fee, and Reimbursable Expenses shall be made by WML
and, in the absence of mathematical error, shall be final and conclusive.
11. Construction. Unless the context otherwise requires, (i) all
references to Sections and Exhibits contained in this Agreement are references
to Sections and Exhibits of or to this Agreement, (ii) words in the singular
shall include the plural and vice versa, (iii) words of any gender shall include
each other gender, (iv) "include," "including," and their derivatives shall mean
"including without limitation"; and (v) "person" shall mean any individual,
corporation, partnership, limited liability company, joint venture, trust,
unincorporated association, or other form of business or legal entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
4
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
WINGATE MANAGEMENT LIMITED, L.L.C.
By: /s/ FREDERICK B. HEGI, JR.
---------------------------------
Name: Frederick B. Hegi, Jr.
-------------------------------
Title: Manager
------------------------------
KEVCO, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO MANAGEMENT, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO HOLDINGS, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO GP, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO COMPONENTS, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
5
6
DCM DELAWARE, INC.
By: /s/ JERRY E. KIMMEL
---------------------------------
Name: Jerry E. Kimmel
-------------------------------
Title: President
------------------------------
KEVCO MANUFACTURING, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
---------------------------
Name: Jerry E. Kimmel
-------------------------
Title: President
------------------------
KEVCO DISTRIBUTION, L.P.
By: Kevco GP, Inc.,
its General Partner
By: /s/ JERRY E. KIMMEL
---------------------------
Name: Jerry E. Kimmel
-------------------------
Title: President
------------------------
6
7
EXHIBIT A
WIRE TRANSFER INSTRUCTIONS
Chase Bank of Texas, N.A.
ABA #: 113000609
Account #: 08805134543
Credit: Wingate Partners II, L.P.
Reference: Payment of Monitoring Fees or Expenses by Kevco, Inc.