EXHIBIT 10.33
TAX INDEMNIFICATION AND DISTRIBUTION AGREEMENT
THIS TAX INDEMNIFICATION AND DISTRIBUTION AGREEMENT ("Agreement"), dated as
of the _____ day of _______________________________, 1996, is by and between
Kevco, Inc., a Texas corporation ("New Kevco"), Kevco Texas, Inc., a Texas
corporation and its successors (collectively "Old Kevco"), and Xxxxxx X. Xxxxxx,
Xxxxxxxxx X. Xxxxxx, Xxx X. Xxxxxxx, Xxxxxxx X. Xxxxxx, Xxxxx X. Xxxxxx and
Xxxxx X. Xxxx, Xx. (collectively, the "Shareholders").
R E C I T A L S:
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1. Old Kevco is an S corporation within the meaning of Code Section
1361(a)(1). The Shareholders own all of the outstanding shares of common stock
of Old Kevco.
2. The Shareholders have agreed to transfer all of their Old Kevco shares
of common stock to New Kevco in exchange for shares of New Kevco common stock.
3. The transfer of all of Old Kevco's shares of common stock to New Kevco
will terminate Old Kevco's S election.
4. Old Kevco, New Kevco and the Shareholders desire to set forth their
rights and obligations with respect to certain matters related to the
termination of Old Kevco's S election.
NOW, THEREFORE, in consideration of the transfer by the Shareholders of all
of their Old Kevco shares to New Kevco and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, New
Kevco, Old Kevco and the Shareholders agree as follows:
ARTICLE ONE
DEFINITIONS
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SECTION 1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings specified below:
(a) "1996 DISTRIBUTIONS" shall have the meaning set forth in Section
3.3(d).
(b) "ACCUMULATED ADJUSTMENTS ACCOUNT" shall have the meaning set forth
in Code Section 1368(e)(1).
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "FINAL ACCUMULATED ADJUSTMENTS ACCOUNT AVAILABLE FOR DISTRIBUTION"
shall have the meaning set forth in Section 3.3(c).
(e) "FINAL S CORPORATION DATE" shall mean the day preceding the date
on which Old Kevco's S corporation election terminates.
(f) "FUTURE S CORPORATION EARNINGS NOTE" shall have the meaning
ascribed to such term in the Registration Statement on Form S-1 filed by
New Kevco with the Securities and Exchange Commission (Registration
No. 333- 11173) on the date such Registration Statement is declared
effective by the Securities and Exchange Commission.
(g) "PRIOR S CORPORATION EARNINGS NOTE" shall have the meaning
ascribed to such term in the Registration Statement on Form S-1 filed by
New Kevco with the Securities and Exchange Commission (Registration No.
333-11173) on the date such Registration Statement is declared effective by
the Securities and Exchange Commission.
(h) "TAX" or "TAXES" shall mean any state, local, foreign or federal
tax that is measured by, based upon or imposed in respect of, the income or
receipts of Old Kevco or any predecessor of Old Kevco, and all interest,
penalties and additions to tax incurred in respect thereof.
(i) "TAX RETURN" shall mean any return (including any information
return), statement or report required to be filed or that may be filed with
any governmental authority in connection with any Tax.
ARTICLE TWO
TAX PAYMENTS, RETURNS AND INFORMATION
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SECTION 2.1 PAYMENT OF TAXES. Old Kevco and each Shareholder shall be
responsible for the timely payment of all Taxes required by law to be paid by
any of them. Old Kevco shall indemnify and hold harmless each Shareholder from
and against any costs, expenses (including costs and expenses of attorneys and
accountants), interest and penalties incurred by the Shareholder as a result of
any failure on the part of Old Kevco to timely furnish the Shareholder with any
information required by the Shareholder to determine the correct amount of any
Tax.
SECTION 2.2 FILING OF TAX RETURNS. Old Kevco shall timely file all Tax
Returns required to be filed by Old Kevco for periods ending on or before the
Final S Corporation Date and shall timely furnish to each Shareholder a copy
thereof together with all other information required by applicable law to be
furnished to each Shareholder in respect thereof. Each Shareholder shall be
provided a reasonable period of time to review and comment on all Tax Returns
required to be filed by Old Kevco for periods ending on or before the Final S
Corporation Date. To the extent permitted by applicable law, Old Kevco's items
of income, loss, deduction and credit shall be allocated among periods ending
before, on or after the date on which Old Kevco's S election terminates by
closing the books of Old Kevco as of the end of the day on the Final S
Corporation Date.
SECTION 2.3 ACCESS TO INFORMATION. Old Kevco shall provide each
Shareholder access to the books and records in its possession and to its
employees and shall permit each Shareholder, at Old Kevco's expense, to make
copies and extracts of relevant portions of its books and records to the extent
reasonably required by the Shareholder in connection with any audit, claim for
refund or other proceeding relating to Taxes for periods ending on or before the
Final S Corporation Date.
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ARTICLE THREE
TAX RETURN ADJUSTMENTS OR AMENDMENTS
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SECTION 3.1 NOTICE OF ADJUSTMENTS OR AMENDMENTS. Old Kevco shall
promptly notify each Shareholder of any proposed adjustment, final adjustment or
amendment of any amounts shown on any Tax Return of Old Kevco for any taxable
year or period ending on or before the Final S Corporation Date.
SECTION 3.2 DISTRIBUTIONS WITH RESPECT TO ADJUSTMENTS OR AMENDMENTS.
(a) Subject to Section 3.3(b) below, if any final adjustment or
amendment of any Federal Income Tax Return filed by Old Kevco for any
taxable year or period commencing on or after January 1, 1995 and ending on
or before the Final S Corporation Date shall have the net effect of
increasing the Accumulated Adjustments Account of Old Kevco as shown on the
Tax Return subject to such final adjustment or amendment, Old Kevco shall
immediately distribute to each Shareholder an amount in cash equal to such
net increase in proportion to the Shareholder's ownership interest in Old
Kevco during the period subject to the final adjustment or amendment. In
addition, Old Kevco shall indemnify and hold harmless each Shareholder for
any fees, costs and expenses (including fees and expenses of attorneys and
accountants), interest and penalties incurred by the Shareholder that
relate to any underpayment of Tax by the Shareholder as a result of such
final adjustment or amendment.
(b) Notwithstanding the foregoing provisions of Section 3.2(a), no
such distribution or indemnity amount shall be made or payable with respect
to any increase to the Accumulated Adjustments Account of Old Kevco (nor
any such fees, costs, expenses, interest and penalties that relate to any
underpayment of Tax as a result of such final adjustment or amendment) that
is attributable to any distribution of property made by Old Kevco to the
Shareholders.
SECTION 3.3 OTHER DISTRIBUTIONS.
(a) If the Final Accumulated Adjustments Account Available for
Distribution exceeds the 1996 Distributions, then, no later than the
original filing of the 1996 Return, Old Kevco shall immediately distribute
to each Shareholder an amount in cash equal to such excess in proportion to
the Shareholder's ownership interest in Old Kevco for the period commencing
January 1, 1996 and ending on the Final S Corporation Date.
(b) If the 1996 Distributions exceed the Final Accumulated Adjustments
Account Available for Distribution, as determined at the time of the filing
of the 1996 Return, then, at the time of such filing, each Shareholder
shall return to Old Kevco an amount in cash equal to such excess in
proportion to the Shareholder's ownership interest in Old Kevco for the
period commencing January 1, 1996 and ending on the Final S Corporation
Date.
(c) The term "FINAL ACCUMULATED ADJUSTMENTS ACCOUNT AVAILABLE FOR
DISTRIBUTION" shall mean the sum of the following:
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(i) the Accumulated Adjustments Account of Old Kevco as of
December 31, 1995 as shown on the Federal Income Tax Return originally
filed by Old Kevco for the period commencing January 1, 1995 and
ending on December 31, 1995; and
(ii) the net increase or decrease to the Accumulated Adjustments
Account of Old Kevco (prior to taking into account the 1996
Distributions) for the period commencing January 1, 1996 and ending on
the Final S Corporation Date as shown on the Federal Income Tax Return
originally filed by Old Kevco for such period (the "1996 Return").
(d) The term "1996 DISTRIBUTIONS" shall mean the sum of the following:
(i) all cash distributions declared or made by Old Kevco to the
Shareholders during the period commencing January 1, 1996 and ending
on the Final S Corporation Date;
(ii) the principal amount of the Prior S Corporation Earnings
Note;
(iii) the principal amount of the Future S Corporation Earnings
Note; and
(iv) the amount of any other distributions of property declared
or made by Old Kevco to the Shareholders during the period commencing
January 1, 1996 and ending on the Final S Corporation Date and
including without limitation the distribution of that certain
promissory note in the original principal amount of $5.0 million dated
October 26, 1993, executed by Xxxxxx X. Xxxxxx and payable to Old
Kevco.
SECTION 3.4 NEGOTIATION AND PREPARATION. Old Kevco shall:
(a) negotiate any final adjustment and prepare any amendment referred
to in Section 3.2;
(b) prepare its Federal Income Tax Return for the period commencing
January 1, 1996 and ending on the Final S Corporation Date; and
(c) determine the earnings of Old Kevco for the period commencing July
1, 1996 and ending on the Final S Corporation Date, for purposes of
determining the principal amount of the Future S Corporation Earnings Note;
in a good faith manner consistent with its past practices and accounting
methods.
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ARTICLE FOUR
GUARANTY
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New Kevco joins in executing this Agreement for the sole purpose of
guaranteeing the prompt payment and performance by Old Kevco of its obligations
under this Agreement.
ARTICLE FIVE
MISCELLANEOUS
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SECTION 5.1 ADDRESS FOR NOTICE. Any notice, demand, claim or other
communication required by this Agreement shall be in writing and shall be
addressed to a party at the address set forth in this Agreement or at such other
address notice of which has been given as provided in this Agreement.
SECTION 5.2 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties, and supersedes all prior agreements
and understandings between them in respect of the subject matter hereof.
SECTION 5.3 AMENDMENT AND MODIFICATION. This Agreement may not be
amended, and no waiver of any provision of this Agreement shall be effective
unless set forth in a written instrument signed by the party intended to be
bound thereby.
SECTION 5.4 BINDING EFFECT. This Agreement shall be binding upon and
inure only to the benefit of the parties hereto and their respective successors
and assigns. This Agreement is not intended to benefit any person other than
the parties hereto, their successors and assigns. Neither Old Kevco nor New
Kevco may assign its obligation under this Agreement.
SECTION 5.5 GOVERNING LAW. This Agreement and the obligations of the
parties under this Agreement shall be construed and enforced in accordance with
the laws of the State of Texas, excluding any conflicts of law principles that
might refer such construction to the laws of another jurisdiction.
SECTION 5.6 ENFORCEABILITY. The invalidity or unenforceability of
any provision hereof in any jurisdiction shall not affect the validity or
enforceability of the remainder hereof.
SECTION 5.7 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date set forth above.
KEVCO, INC.
0000 Xxxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxx 00000
By:__________________________________
Its: Chairman of the Board and President
KEVCO TEXAS, INC.
0000 Xxxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxx 00000
By:__________________________________
Its: Chairman of the Board and President
_____________________________________
Xxxxxx X. Xxxxxx
0000 Xxxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxx 00000
_____________________________________
Xxxxxxxxx Xxx Xxxxxx
X.X. Xxx 00000
Xxxx Xxxxx, Xxxxx 00000
_____________________________________
Xxx Xxxxxxxx Xxxxxxx
000 Xxxxxxxxx
Xxxxx, Xxxxx 00000
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_____________________________________
Xxxxxxx Xxxxxx Xxxxxx
0000 Xxxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxx 00000
_____________________________________
Xxxxx X. Xxxx, Xx.
0000 Xxxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxx 00000
_____________________________________
Xxxxx X. Xxxxxx
0000 X. Xxxxx Xxxx
Xxxxxxxx, Xxxxxxx 00000
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