-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RbMMo8/yFB3uTMEAt7kqIIPURRZMN6vOB9t5jBjqCrBOJJlHO0SJ8tACrwubrJaW MO6d4dSC/aThw66uRF4Exg== 0000899243-97-001826.txt : 19970918 0000899243-97-001826.hdr.sgml : 19970918 ACCESSION NUMBER: 0000899243-97-001826 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19970915 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENT ELECTRONICS CORP CENTRAL INDEX KEY: 0000793024 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 741763541 STATE OF INCORPORATION: TX FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-34045 FILM NUMBER: 97680697 BUSINESS ADDRESS: STREET 1: 7433 HARWIN DR CITY: HOUSTON STATE: TX ZIP: 77036-2015 BUSINESS PHONE: 7137807770 MAIL ADDRESS: STREET 1: 7433 HARWIN DRIVE CITY: HOUSTON STATE: TX ZIP: 77036-2015 S-3/A 1 AMENDMENT #1 TO FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1997 REGISTRATION NO. 333-34045 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- KENT ELECTRONICS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-1763541 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 7433 HARWIN DRIVE STEPHEN J. CHAPKO HOUSTON, TEXAS 77036 7433 HARWIN DRIVE (713) 780-7770 HOUSTON, TEXAS 77036 (ADDRESS, INCLUDING ZIP CODE, AND (713) 780-7770 TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, INCLUDING AREA CODE, OF REGISTRANT'S AND TELEPHONE NUMBER, PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: GENE G. LEWIS JOE S. POFF LIDDELL, SAPP, ZIVLEY, HILL & BAKER & BOTTS, L.L.P. LABOON, L.L.P. ONE SHELL PLAZA 3400 TEXAS COMMERCE TOWER 910 LOUISIANA 600 TRAVIS HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002 (713) 229-1234 (713) 226-1200 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ---------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ******************************************************************************** * Information contained herein is subject to completion or amendment. A * * registration statement relating to these securities has been filed with the * * Securities and Exchange Commission. These securities may not be sold nor may * * offers to buy be accepted prior to the time the registration statement * * becomes effective. This prospectus shall not constitute an offer to sell or * * the solicitation of an offer to buy nor shall there be any sale of these * * securities in any State in which such offer, solicitation or sale would be * * unlawful prior to registration or qualification under the securities laws of * * any such State. * ******************************************************************************** SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1997 PROSPECTUS $150,000,000 [LOGO OF KENT ELECTRONICS APPEARS HERE] KENT ELECTRONICS CORPORATION % CONVERTIBLE SUBORDINATED NOTES DUE 2004 INTEREST PAYABLE MARCH 1 AND SEPTEMBER 1 -------- The % Convertible Subordinated Notes due 2004 (the "Notes") offered hereby (the "Offering") are convertible into common stock, without par value ("Common Stock"), of Kent Electronics Corporation (the "Company") at any time at or before maturity, unless previously redeemed, at a conversion price of $ per share, subject to adjustment in certain events. The Common Stock is traded on the New York Stock Exchange ("NYSE") under the symbol "KNT." On August 25, 1997, the last reported sale price of the Common Stock on the NYSE was $37.81 per share. The Notes have been approved for listing on the NYSE under the symbol "KNT 04" subject to official notice of issuance. Interest on the Notes is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 1998. The Notes do not provide for a sinking fund. The Notes are redeemable, at the option of the Company, in whole or in part, at any time on or after September 6, 2000 at the redemption prices set forth in this Prospectus, together with accrued interest. The Notes are subject to purchase by the Company at the option of the holder upon the occurrence of a Repurchase Event (as defined herein) at 100% of the principal amount thereof, plus accrued interest. See "Description of Notes." The Notes are unsecured obligations of the Company and are subordinated to all present and future Senior Indebtedness (as defined herein) of the Company and will be effectively subordinated to all indebtedness and other liabilities of subsidiaries of the Company. At June 28, 1997, the Company did not have any Senior Indebtedness. The Indenture (as defined herein) will not restrict the incurrence of any other indebtedness or liabilities by the Company or its subsidiaries. See "Description of Notes--Subordination." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISKS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC(1) COMMISSIONS(2) COMPANY(3) - -------------------------------------------------------------------------------- Per Note % % % - -------------------------------------------------------------------------------- Total (4) $ $ $ - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from the date of initial issuance. (2) For information regarding indemnification of the Underwriters, see "Underwriting." (3) Before deducting expenses estimated at $500,000, payable by the Company. (4) The Company has granted the Underwriters a 30-day option to purchase up to $22,500,000 aggregate principal amount of additional Notes solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, and Proceeds to Company will be $ , $ , and $ , respectively. -------- The Notes are being offered by the several Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain conditions. It is expected that delivery of the Notes will be made in book- entry form through the facilities of The Depository Trust Company on or about , 1997. -------- SMITH BARNEY INC. BT ALEX. BROWN DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. , 1997 [PHOTOGRAPH] K*TEC contract manufacturing facility. [Photograph] [Photograph] [Photograph] Assorted electronic Automated, high Vertically integrated interconnect technology manufacturing box build product. assemblies. equipment. ---------------- CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE NOTES, THE COMMON STOCK, OR BOTH. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING, MAY BID FOR, AND PURCHASE, THE NOTES, THE COMMON STOCK, OR BOTH, IN THE OPEN MARKET AND MAY IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the Consolidated Financial Statements, including the notes thereto, included elsewhere or incorporated by reference in this Prospectus. The Company's fiscal year ends on the Saturday closest to the end of March of each year resulting in either a 52- or 53-week year. References to fiscal years refer to the fiscal year ending in that calendar year; for example, "fiscal 1998" refers to the Company's fiscal year ending March 28, 1998. Unless otherwise indicated, all information in this Prospectus assumes that the over-allotment option granted to the Underwriters is not exercised. THE COMPANY Kent Electronics Corporation is a national specialty distributor of electronic products and a manufacturer of custom-made electronic products. In fiscal 1997, the Company strategically aligned its operations into four distinct, yet complementary, business units that seek to develop competitive advantages within targeted markets. . Kent Components distributes electronic connectors, electronic wire and cable, and other passive and electromechanical products and interconnect assemblies used in assembling and manufacturing electronic products. . Kent Datacomm distributes a broad range of premise wiring products, such as fiber optic cable, patch panels and enclosures, and local area network ("LAN") and wide area network ("WAN") equipment, such as modems, hubs, switches and routers, directly to commercial end-users and professionals who install and service voice and data communications networks. . Futronix Systems is a redistributor of specialty wire and cable to electrical distributors nationwide. Futronix Systems was formed to conduct the businesses of Futronix Corporation and Wire & Cable Specialties Corporation ("Wire & Cable") which were acquired by the Company in January 1997. . K*TEC is a manufacturer whose capabilities include custom-made electronic interconnect assemblies, printed circuit board assemblies, sheet metal fabrication, plastic injection molding, specially fabricated battery power packs, other subassemblies that are built to customers' specifications and final system integration (box build). The Company focuses on providing its customers a continuum of products and services that emphasizes technology-based materials management and manufacturing solutions. To successfully execute its strategy, during the nine fiscal quarters ended June 28, 1997, the Company invested approximately $81.7 million in capital expenditures. These expenditures were primarily for construction of its recently completed state-of-the-art K*TEC facility in Sugar Land, Texas, consisting of approximately 420,000 square feet for manufacturing and warehousing operations and its adjacent state-of-the-art 220,000 square foot distribution facility that is scheduled for completion in spring 1998. Outsourcing is a rapidly growing trend in many industry sectors in the United States as companies seek to reduce costs and improve operating efficiencies. Electronics original equipment manufacturers ("OEMs") are increasingly outsourcing materials management and manufacturing operations, ranging from inventory management to complete box build combined with distribution to the end customer. Manufacturers of electronic products are responding to this trend by utilizing technology based materials management and logistical solutions provided by distributors. In addition, the Company believes that there is an emerging trend of OEMs to align with contract manufacturers who have distribution capabilities and expertise. Because of its experience in both distribution and manufacturing, the Company is particularly well-positioned to capitalize on these trends. The potential benefits from outsourcing materials management and manufacturing operations include: (i) focused resources; (ii) improved inventory management and purchasing power; (iii) reduced time to market; (iv) reduced costs and capital investment; and (v) access to leading manufacturing technology. To capitalize on current and emerging electronics industry trends, the Company is: (i) providing a continuum of customer services; (ii) remaining a key player in target markets; (iii) capitalizing on industry consolidation; (iv) maximizing synergies between business units; and (v) focusing on customer service. 3 THE OFFERING Securities Offered.......... $150,000,000 aggregate principal amount of % Convertible Subordinated Notes due 2004 (the "Notes"). Maturity.................... September 1, 2004. Payment of Interest......... March 1 and September 1, commencing on March 1, 1998. Conversion.................. The Notes are convertible at any time prior to maturity, unless previously redeemed or repurchased, into Common Stock, at the option of the holder, at a conversion price of $ per share, subject to certain adjustments. See "Description of Notes--Conversion Rights." Optional Redemption......... The Notes are redeemable, in whole or in part, at the option of the Company at any time on or after September 6, 2000, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. See "Description of Notes-- Optional Redemption." Repurchase Event............ Upon the occurrence of a Repurchase Event, holders of the Notes will have the right, subject to certain conditions and restrictions, to require the Company to purchase all or part of their Notes at 100% of the principal amount thereof, plus accrued interest. See "Risk Factors--Possible Limitations on Repurchase of Notes" and "Description of Notes--Certain Rights of Holders to Require Repurchase of Notes." Subordination............... The Notes will be unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Indebtedness of the Company. In addition, the Notes will be effectively subordinated to all indebtedness and other liabilities (including trade payables) of all subsidiaries of the Company. The Indenture will not restrict the incurrence of Senior Indebtedness or other indebtedness by the Company or its subsidiaries. At June 28, 1997, the Company did not have any Senior Indebtedness. See "Risk Factors--Subordination of Notes," "Capitalization" and "Description of Notes-- Subordination." Use of Proceeds............. The Company currently intends to use the net proceeds to pursue acquisition opportunities that it believes will enhance its position as a national distributor and contract manufacturer of electronic products. In addition, the Company intends to use the net proceeds for general corporate purposes, including working capital and capital expenditures. The Company has no current agreement or understanding with respect to any potential acquisition. See "Use of Proceeds." Listing..................... The Notes have been approved for listing on the NYSE under the symbol "KNT 04" subject to official notice of issuance. Common Stock Trading........ The Common Stock is traded on the NYSE under the symbol "KNT." 4 SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIO)
THIRTEEN WEEKS FISCAL YEARS ENDED ENDED ---------------------------------------------- ----------------- APRIL 3, APRIL 2, APRIL 1, MARCH 30, MARCH 29, JUNE 29, JUNE 28, 1993 1994 1995 1996 1997(2) 1996 1997 -------- -------- -------- --------- --------- -------- -------- STATEMENT OF EARNINGS DATA(1): Net sales.............. $164,541 $206,784 $279,676 $425,810 $516,757 $125,144 $152,080 Gross profit........... 45,379 55,150 72,741 112,167 120,703 31,906 34,859 Earnings before income taxes................. 12,632 15,902 23,511 49,095 45,100 15,556 14,497 Net earnings........... 8,193 10,058 14,601 29,792 27,621 9,431 8,775 Earnings per share..... $ 0.40 $ 0.48 $ 0.68 $ 1.21 $ 1.00 $ 0.34 $ 0.32 Weighted average shares................ 20,393 20,804 21,475 24,696 27,551 27,592 27,762 Ratio of earnings to fixed charges(3)...... 18.6x 21.3x 22.7x 27.4x 20.1x 28.4x 45.1x
JUNE 28, 1997 -------------------- AS ACTUAL ADJUSTED(4) -------- ----------- BALANCE SHEET DATA: Working capital........................................... $155,480 $301,230 Total assets.............................................. 343,906 493,906 Long-term debt, less current portion...................... -- 150,000 Stockholders' equity...................................... $272,772 $272,772
- -------- (1) As a result of the acquisitions of Futronix Corporation and Wire & Cable in January 1997, each accounted for as a pooling of interests, selected consolidated financial data have been restated where appropriate to include the results of Futronix Corporation and Wire & Cable. (2) Includes non-recurring merger and integration charges of $5.5 million ($3.4 million, net of taxes, or $0.12 per share). Exclusive of such charges, fiscal 1997 net earnings were $31.0 million, or $1.12 per share, and the ratio of earnings to fixed charges was 22.4x. (3) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes plus fixed charges. "Fixed charges" consist of interest expense, amortization of deferred financing costs and that portion of rental expense deemed representative of the interest factor. (4) As adjusted to give effect to the sale by the Company of the Notes offered hereby and the application of the estimated net proceeds thereof after deducting underwriting discounts and commissions and estimated expenses of the Offering. 5 RISK FACTORS An investment in the Notes (and Common Stock into which the Notes are convertible) involves various risks. Prospective investors should carefully consider the following factors in conjunction with the other information contained or incorporated by reference in this Prospectus before making a decision to purchase the Notes. This Prospectus, including documents incorporated by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors, among others, which may cause such a difference are set forth below. CYCLES IN THE ELECTRONICS INDUSTRY; DEPENDENCE ON K*TEC CUSTOMERS The Company's business depends on sustained demand for the products it distributes and manufactures. Although the Company has enjoyed strong growth in sales in recent years, the electronics industry is cyclical, and there can be no assurance that such growth will continue. Any downturn in the electronics industry could have a material adverse effect on the Company's business, results of operations or financial condition, especially if a downturn occurred in the Company's distribution and manufacturing businesses simultaneously. In addition, for many years K*TEC has strategically developed long-term relationships with a select group of OEMs resulting in a concentrated customer base. The Company expects that sales to a relatively small number of customers will continue to account for a significant portion of K*TEC's sales in the future. The loss of, or a significant decline in orders from, one of K*TEC's key customers could have a material adverse effect on the Company's business, results of operations or financial condition. MANAGEMENT OF GROWTH In recent years, the Company has expanded its business through internal growth and acquisitions, and the Company anticipates that it will continue this expansion in the future. To effectively manage this expansion, the Company will be required to attract and retain highly skilled managers and personnel and to evaluate the adequacy of existing systems and procedures, including, but not limited to, information management systems, financial and internal control systems, and management structure. In addition, if the Company enters new markets, it will be required to, among other things, establish suitable distribution centers, hire personnel and establish distribution channels. Moreover, the Company anticipates that in response to the growing trend of OEMs to outsource manufacturing operations, the Company will expand K*TEC's box build operations and increasingly combine those operations with the Company's distribution capabilities. There can be no assurance that management will adequately anticipate all of the changing demands that growth and industry conditions and trends will impose on the Company or that the Company will be able to adapt its pricing, costs, systems, procedures and structure to such demands. Any failure to anticipate and respond promptly and effectively to such changing demands and industry trends could have a material adverse effect on the Company's business, results of operations or financial condition. RISKS ASSOCIATED WITH ACQUISITIONS The Company will continue to evaluate opportunities to acquire complementary businesses, assets or technologies, and the Company expects to pursue acquisitions that it believes will enhance its position as a national distributor and contract manufacturer of electronic products. There can be no assurance, however, that the Company will be able to identify and acquire complementary businesses, assets or technologies. Among other things, the Company may not be able to identify acquisition candidates in desirable geographic or product markets on terms that are satisfactory to the Company. Moreover, acquisitions require the expenditure of large amounts of capital, and the Company's competitors for acquisitions may have significantly greater financial resources than the Company. Therefore, to finance acquisitions, the Company may have to raise additional funds through either public or private financings, including the issuance of additional Common Stock that would result in dilution to the Company's shareholders or the incurrence of Senior Indebtedness with respect to which the Notes would be subordinated. 6 In addition, there can be no assurance that the Company will be able to integrate successfully the operations, facilities and management of any acquired business or realize any expected synergies, including cost reductions, from any acquisition. Moreover, there can be no assurance that any acquisition will not have an adverse effect on the Company's relationships with customers or suppliers of an acquired business. Failure to integrate successfully any acquisition made by the Company could have a material adverse effect on the Company's business, results of operations or financial condition. DEPENDENCE ON SIGNIFICANT SUPPLIERS As is customary in the electronics distribution industry, the Company primarily operates under short-term contracts with its suppliers. In the Company's past experience, such contracts have typically been renewed from year to year. In the year ended March 29, 1997, the Company's purchases from AMP Incorporated and Belden Inc. represented approximately 14% and 11%, respectively, of the Company's total purchases. Although the Company believes that it may be able to obtain competitive products of comparable quality from other suppliers, the loss of such suppliers could have a material adverse effect on the Company's business, results of operations or financial condition. COMPETITION The markets for the Company's products and services are highly competitive. The Company competes with a large number of distributors, suppliers and domestic and foreign manufacturers. Foreign-manufactured products are often sold at prices below the Company's prices for comparable products. The Company's products are not protected from competition by any proprietary or intellectual property rights such as trade secrets or patents. There can be no assurance that the Company will continue to compete successfully against the distributors, suppliers and manufacturers within its industry, some of which are larger, have greater financial resources and broader name recognition, and may, in some instances, have lower costs than the Company. In addition, although the Company continues to focus on cost containment, there can be no assurance that increasingly intense competition will not cause pricing or marketing pressures that reduce gross profit margins or increase selling, general and administrative expenses as a percentage of sales. Reduced gross profit margins and increased selling, general and administrative expenses as a percentage of sales, either alone or together, could have a material adverse effect on the Company's business, results of operations or financial condition. SUBORDINATION OF NOTES The Notes will be unsecured and subordinated in right of payment in full to all existing and future Senior Indebtedness of the Company. As a result of such subordination, in the event of bankruptcy, liquidation or reorganization of the Company, or upon the acceleration of any Senior Indebtedness, the assets of the Company will be available to pay obligations under the Notes only after all Senior Indebtedness has been paid in full, and there can be no assurance the Company will have sufficient assets remaining to pay amounts due under the Notes. The Notes are also effectively subordinated in right of payment to all indebtedness and other liabilities, including trade payables, of the Company's subsidiaries. The Indenture does not prohibit or limit the incurrence of Senior Indebtedness or any other indebtedness by the Company or its subsidiaries. The incurrence of Senior Indebtedness or any other indebtedness by the Company or its subsidiaries could adversely affect the Company's ability to pay its obligations under the Notes. At June 28, 1997, the Company did not have any Senior Indebtedness. See "Description of Notes-- Subordination." In addition, the Notes are obligations exclusively of the Company and not of any of its subsidiaries. The Company's cash flow and ability to service its debt, including the Notes, may depend on, among other things, the earnings of its subsidiaries and the distribution of those earnings to the Company, or on other payments of funds by the subsidiaries to the Company. The subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due under the Notes or to make any funds available 7 therefor, whether by dividends, loans or other payments. In addition, the payment of dividends and the making of loans and advances to the Company by its subsidiaries may be subject to statutory, contractual or other restrictions, will be dependent on the earnings of those subsidiaries and will be subject to various business considerations. Any right of the Company to receive the assets of one of its subsidiaries upon the liquidation or reorganization of such subsidiary (and the consequent right of the holders of the Notes to participate in these assets) will be effectively subordinated to the claims of that subsidiary's creditors (including trade creditors), except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company and would be subject to judicial powers to subordinate the Company's claim against such subsidiary to that of other creditors of such subsidiary in certain cases. See "Description of Notes--Subordination." POSSIBLE LIMITATIONS ON REPURCHASE OF NOTES Upon a Repurchase Event, each holder of Notes will have the right, at the holder's option, to require the Company to repurchase all or a portion of such holder's Notes. If a Repurchase Event occurs, there can be no assurance that the Company will have sufficient funds to pay the repurchase price for all Notes tendered by the holders thereof. In addition, the right to require the Company to repurchase Notes as a result of a Repurchase Event could create an event of default under Senior Indebtedness of the Company as a result of which any repurchase could, absent a waiver, be prohibited by the subordination provisions of the Notes. See "Description of Notes--Certain Rights of Holders to Require Repurchase of Notes." ABSENCE OF EXISTING PUBLIC MARKET FOR THE NOTES Prior to the Offering, there has been no public market for the Notes. The Notes have been approved for listing on the NYSE under the symbol "KNT 04" subject to official notice of issuance. There can be no assurance, however, as to the liquidity of the trading market for the Notes or that an active trading market for the Notes will develop or be sustained. The Company has been advised by the Underwriters that they presently intend to make a market in the Notes offered by this Prospectus; however, they are not obligated to do so, and any market making may be discontinued at any time without notice. 8 USE OF PROCEEDS The net proceeds to the Company from the sale of the Notes offered hereby are estimated to be $145,750,000 ($167,687,500 if the Underwriters' over- allotment option is exercised in full), after deducting underwriting discounts and commissions and estimated expenses of the Offering payable by the Company. The Company currently intends to use the net proceeds to pursue acquisition opportunities that it believes will enhance its position as a national distributor and contract manufacturer of electronic products. In addition, the Company intends to use the net proceeds for general corporate purposes, including working capital and capital expenditures. The Company evaluates opportunities to acquire complementary businesses, assets or technologies on an ongoing basis. Although there is no current agreement or understanding with respect to any such acquisition, the Company desires to be able to respond to opportunities as they arise. Until a specific plan for use of the net proceeds from the Offering is developed, the Company intends to invest the net proceeds in low-risk short-term investments. 9 PRICE RANGE OF COMMON STOCK The Company's Common Stock is listed and traded on the NYSE under the symbol "KNT." The following table presents the high and low closing prices for the Common Stock for each of the calendar periods indicated below, as reported by the NYSE and as adjusted to reflect a three-for-two stock split to shareholders of record on February 15, 1995 and a two-for-one stock split to shareholders of record on February 15, 1996.
HIGH LOW ------ ------ 1995 First Quarter.............................................. $15.38 $12.92 Second Quarter............................................. 18.88 14.06 Third Quarter.............................................. 22.38 18.75 Fourth Quarter............................................. 29.25 19.31 1996 First Quarter.............................................. $35.38 $26.00 Second Quarter............................................. 43.25 26.75 Third Quarter.............................................. 32.25 17.00 Fourth Quarter............................................. 28.13 21.63 1997 First Quarter.............................................. $33.00 $23.00 Second Quarter............................................. 36.69 22.13 Third Quarter (through August 20).......................... 41.06 35.94
On August 25, 1997, the last reported sale price of the Common Stock on the NYSE was $37.81 per share. At August 15, 1997, the Common Stock was held by 1,297 holders of record. The number of record holders may not be representative of the number of beneficial holders because many shares are held by depositaries, brokers or other nominees. DIVIDEND POLICY Historically, the Company has reinvested earnings available for distribution to holders of Common Stock, and accordingly, the Company has not paid any cash dividends on its Common Stock. Although the Company intends to continue to invest future earnings in its business, it may determine at some future date that payment of cash dividends on Common Stock would be desirable. The payment of any such dividends would depend, among other things, upon the earnings and financial condition of the Company. 10 CAPITALIZATION The following table sets forth the capitalization of the Company at June 28, 1997 and as adjusted to reflect the sale by the Company of the Notes offered hereby. This table should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included elsewhere or incorporated by reference in this Prospectus.
JUNE 28, 1997 ------------------ AS ACTUAL ADJUSTED -------- -------- (IN THOUSANDS) Long-term debt: % Convertible Subordinated Notes due 2004............... $ -- $150,000 Stockholders' equity: Preferred Stock, $1 par value per share, authorized 2,000,000 shares, none issued............................ -- -- Common Stock, without par value, authorized 60,000,000 shares, 26,313,966 shares issued and 26,263,966 shares outstanding(1)........................................... 42,852 42,852 Additional paid-in capital................................ 116,648 116,648 Retained earnings......................................... 114,249 114,249 -------- -------- 273,749 273,749 Less Common Stock in treasury--at cost, 50,000 shares..... (977) (977) -------- -------- Total stockholders' equity.............................. 272,772 272,772 -------- -------- Total capitalization.................................. $272,772 $422,772 ======== ========
- -------- (1) Does not include 3,526,438 shares of Common Stock reserved for issuance upon exercise of outstanding stock options, 512,465 shares available for future grants under the Company's stock option plans, or shares initially issuable upon conversion of the Notes. 11 SELECTED CONSOLIDATED FINANCIAL DATA The following table summarizes selected consolidated financial data of the Company for each fiscal year of the five-year period ended March 29, 1997, and the consolidated financial data for the thirteen weeks ended June 29, 1996 and June 28, 1997 and at June 28, 1997. The selected consolidated financial data for the interim periods are unaudited, but include all adjustments, consisting of normal recurring accruals, which management of the Company considers necessary for a fair presentation. Interim results are not necessarily indicative of results for the full fiscal year. The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, including the notes thereto, included elsewhere or incorporated by reference in this Prospectus.
FISCAL YEARS ENDED THIRTEEN WEEKS ENDED -------------------------------------------------- --------------------- APRIL 3, APRIL 2, APRIL 1, MARCH 30, MARCH 29, JUNE 29, JUNE 28, 1993 1994 1995 1996 1997(2) 1996 1997 -------- -------- -------- --------- --------- -------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIO) STATEMENT OF EARNINGS DATA(1): Net sales.............. $164,541 $206,784 $279,676 $425,810 $516,757 $125,144 $152,080 Cost of sales.......... 119,162 151,634 206,935 313,643 396,054 93,238 117,221 -------- -------- -------- -------- -------- -------- -------- Gross profit........... 45,379 55,150 72,741 112,167 120,703 31,906 34,859 Selling, general and administrative expenses.............. 33,569 39,857 50,028 66,106 73,607 17,613 20,780 Merger and integration costs................. -- -- -- -- 5,500 -- -- -------- -------- -------- -------- -------- -------- -------- Operating profit....... 11,810 15,293 22,713 46,061 41,596 14,293 14,079 Other income (expense): Interest expense....... (79) (156) (340) (898) (1,192) (304) (7) Other--net (principally interest and dividend income)............... 901 765 1,138 3,932 4,696 1,567 425 -------- -------- -------- -------- -------- -------- -------- Earnings before income taxes................ 12,632 15,902 23,511 49,095 45,100 15,556 14,497 Income taxes........... 4,439 5,844 8,910 19,303 17,479 6,125 5,722 -------- -------- -------- -------- -------- -------- -------- Net earnings.......... $ 8,193 $ 10,058 $ 14,601 $ 29,792 $ 27,621 $ 9,431 $ 8,775 ======== ======== ======== ======== ======== ======== ======== Earnings per share..... $ 0.40 $ 0.48 $ 0.68 $ 1.21 $ 1.00 $ 0.34 $ 0.32 ======== ======== ======== ======== ======== ======== ======== Weighted average shares................ 20,393 20,804 21,475 24,696 27,551 27,592 27,762 Ratio of earnings to fixed charges(3)...... 18.6x 21.3x 22.7x 27.4x 20.1x 28.4x 45.1x JUNE 28, 1997 --------------------- APRIL 3, APRIL 2, APRIL 1, MARCH 30, MARCH 29, AS 1993 1994 1995 1996 1997 ACTUAL ADJUSTED(4) -------- -------- -------- --------- --------- -------- ----------- (IN THOUSANDS) BALANCE SHEET DATA(1): Working capital........ $ 48,336 $ 57,243 $ 71,817 $172,758 $150,884 $155,480 $301,230 Total assets........... 102,755 120,970 148,276 305,174 325,594 343,906 493,906 Long-term debt, less current portion....... 19 41 1,269 1,258 -- -- 150,000 Mandatorily redeemable preferred stock ...... -- -- 2,200 2,200 -- -- -- Stockholders' equity... $ 83,888 $ 94,345 $112,224 $230,968 $262,367 $272,772 $272,772
- ------- (1) As a result of the acquisitions of Futronix Corporation and Wire & Cable in January 1997, each accounted for as a pooling of interests, selected consolidated financial data have been restated where appropriate to include the results of Futronix Corporation and Wire & Cable. (2) Includes non-recurring merger and integration charges of $5.5 million ($3.4 million, net of taxes, or $0.12 per share). Exclusive of such charges, fiscal 1997 net earnings were $31.0 million, or $1.12 per share, and the ratio of earnings to fixed charges was 22.4x. (3) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes plus fixed charges. "Fixed charges" consist of interest expense, amortization of deferred financing costs and that portion of rental expense deemed representative of the interest factor. (4) As adjusted to give effect to the sale by the Company of the Notes offered hereby and the application of the estimated net proceeds thereof after deducting underwriting discounts and commissions and estimated expenses of the Offering. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included elsewhere or incorporated by reference in this Prospectus. As a result of the acquisitions of Futronix Corporation and Wire & Cable in January 1997, each accounted for as a pooling of interests, all financial information has been restated where appropriate to include the results of Futronix Corporation and Wire & Cable. In the following discussion, all dollars are stated in thousands. CORPORATE OVERVIEW In recent quarters, the Company has experienced downward pressure on its gross profit margin primarily due to (i) an increase in distribution sales relative to manufacturing sales, (ii) a lower percentage of certain high margin sales within its manufacturing business, and, to a lesser extent, (iii) a shift in its manufacturing business mix from building subassemblies to box build. The Company's decrease in gross profit margin has been partially offset by growth in sales and a reduction in selling, general and administrative expenses ("SG&A") as a percentage of sales resulting from the Company's continued focus on cost containment. The Company believes that these recent margin trends will continue. RESULTS OF OPERATIONS The following table presents, as a percentage of net sales, certain selected consolidated financial data for each of the periods indicated.
THIRTEEN WEEKS FISCAL YEARS ENDED ENDED ---------------------------- ----------------- APRIL 1, MARCH 30, MARCH 29, JUNE 29, JUNE 28, 1995 1996 1997 1996 1997 -------- --------- --------- -------- -------- Distribution.................... 65.6% 61.4% 65.6% 62.0% 65.1% Manufacturing................... 34.4 38.6 34.4 38.0 34.9 ----- ----- ----- ----- ----- Net sales..................... 100.0 100.0 100.0 100.0 100.0 Cost of sales................... 74.0 73.7 76.6 74.5 77.1 ----- ----- ----- ----- ----- Gross profit.................. 26.0 26.3 23.4 25.5 22.9 Selling, general and administrative expenses........ 17.9 15.5 14.2 14.1 13.7 Merger and integration costs.... 0.0 0.0 1.1 0.0 0.0 ----- ----- ----- ----- ----- Operating profit.............. 8.1 10.8 8.1 11.4 9.2 Other income (expense) Interest expense.............. (0.1) (0.2) (0.2) (0.2) 0.0 Other--net (principally interest and dividend income)...................... 0.4 0.9 0.9 1.2 0.3 ----- ----- ----- ----- ----- Earnings before income taxes...................... 8.4 11.5 8.8 12.4 9.5 Income taxes.................... 3.2 4.5 3.4 4.9 3.8 ----- ----- ----- ----- ----- Net earnings................ 5.2% 7.0% 5.4% 7.5% 5.7% ===== ===== ===== ===== =====
COMPARISON OF THIRTEEN WEEKS ENDED JUNE 28, 1997 WITH JUNE 29, 1996 Net sales for the thirteen weeks ended June 28, 1997 increased $26,936, or 21.5%, compared to the same period of the prior year. The increase in net sales resulted primarily from increased demand from existing customers and an expanded customer base. The Company's distribution businesses, which accounted for 65.1% of first quarter net sales, benefited from increased customer demand of materials management and logistical services and the December 1996 acquisition of the EMC Distribution Division of Electronics 13 Marketing Corporation. The Company's contract manufacturing business increased as a result of improving business conditions in markets served and as a result of increased demand for the Company's recently expanded contract manufacturing services. Gross profit increased $2,953, or 9.3%, compared to the corresponding period a year ago. Gross profit as a percentage of sales decreased to 22.9% from 25.5% for the period. The increase in gross profit was primarily due to increased sales, offset by a decrease in the gross profit percentage primarily due to pricing pressures and product mix, with a lower percentage of certain higher margin contract manufacturing business. SG&A expenses increased $3,167, or 18.0%, compared to the same period last year. However, as a percentage of sales, SG&A declined to 13.7% from 14.1% in the prior year period. The decline as a percentage of sales reflects the Company's continued focus on cost containment to reduce such expenses as a percentage of sales. The increase in SG&A expenses was primarily due to the expenses necessary to support the growth in the Company's existing operations. Interest expense decreased due to the retirement, in the fourth quarter of fiscal 1997, of all outstanding debt of Futronix Corporation and Wire & Cable. Other-net consists principally of interest and dividend income generated by cash and cash equivalents. The decrease in interest and dividend income resulted from a decrease in invested cash, cash equivalents and trading securities, which were expended for capital expenditures, acquisitions and the retirement of Futronix Corporation and Wire & Cable debt. Net earnings decreased $656, or 7.0%, compared to the same period a year ago. The decrease was primarily due to a decrease in the gross profit percentage and a decrease in interest and dividend income, partially offset by lower SG&A expenses as a percentage of sales. COMPARISON OF FISCAL 1997 WITH FISCAL 1996 Net sales for the fiscal year ended March 29, 1997 were $516,757, an increase of 21.4% over the $425,810 reported for fiscal 1996. The increase in sales was primarily the result of continued gains in market share in the Company's distribution operations, which had a 29.7% increase over fiscal 1996. Distribution sales also benefited from the December acquisition of the EMC Distribution Division of Electronics Marketing Corporation and a full year of operations in geographical markets entered during fiscal 1996 by Futronix Corporation and Wire & Cable. The Company's contract manufacturing operations posted an 8.2% increase over the prior year despite a significant downturn in the semiconductor capital equipment sector during the September quarter of fiscal 1997. The semiconductor capital equipment sector accounted for approximately 26.7% of the manufacturing division revenue in fiscal 1997 compared to approximately 39.0% in fiscal 1996. Gross profit increased $8,536, or 7.6%, from fiscal 1996 to fiscal 1997 due to an increase in net sales. The decrease in gross profit margin from 26.3% to 23.4% reflects continued pricing pressures and the transitioning of new business services by the Company's contract manufacturing division. Excluding merger and integration charges associated with the acquisition of Futronix Corporation and Wire & Cable, SG&A expenses increased $7,501, or 11.3%, compared to the prior year. This increase reflects the costs necessary to support the continued growth in the Company's operations. As a percentage of sales, however, expenses decreased to 14.2% from 15.5% in the prior year. The decrease is the result of the Company's continued focus on cost containment as well as specific cost reduction initiatives taken in response to the difficult business conditions the Company experienced during the year. SG&A expenses do not reflect the cost savings or synergies which may result from the merger of Futronix Corporation and Wire & Cable. Merger and integration charges of $5,500 include abandoned registration costs associated with the planned business combination of Futronix Corporation and Wire & Cable, professional expenses associated with the acquisition, an employee bonus and integration costs incurred to consolidate operations. 14 Interest expense increased due to higher short-term borrowings by Futronix Corporation and Wire & Cable prior to acquisition by the Company. All outstanding debt was retired in the fourth quarter of 1997. Other-net consists principally of interest and dividend income generated by cash, cash equivalents and trading securities. The increase in interest and dividend income was primarily due to the net proceeds from the September 1995 public offering invested for approximately four months longer than the prior year. Net earnings for 1997 were $27,621 compared to $29,792 for 1996. Net earnings for 1997 included pre-tax merger and integration charges of $5,500. Excluding these charges, net earnings increased $1,198, or 4.0%, to $30,990. The improved profitability was primarily due to the incremental profit associated with the increase in sales volume, offset by lower gross profit margins, combined with the Company's continued focus on cost containment. COMPARISON OF FISCAL 1996 WITH FISCAL 1995 Net sales for the fiscal year ended March 30, 1996 increased $146,134, or 52.3%, to $425,810. The sales increase reflected internal growth primarily from increased demand from existing customers, an expanded customer base and expansion into new geographical markets by Futronix Corporation and Wire & Cable. Gross profit increased $39,426, or 54.2%, compared to the preceding year. Gross profit as a percentage of sales increased to 26.3% from 26.0% in the prior year. The increase in gross profit was primarily due to increased sales and an increase in the gross profit percentage that benefited from the gains in contract manufacturing as a percentage of total sales. The Company believes that its profit margins from sales of manufactured products are generally greater than its profit margins on sales of distributed products. SG&A expenses increased $16,078, or 32.1%, compared to the prior fiscal year. However, as a percentage of sales, expenses declined to 15.5% from 17.9% in the preceding year. The decline as a percentage of sales reflects the Company's continued focus on cost containment to reduce such expenses as a percentage of sales. The increase in expenses was primarily due to the expenses necessary to support the growth in the Company's existing operations and expansion into new geographical markets by Futronix Corporation and Wire & Cable. Interest expense increased due to higher short-term borrowings by Futronix Corporation and Wire & Cable prior to acquisition by the Company. Other-net consists principally of interest and dividend income generated by cash, cash equivalents and trading securities. The increase in interest and dividend income was primarily due to the invested net proceeds from the September 1995 public offering. Net earnings increased $15,191 or 104.0%, when compared to the prior year. The improved profitability was primarily due to the incremental profit associated with the increase in sales volume, the increase in the gross profit percentage and the Company's continued focus on cost containment. LIQUIDITY AND CAPITAL RESOURCES Working capital at June 28, 1997 was $155,480, an increase of $4,596, or 3.0%, from March 29, 1997. Included in the Company's working capital at June 28, 1997 are investments of $26,502. The Company's investment strategy is low- risk and short-term, keeping the funds readily available to meet capital requirements as they arise in the normal course of business. At June 28, 1997, funds were invested primarily in a reverse repurchase agreement and an institutional money market fund consisting primarily of taxable, high quality money market type instruments. Both are compatible with the Company's stated investment strategy. In June 1997, the Company obtained a $25,000 unsecured line of credit with a bank. As of August 20, 1997, there was no indebtedness outstanding under the line of credit. 15 The Company intends to apply its capital resources to expand its business by establishing or acquiring similar distribution and manufacturing operations in geographic areas that are attractive to the Company, by acquiring new facilities and by enlarging or improving existing facilities. In addition to the capital required to purchase existing businesses or to fund start-up operations, the expansion of the Company's operations at both new and existing locations will require greater levels of capital to finance the purchase of additional equipment, increased levels of inventory and greater accounts receivable. In connection with the completion of its new 220,000 square foot distribution facility at its Sugar Land, Texas location, the Company has authorized fiscal 1998 capital expenditures of approximately $10,000 for facility construction and equipment, of which approximately $3,000 had been spent as of June 28, 1997. In addition, the Company has authorized fiscal 1998 capital expenditures of approximately $10,000 for specialized manufacturing equipment for K*TEC, none of which had been spent as of June 28, 1997. The Company believes that current resources, along with funds generated from operations, should be sufficient to meet its current capital requirements and those anticipated in fiscal 1998. With completion of this Offering, the Company believes that it will have adequate capital to meet working capital needs, fund capital expenditures and respond to acquisition opportunities that may arise. See "Use of Proceeds." 16 BUSINESS THE COMPANY The Company is a national specialty distributor of electronic products and a manufacturer of custom-made electronic products. In fiscal 1997, the Company strategically aligned its operations into four distinct, yet complementary, business units that seek to develop competitive advantages within targeted markets. . Kent Components distributes electronic connectors, electronic wire and cable, and other passive and electromechanical products and interconnect assemblies used in assembling and manufacturing electronic products. . Kent Datacomm distributes a broad range of premise wiring products, such as fiber optic cable, patch panels and enclosures, and LAN and WAN equipment, such as modems, hubs, switches and routers, directly to commercial end-users and professionals who install and service voice and data communications networks. . Futronix Systems is a redistributor of specialty wire and cable to electrical distributors nationwide. Futronix Systems was formed to conduct the businesses of Futronix Corporation and Wire & Cable which were acquired by the Company in January 1997. . K*TEC is a manufacturer whose capabilities include custom-made electronic interconnect assemblies, printed circuit board assemblies, sheet metal fabrication, plastic injection molding, specially fabricated battery power packs, other subassemblies that are built to customers' specifications and final system integration (box build). The Company focuses on providing its customers a continuum of products and services that emphasizes technology-based materials management and manufacturing solutions. To successfully execute its strategy, during the nine fiscal quarters ended June 28, 1997, the Company invested approximately $81.7 million in capital expenditures. These expenditures were primarily for construction of its recently completed state-of-the-art K*TEC facility in Sugar Land, Texas, consisting of approximately 420,000 square feet for manufacturing and warehousing operations and its adjacent state-of-the-art 220,000 square foot distribution facility that is scheduled for completion in spring 1998. INDUSTRY OVERVIEW Outsourcing is a rapidly growing trend in many industry sectors in the United States as companies seek to reduce costs and improve operating efficiencies. Electronics OEMs are increasingly outsourcing materials management and manufacturing operations, ranging from inventory management to complete box build combined with distribution to the end customer. Manufacturers of electronic products are responding to this trend by utilizing technology-based materials management and logistical solutions provided by distributors. In addition, the Company believes that there is an emerging trend of OEMs to align with contract manufacturers who have distribution capabilities and expertise. Because of its experience in both distribution and manufacturing, the Company is particularly well-positioned to capitalize on these trends. The potential benefits from outsourcing materials management and manufacturing operations include: FOCUSED RESOURCES. Because the electronics industry is experiencing greater levels of competition and more rapid technological change, many OEMs are focusing their resources on activities and technologies in which they add the greatest value. By offering comprehensive materials management solutions and integrated manufacturing services, the Company allows OEMs to focus on their core competencies, such as product development and marketing. IMPROVED INVENTORY MANAGEMENT AND PURCHASING POWER. Electronics OEMs are faced with increasing difficulties in efficiently planning, procuring and managing their inventories due to frequent design changes, short product life cycles, large investments in electronic components, component price fluctuations and the need to achieve economies of scale in materials procurement. By using the Company's volume purchasing capabilities and expertise in inventory management, an OEM can reduce production and inventory costs. 17 REDUCED TIME TO MARKET. Due to intense competitive pressures and rapid technological developments in the electronics industry, OEMs are faced with increasingly shorter product life cycles and therefore have a growing need to reduce the time required to bring a product to market. OEMs can reduce their time to market by using the Company's expertise in providing materials management, logistical and manufacturing solutions. REDUCED COSTS AND CAPITAL INVESTMENT. As electronic products have become more technologically advanced and shipped in greater volumes, the distribution and manufacturing processes have become increasingly automated, requiring greater investments in technology and capital equipment on an ongoing basis. The Company's materials management services allow manufacturers to operate more efficiently by relying on scheduled deliveries of components at the time they are needed in the production process, thereby reducing inventory levels. K*TEC's contract manufacturing services enable an OEM to gain access to advanced, high-volume manufacturing and distribution capabilities while reducing the OEM's capital requirements. ACCESS TO LEADING MANUFACTURING TECHNOLOGY. Electronic products and electronics manufacturing technology have become increasingly sophisticated and complex, making it more difficult and expensive for OEMs to maintain the necessary technological expertise to manufacture products internally. OEMs are motivated to work with a contract manufacturer in order to gain access to specialized process expertise and manufacturing know-how. COMPANY STRATEGY The Company is pursuing the following strategies to capitalize on current and emerging electronics industry trends. PROVIDING A CONTINUUM OF CUSTOMER SERVICES. The Company provides a continuum of services to its customers, ranging from order fulfillment to box build combined with direct distribution to an OEM's customers. In response to evolving customer needs, the Company continues to shift from order fulfillment to technology-based materials management services. In addition, the Company continues to expand its manufacturing relationships from subassemblies to box build as OEMs increase their demand for outsourced supply chain management solutions. REMAINING A KEY PLAYER IN TARGET MARKETS. The Company has focused on markets where it strives to maintain and enhance its position as a national distributor of premier products. The Company believes it can strengthen its position within these markets by expanding its supplier relationships, capitalizing on OEMs' shift toward using distribution channels and redistributing existing Company product offerings through Futronix Systems. CAPITALIZING ON INDUSTRY CONSOLIDATION. The Company expects consolidation within the distribution and contract manufacturing sectors of the electronics industry to continue in response to increasing demands on suppliers by OEMs to provide integrated, technology-based materials management and manufacturing solutions. In addition, the Company anticipates increased opportunities to acquire the production capacity of OEMs following the trend toward outsourcing manufacturing operations. The Company will continue to evaluate and pursue acquisition opportunities that enhance its position as a national distributor and contract manufacturer of electronic products. MAXIMIZING SYNERGIES BETWEEN BUSINESS UNITS. The Company believes its four business units will continue to enjoy revenue and cost synergies and economies of scale. These benefits include: (i) greater product offerings to the Company's customers across business units, (ii) purchasing and volume procurement synergies, (iii) cost efficient opportunities to expand into new geographic markets by utilizing existing facilities and personnel, and (iv) shared warehousing and materials handling capabilities. FOCUSING ON CUSTOMER SERVICE. The Company continues to emphasize customer service as a competitive advantage. The Company's technology-based materials management services enable the Company to offer value-added solutions to its customers. Similarly, K*TEC customers have Internet access to K*TEC's intranet in order to place and track orders, inform K*TEC of demand forecasts and change 18 product specifications. The Company believes that through these and other customer service innovations it will continue to strengthen and develop customer relationships. DISTRIBUTION KENT COMPONENTS. Kent Components focuses primarily on providing its industrial and OEM customers with rapid and reliable deliveries of interconnect, passive and electromechanical products as well as a wide variety of materials management services. This division also provides value-added services such as cable assembly, fan assembly, taping and reeling, and component modification. Kent Components utilizes a computerized inventory control system to assist in the marketing of its products and to coordinate purchases from suppliers with sales to customers. The division's computer system provides detailed on-line information regarding the availability of the Company's entire stock of inventory located at its stocking facilities as well as on-line access to the inventories of most of the Company's major suppliers. Through its integrated real-time information system, the Company can readily track customers' orders through the entire process of entering the order, reserving products to fill the order, ordering components from suppliers, if necessary, and shipping products to customers on scheduled dates. Kent Components is thus able to provide the type of distributor service required by its OEM customers that have adopted the "just-in-time" method of inventory procurement. Kent Components serves numerous markets, including the computer, instrumentation, medical, networking systems and telecommunications markets. KENT DATACOMM. Kent Datacomm serves the voice and data communications after- market by providing immediate off-the-shelf delivery of premise wiring products and LAN and WAN equipment to commercial end-users and professionals who install or service voice and data communications networks. Through a focused sales effort, the Company believes it is able to participate directly in the large and rapidly growing market for connection devices, reflecting the increasing use of microcomputers in LANs and WANs and the continued growth in networking and cabling needs of minicomputer and mainframe users. Kent Datacomm serves numerous industries, including the aerospace, airline, financial, food, government, manufacturing and medical industries. FUTRONIX SYSTEMS. In January 1997, the Company acquired Futronix Corporation and Wire & Cable, and the businesses of both Futronix Corporation and Wire & Cable are now conducted through Futronix Systems. Futronix Systems is a redistributor of specialty wire and cable, serving more than 1,000 electrical distributors throughout the United States. Futronix Systems seeks to serve as an efficient single source of supply and as the distributor of choice for electrical distributors by maintaining for immediate delivery large quantities of over 10,000 specialty wire and cable products purchased from more than 50 manufacturers worldwide, as well as limited quantities of complementary products. As a redistributor, Futronix Systems enables electrical distributors to purchase exact quantities, gain immediate access to products, obtain a wider variety of products and lower overall materials acquisition costs. The products of Futronix Systems typically are used in industrial applications, including computer systems, factory automation, "intelligent" buildings and telecommunication systems. Futronix Systems generally does not sell commodity wire and cable, such as that used in commercial and residential construction. The Company believes that there are opportunities for redistribution of existing Company product offerings through Futronix Systems. MANUFACTURING K*TEC provides vertically integrated electronic manufacturing products and services, including printed circuit board assembly and test, electronic interconnect assemblies, specially fabricated battery power packs, subassemblies, sheet metal fabrication, plastic injection molding and box build. The Company has developed innovative material requirements planning relationships with a select group of OEMs in the data processing, energy, medical instrumentation and telecommunications industries. These relationships are supported by sophisticated in-house product design and technical support capabilities. K*TEC support teams work closely with K*TEC's customers through all stages of product planning and production to apply advanced design and 19 production technology. K*TEC's computer systems have a computer aided design capability that allows its engineers to be on-line with an OEM's engineers when developing and changing product designs. In addition, K*TEC customers have Internet access to K*TEC's intranet in order to place and track orders, inform K*TEC of demand forecasts and change product specifications. K*TEC's quality control standards provide another means of serving the needs of the Company's customers, since OEMs rely on suppliers to assure quality control for subassemblies rather than providing such quality control themselves. The Company believes that K*TEC's adherence to strict quality control standards and investment in state-of-the-art production facilities and equipment have attracted and retained important customers who have established extremely rigid product quality standards. MARKETING Each of the Company's business units maintains its own direct sales force. At June 28, 1997, the Company employed approximately 310 sales representatives operating out of sales offices in 32 cities in 25 states. The Company's sales representatives undergo continuous training and attend classes in order to enhance both their technical expertise and sales techniques. Sales associates are compensated primarily on a commission basis. In the marketing of its products, the Company supplements the efforts of its direct sales force with direct mailings of brochures and catalogs as well as advertisements in trade journals. The Company concentrates its efforts in certain targeted markets in which it only distributes the products of a select group of leading suppliers. This facilitates sales personnel specialization within related product groupings, and permits sales representatives to develop a high degree of technical expertise. EMPLOYEES At June 28, 1997, the Company employed approximately 1,560 persons, all on a full-time basis. The Company's employees are not subject to any collective bargaining agreement. In addition to its employees, the Company uses other workers on a contract basis, as its needs require. 20 MANAGEMENT The following table sets forth certain information regarding the directors and executive officers of the Company:
NAME AGE POSITION ---- --- -------- Morrie K. Abramson........... 62 Chairman of the Board, Chief Executive Officer and President Randy J. Corporron........... 40 President of K*TEC Electronics Terrence M. Hunt............. 49 President of Futronix Systems, Director Larry D. Olson............... 40 President of Kent Components Mark A. Zerbe................ 36 President of Kent Datacomm Stephen J. Chapko............ 43 Executive Vice President and Chief Financial Officer Barbara A. Alberto........... 51 Vice President Keith K. Ayers............... 59 Vice President Frank M. Billone............. 52 Vice President Rodney J. Corporron.......... 40 Vice President Carolyn S. Davis............. 49 Vice President William H. Fountain.......... 41 Vice President Pamela P. Huffman............ 39 Vice President David D. Johnson............. 33 Vice President Cathy L. O'Leary............. 45 Vice President Max S. Levit................. 62 Director David Siegel................. 71 Director Richard C. Webb.............. 64 Director Alvin L. Zimmerman........... 54 Director
Mr. Abramson, a co-founder of the Company, has served as Chief Executive Officer and a director since 1973 and Chairman of the Board since 1977. He has been in the electronics distribution business since 1956. Mr. Abramson has also been Chairman of the Board of K*TEC, the Company's wholly-owned manufacturing subsidiary, since its incorporation in 1983. Mr. Randy Corporron has served as an Executive Vice President of the Company since 1994 and became President of K*TEC in 1989. He previously served as Vice President of the Company since 1987. He joined the Company in 1982 as General Manager of K*TEC. Mr. Hunt has served as an Executive Vice President of the Company, President of Futronix Systems and as a director since January 1997. Mr. Hunt was elected to serve as a director in connection with the Company's acquisition of Futronix Corporation, which became effective January 17, 1997. Prior to joining the Company, Mr. Hunt served as President of Futronix Corporation, which he founded in 1991. Mr. Olson has served as an Executive Vice President of the Company since 1994 and became President of Kent Components in January 1997. He previously served as Vice President of the Company since 1992, after the Company's acquisition of Shelley-Ragon, Inc. Since 1991, he had been President of Shelley-Ragon, Inc. Mr. Zerbe has served as an Executive Vice President of the Company since 1994 and became President of Kent Datacomm in January 1997. He previously served as Vice President of the Company since 1988. Mr. Zerbe joined the Company as a sales representative in 1985. Mr. Chapko was appointed Executive Vice President, Chief Financial Officer in January 1997. He served as Vice President and Treasurer of the Company since 1989, and he was appointed Secretary in 1993. He joined the Company as Assistant Treasurer in 1987. 21 Ms. Alberto joined the Company's credit department in 1978. In 1987, she was appointed Vice President and has responsibilities for credit administration. Mr. Ayers joined the Company in 1976 as a purchasing agent. Since then, he has served in various capacities, including manager of the management information systems. Mr. Ayers currently serves as Vice President and has responsibilities for training, special projects and administrative matters. Mr. Billone was appointed Vice President, Chief Information Officer in June 1997 and previously served as Vice President of Information Services-- Distribution since joining the Company in January 1996. Prior to joining the Company, he held various Information Systems positions with General Electric since 1967. Mr. Rodney Corporron directs and coordinates the multi-plant manufacturing operations and was appointed Vice President of the Company and General Manager of K*TEC in 1989. Prior to such time, he served the Company in a number of capacities since 1974. Ms. Davis joined the Company in February 1995 as Information Services Manager for K*TEC. She was appointed Vice President of Information Services-- Manufacturing in January 1997. Prior to joining the Company, Ms. Davis served as Director of Information Systems at Anderson Greenwood & Co. since 1992. Mr. Fountain has been Vice President since 1987 and is responsible for product management in the distribution operations. He joined the Company in 1980 as a purchasing agent. Ms. Huffman joined the Company as K*TEC Human Resources Manager in 1988 and in 1989 was appointed Corporate Human Resources Manager. In January 1997, she was appointed Vice President of Human Resources. Mr. Johnson was appointed Vice President, Corporate Controller in January 1996. He joined the Company in 1988 as Accounts Payable Supervisor. Ms. O'Leary became a Vice President of the Company in 1993. She joined the Company in 1986 as a purchasing manager for K*TEC. Mr. Levit, President of Grocers Supply Company, Inc. since January 1992, has served as a director of the Company since April 1995. Mr. Levit also serves on the Board of M.D. Anderson Hospital and The University of Texas--Houston Health Science Center. Mr. Siegel has served as a director of the Company since September 1990, and has been in the electronics distribution business since 1954. Mr. Siegel is Vice President, director and the founder of Great American Electronics, a distribution company serving industrial distributors. He is also a director of Micronetics and Surge Components. Mr. Webb, a founder of Harris Webb & Garrison, a Houston-based investment banking and brokerage firm, has served as a director of the Company since June 1986. He has been involved in the investment banking business since 1960, and was a founder of Lovett Underwood Neuhaus & Webb, Inc., a subsidiary of Kemper Securities. Mr. Zimmerman has served as a director of the Company since June 1986. As a judge he presided over the 309th Family District Court and the 269th Civil District Court of Harris County, Texas from 1980 to 1984. Since 1984, he has been a shareholder, officer and director in the law firm of Zimmerman, Axelrad, Meyer, Stern & Wise, P.C. and its predecessor firms. 22 DESCRIPTION OF NOTES The Notes will be issued under an indenture dated as of September , 1997 (the "Indenture") between the Company and Texas Commerce Bank National Association, as trustee (the "Trustee"). The following summaries of certain provisions of the Indenture and the Notes do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Indenture, including the definition therein of certain terms. Whenever terms defined in the Indenture are referred to in this Prospectus, the applicable definition for such terms is incorporated herein by reference. A copy of the proposed form of Indenture is filed as an exhibit to the Registration Statement of which this Prospectus is a part. GENERAL The Notes will be unsecured, subordinated obligations of the Company, will be limited to $172,500,000 in aggregate principal amount (including the Notes issuable under the Underwriters' over-allotment option) and will mature on September 1, 2004. The Notes will bear interest at the rate per annum shown on the front cover of this Prospectus from the date of original issuance of the Notes pursuant to the Indenture, or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semi-annually on March 1 and September 1 of each year, commencing March 1, 1998, to each person in whose name a Note (or any predecessor Note) is registered at the close of business on the preceding February 15 or August 15, as the case may be (whether or not a Business Day). Interest on the Notes will be paid on the basis of a 360-day year of twelve 30-day months. In addition, the Company will pay interest on overdue principal at the rate borne by the Notes, and it will pay interest on overdue installments of interest at the same rate to the extent lawful. Principal of and premium, if any, and interest on the Notes will be payable (i) in same day funds on or prior to the payment dates with respect to such amounts in the case of Notes held of record by The Depository Trust Company ("DTC") or its nominee and (ii) at the offices of the Trustee in New York, New York, in the case of Notes held of record by holders other than DTC or its nominee, and the Notes may be surrendered for registration of transfer, exchange or conversion at the offices of the Trustee in New York, New York. The Company may, at its option, pay interest on Notes held of record by holders other than DTC or its nominee by check mailed to the address of the persons entitled thereto as it appears in the Register for the Notes on the Regular Record Date for that interest. The Notes will be issued only in registered form, without coupons, and in denominations of $1,000 or any integral multiple thereof. No service charge will be made for any transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge and any other expenses (including the fees and reasonable expenses of the Trustee) payable in connection therewith. The Company is not required (i) to issue, register the transfer of or exchange any Notes during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption and ending at the close of business on the day of such mailing, (ii) to register the transfer of or exchange of any Note selected for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part or (iii) to register the transfer or exchange of any Notes surrendered for conversion or repurchase upon the occurrence of a Repurchase Event (as defined below). All monies paid by the Company to the Trustee or any Paying Agent for the payment of principal of and premium, if any, and interest on any Note which remain unclaimed for two years after such principal, premium or interest becomes due and payable may be repaid to the Company. Thereafter, the holder of such Note may, as an unsecured general creditor, look only to the Company for payment thereof. CONVERSION RIGHTS The Notes will be convertible, in whole or from time to time in part (in denominations of $1,000 or integral multiples thereof), into shares of Common Stock of the Company, at any time prior to redemption or final maturity on September 1, 2004 at the conversion price set forth on the cover page of this Prospectus, adjusted as described in the following paragraphs, except that if a Note or portion thereof is earlier called for redemption, 23 the conversion right with respect thereto will terminate at the close of business on the Business Day prior to the date fixed for redemption and will be lost if not exercised prior to that time, unless the Company shall default in payment of the redemption price. Fractional shares of Common Stock will not be delivered upon conversion, but a cash adjustment will be paid in respect of such fractional interests based on the Closing Price of the Common Stock at the close of business on the day of conversion (or, if such day is not a Trading Day, on the Trading Day immediately preceding such day). The initial conversion price will be subject to adjustment upon certain events, including the following: (i) the issuance of Common Stock as a dividend or distribution on capital stock, including the Common Stock; (ii) a combination, subdivision or reclassification of Common Stock; (iii) the issuance to all holders of Common Stock of rights, warrants or options entitling them to subscribe for or purchase Common Stock (or securities convertible into Common Stock) at a price per share less than the Current Market Price; provided, however, that in the case of certain rights, warrants or options that are not exercisable until the occurrence of a specified event or events, the conversion price will not be adjusted until the occurrence of the earliest such specified event; (iv) the distribution to all holders of Common Stock of capital stock (other than Common Stock), evidences of indebtedness of the Company, assets (excluding regular periodic cash dividends paid from surplus), or rights, warrants or options to subscribe for or purchase securities of the Company (excluding the dividends, distributions, rights and warrants mentioned above); (v) a distribution consisting exclusively of cash (excluding any cash distributions referred to in (iv) above or made in connection with a merger or similar transaction) to all holders of Common Stock in an aggregate amount that, together with (A) all other cash distributions (excluding any cash distributions referred to in (iv) above) made within the 12 months preceding such distribution and (B) any cash and the fair market value of other consideration payable in respect of any previous tender offer by the Company or a Subsidiary (as defined in the Indenture) for the Common Stock consummated within the 12 months preceding such distribution, exceeds 10% of the Company's market capitalization (being the Current Market Price times the number of shares of Common Stock then outstanding) on the date fixed for determining the shareholders entitled to such distribution; and (vi) the completion of a tender offer made by the Company or any Subsidiary for the Common Stock involving an aggregate consideration that, together with (X) any cash and the fair market value of any other consideration paid or payable in respect of any previous tender offer by the Company or a Subsidiary for the Common Stock consummated within the 12 months preceding the consummation of such tender offer and (Y) the aggregate amount of all cash distributions (excluding any cash distributions referred to in (iv) above) to all holders of Common Stock within the 12 months preceding the consummation of such tender offer exceeds 10% of the Company's market capitalization on the date of consummation of such tender offer. The Company will be permitted to make such reductions in the conversion price as it determines to be advisable in order that any stock dividend, subdivision of shares, distribution of rights to purchase stock or securities or distribution of securities convertible into or exchangeable for stock made by the Company to its shareholders will not be taxable to the recipients. Except as stated above, the conversion price will not be adjusted for the issuance of Common Stock, or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing, in exchange for cash, property or services. If at any time (a) the Company makes a distribution of property to its shareholders or purchases Common Stock in a tender offer and such distribution or purchase would be taxable to such shareholders as a dividend for federal income tax purposes (e.g., distributions of evidences of indebtedness, or assets, of the Company but generally not stock dividends or rights to subscribe for capital stock) and, pursuant to the antidilution provisions of the Indenture, the conversion price of the Notes is reduced or (b) the conversion price is reduced at the discretion of the Company, such reduction may be deemed to be the receipt of taxable income by holders of the Notes. Holders of Notes therefore could have taxable income as a result of an event in which they receive no cash or property. See "Certain Federal Income Tax Considerations--Ownership by U.S. Persons--Constructive Dividend." 24 Subject to any applicable right of the holders to cause the Company to repurchase their Notes upon a Repurchase Event, in the case of certain consolidations, mergers or statutory exchanges of securities with another corporation to which the Company is a party, or the sale or conveyance of the Company's assets substantially as an entirety, there will be no adjustment to the conversion price, but each holder will have the right, at the holder's option, to convert all or any portion of such holder's Notes into the kind and amount of securities, cash or other property receivable upon the consolidation, merger, statutory exchange or transfer by a holder of the number of shares of Common Stock into which such Note might have been converted immediately prior to such consolidation, merger, statutory exchange or transfer (assuming such holder failed to exercise any rights of election and received per share the kind and amount of consideration received per share by a plurality of non-electing shares). In the case of a cash merger of the Company into another corporation or any other cash transaction of the type mentioned above, the effect of these provisions would be that thereafter the Notes would be convertible at the conversion price in effect at such time into the same amount of cash per share into which the Notes would have been convertible had the Notes been converted into Common Stock immediately prior to the effective date of such cash merger or transaction. Depending upon the terms of such cash merger or transaction, the aggregate amount of cash into which the Notes would be converted could be more or less than the principal amount of the Notes. Notes surrendered for conversion after the close of business on a record date for payment of interest and before the close of business on the next succeeding Interest Payment Date (unless there exists a default in the payment of interest on such Notes or such Notes have been called for redemption) must be accompanied by payment of an amount equal to the interest thereon that is to be paid on such Interest Payment Date. Subject to the foregoing, no payments or adjustments will be made upon conversion on account of accrued interest on the Notes or for any dividends or distributions on any shares of Common Stock delivered upon such conversion. No adjustment of the conversion price will be required to be made in any case until cumulative adjustments amount to at least 1% of the conversion price, as last adjusted. Any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. SUBORDINATION The payment of the principal of and premium, if any, and interest on the Notes and any other payment obligations of the Company in respect of the Notes, including any obligation to repurchase Notes at the option of a holder upon the occurrence of a Repurchase Event, will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full of all Senior Indebtedness of the Company. Senior Indebtedness is defined as (a) the principal of, premium, if any, and accrued and unpaid interest on (i) indebtedness of the Company for money borrowed, whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, (ii) guarantees by the Company of indebtedness for money borrowed by any other person, or reimbursement obligations under letters of credit, in either case, whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, (iii) indebtedness evidenced by notes (other than the Notes), debentures, bonds or other instruments of indebtedness for the payment of which the Company is responsible or liable, by guarantees or otherwise, whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, (iv) obligations of the Company under interest rate and currency swaps, caps, floors, collars or similar agreements or arrangements intended to protect the Company against fluctuations in interest or currency rates, whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, and (v) obligations of the Company under any agreement to lease, or any lease of, any real or personal property, which obligations, whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, are required to be capitalized on the books of the Company in accordance with generally accepted accounting principles, or guarantees by the Company of similar obligations of others, and (b) modifications, renewals, extensions and refundings of any such indebtedness, obligations or guarantees; unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such indebtedness, obligations or guarantees, or such modification, renewal, extension or refunding thereof, is not superior in right of payment to the Notes; provided, however, that Senior Indebtedness will not be deemed to include, and the Notes will rank pari passu in right of payment with, any obligation of the Company to any of its Subsidiaries. 25 In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding, relative to the Company or to its creditors, as such, or to its assets or (b) any proceeding for the liquidation, dissolution or other winding-up of the Company, whether total or partial, whether voluntary or involuntary and whether involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company, the holders of all Senior Indebtedness will first be entitled to receive payment in full of all amounts due or to become due thereon or in respect thereof before the holders of the Notes are entitled to receive any payment on account of the principal of, or premium, if any, or interest on the Notes (other than payment (a "Permitted Payment") consisting solely of shares of stock, securities or indebtedness subordinated at least to the extent of the Notes provided by a plan of reorganization or adjustment that does not adversely alter the rights of holders of Senior Indebtedness). Following the occurrence of any of the events described above, if the Trustee or any holder of the Notes receives any payment or distribution of assets of the Company of any kind or character before all Senior Indebtedness is paid in full, then such payment or distribution (other than a Permitted Payment) will be required to be paid over or delivered to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment or distribution of the assets of the Company for application to the payment of all amounts payable on or in respect of Senior Indebtedness remaining unpaid, to the extent necessary to pay such amounts in full after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. The Indenture also provides that in the event there shall have occurred and be continuing (i) any default in the payment when due of principal of, premium, if any, or interest on any Senior Indebtedness or (ii) any other default with respect to any Senior Indebtedness, then no payment shall be made by the Company on account of the principal of, premium, if any, or interest on the Notes or on account of the purchase or redemption or other acquisition of the Notes (x) in the case of any event of default described in clause (i) above, unless and until the Senior Indebtedness to which such default relates is discharged or such event of default shall have been cured or waived or shall have ceased to exist or the holders of such Senior Indebtedness or their agents shall have waived the benefits of this provision, and (y) in the case of any event of default specified in clause (ii) above, from the date the Company or the Trustee receives written notice of such default (a "Senior Default Notice") from (a) the lenders under the Company's revolving credit facility from time to time in effect or any replacement thereof or (b) the holders of at least 25% in principal amount of any other kind or category of Senior Indebtedness to which such default relates or any representative of such holders until the earlier of (A) 180 days after such date or (B) the date, if any, on which the Senior Indebtedness to which such default relates is discharged or such default shall have been cured or waived or shall have ceased to exist or the holders of such Senior Indebtedness or their agents shall have waived the benefits of this provision; provided, however, that not more than one Senior Default Notice is permitted to be given during any period of 360 consecutive days, regardless of the number of defaults specified in clause (ii) above with respect to Senior Indebtedness during such 360-day period. Subject to the payment in full of all Senior Indebtedness, the holders of the Notes will be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to Senior Indebtedness until the Notes are paid in full. Notwithstanding anything in the Indenture to the contrary, neither the Trustee nor any holder of Notes may exercise any right either may have to accelerate the maturity of the Notes at any time when payment of any amount owing on the Notes is prohibited, in whole or in part, as described in the preceding paragraphs; provided, however, that such right may nevertheless be so exercised upon the earliest of the acceleration of the maturity of any Senior Indebtedness, the exercise by any holder of Senior Indebtedness of any remedies available to such holder upon a default or event of default with respect to such Senior Indebtedness or the occurrence of an Event of Default relating to certain events of bankruptcy, insolvency or reorganization. By reason of the subordination of the Notes, in the event of insolvency, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than the holders of the Notes. In addition, the right of the Company, and, therefore, the right of creditors of the Company (including Noteholders), to participate in any distribution of assets of any subsidiary of the Company upon its liquidation or reorganization or otherwise is 26 necessarily subject to the prior claims of creditors of the subsidiary, except to the extent that claims of the Company itself as a creditor of the subsidiary may be recognized. The Indenture will not limit the amount of other indebtedness or securities that may be issued by the Company or any of its subsidiaries. OPTIONAL REDEMPTION The Notes may not be redeemed by the Company prior to September 6, 2000. Thereafter, the Notes may be redeemed at the option of the Company, in whole or in part, at any time and from time to time, upon not less than 30 nor more than 60 days' notice by mail at the applicable redemption prices (expressed in percentages of principal amount) set forth below. If redeemed during the twelve-month period beginning September 1 in the year indicated (September 6 in the case of the year 2000), the redemption price shall be:
REDEMPTION YEAR PRICE ---- ---------- 2000........................................................... % 2001........................................................... 2002........................................................... 2003...........................................................
together with interest accrued and unpaid thereon to the date fixed for redemption. If all accrued and payable interest on the Notes has not been paid, the Notes may not be redeemed in part and the Company may not purchase or acquire any Notes otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of the Notes. If less than all the Notes are to be redeemed, the Trustee will select those to be redeemed by lot or such other method as the Trustee in its discretion shall deem appropriate and fair. Notice of redemption will be given to holders of the Notes to be redeemed by first class mail at their last address appearing on the Register for the Notes. CONSOLIDATION, MERGER AND SALE OF ASSETS The Company will not consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to any person, and the Company will not permit any person to consolidate with or merge into the Company unless (a) if applicable, the person formed by such consolidation or into which the Company is merged or the person or corporation which acquires the properties and assets of the Company substantially as an entirety is a corporation, partnership or trust organized and validly existing under the laws of the United States or any state thereof or the District of Columbia and expressly assumes payment of the principal of and premium, if any, and interest on the Notes and performance and observance of each obligation of the Company under the Indenture, (b) after consummating such consolidation, merger, transfer or lease, no Event of Default or event which, after notice or lapse of time or both, would become an Event of Default will occur and be continuing, (c) such consolidation, merger, conveyance, transfer or lease does not adversely affect the validity or enforceability of the Notes and (d) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease complies with the provisions of the Indenture. CERTAIN RIGHTS OF HOLDERS TO REQUIRE REPURCHASE OF NOTES In the event of a Repurchase Event, each holder of Notes will have the right, at the holder's option, subject to the terms and conditions of the Indenture, to require the Company to repurchase all or any part (provided that the principal amount must be $1,000 or an integral multiple thereof) of the holder's Notes on the date that is 30 27 days after the date the Company gives notice of the Repurchase Event (the "Repurchase Date") for a repurchase price equal to 100% of the principal amount thereof, plus interest accrued and unpaid thereon to the Repurchase Date (the "Repurchase Price"). On or prior to the Repurchase Date, the Company shall deposit with the Trustee or a Paying Agent an amount of money in same day funds sufficient to pay the Repurchase Price of the Notes that are to be repaid on or promptly following the Repurchase Date. Failure by the Company to provide timely notice of a Repurchase Event, as provided for below, or to repurchase the Notes when required under the preceding paragraph, will result in an Event of Default under the Indenture whether or not such repurchase is permitted by the subordination provisions of the Indenture. On or before the 15th day after the occurrence of a Repurchase Event, the Company will be obligated to mail to the Trustee and to each holder a notice of the occurrence of the Repurchase Event, setting forth, among other things, the type of Repurchase Event, the Repurchase Date and the terms and conditions of, and the procedures required for exercise of, the holder's right to require the repurchase of such holder's Notes. To exercise the repurchase right, a holder must deliver written notice of such exercise to the Company and the Trustee prior to the close of business on the Repurchase Date, specifying the Notes with respect to which the right of repurchase is being exercised, together with the certificates evidencing the Notes with respect to which the right is being exercised, duly endorsed for transfer. Such notice of exercise may be withdrawn by the holder by a written notice of withdrawal delivered to the Trustee at any time prior to the close of business on the Repurchase Date. In addition, if the Repurchase Date falls between any Regular Record Date and the next succeeding Interest Payment Date, Notes to be repurchased must be accompanied by payment of an amount equal to the interest thereon that is to be paid on such Interest Payment Date. A "Repurchase Event" will occur upon the occurrence of a Change in Control (as defined below) or a Termination of Trading (as defined below). A "Change in Control" will occur when: (i) all or substantially all of the Company's assets are sold as an entirety to any person or related group of persons; (ii) there shall be consummated any consolidation or merger of the Company (A) in which the Company is not the continuing or surviving corporation (other than a consolidation or merger with a wholly owned subsidiary of the Company in which all shares of Common Stock outstanding immediately prior to the effectiveness thereof are changed into or exchanged for the same consideration) or (B) pursuant to which the Common Stock would be converted into cash, securities or other property, in each case, other than a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the total voting power of all classes of capital stock entitled to vote generally in the election of directors of the continuing or surviving corporation immediately after such consolidation or merger in substantially the same proportion as their ownership of Common Stock immediately before such transaction; (iii) any person, or any persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act, together with any affiliates thereof, shall beneficially own (as defined in Rule 13d-3 under the Exchange Act) at least 40% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of directors of the Company; (iv) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (v) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution. A "Termination of Trading" will occur if the Common Stock (or other common stock into which the Notes are then convertible) is neither listed for trading on a national securities exchange in the United States nor approved for trading on an established automated over-the-counter trading market in the United States. The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which may then be applicable, and will file Schedule 13E-4 or any other schedule 28 required thereunder in connection with any offer by the Company to repurchase Notes at the option of the holders upon a Repurchase Event. The repurchase feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and, thus, the removal of incumbent management. In addition, the foregoing provision may not afford holders of Notes protection in the event of highly leveraged or other transactions involving the Company that may adversely affect such holders. The Company believes that the Repurchase Event repurchase feature is a standard term contained in other similar debt offerings, and the terms of such feature result from negotiations between the Company and the Underwriters. The right to require the Company to repurchase Notes as a result of a Repurchase Event could create an event of default under Senior Indebtedness of the Company as a result of which any repurchase could, absent a waiver, be blocked by the subordination provisions of the Notes. The Company's Board of Directors may not waive a Repurchase Event. Failure by the Company to repurchase the Notes when required will result in an Event of Default with respect to the Notes whether or not such a repurchase is permitted by the subordination provisions. If a Repurchase Event were to occur, there can be no assurance that the Company would have sufficient funds to pay the Repurchase Price for all Notes tendered by the holders thereof. The Company's ability to make such payments may be limited by the terms of its then-existing borrowing and other agreements. EVENTS OF DEFAULT Each of the following will be an Event of Default with respect to the Notes under the Indenture: (i) default for 30 days in payment of any interest installment of the Notes (even if such payment is prohibited by the subordination provisions of the Indenture); (ii) default in payment of principal of, or premium, if any, on the Notes either in connection with any redemption or otherwise (even if such payment is prohibited by the subordination provisions of the Indenture); (iii) default in the payment of the Repurchase Price in respect of any Note on the Repurchase Date therefor (even if such payment is prohibited by the subordination provisions of the Indenture); (iv) failure to provide timely notice of a Repurchase Event as required by the Indenture; (v) failure to observe or perform for 45 days after notice thereof any other covenant in the Indenture; (vi) default under one or more bonds, debentures, notes or other evidences of indebtedness for money borrowed by the Company or any subsidiary of the Company or under one or more mortgages, indentures or instruments under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any subsidiary of the Company, whether such indebtedness is outstanding as of the date of the Indenture or shall thereafter be created, which default individually or in the aggregate constitutes a failure to pay the principal of indebtedness in excess of $15,000,000 when due and payable after the expiration of any applicable grace period with respect thereto or results in indebtedness in excess of $15,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 30 days after there shall have been given to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount outstanding of the Notes a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled; (vii) entry of a final judgment or judgments against the Company or any subsidiary of the Company in the amount of at least $15,000,000 that remain undischarged and unstayed for a period of 30 days; or (viii) certain events of bankruptcy, insolvency, reorganization, receivership or liquidation involving the Company or any subsidiary of the Company. The Company will be required to file with the Trustee annually a written statement as to the fulfillment of its obligations under the Indenture. The Indenture will provide that the Trustee may withhold notice to the holders of the Notes of any default (except in payment of principal of, premium, if any, or interest on the Notes) if the Trustee considers it in the interest of the holders of the Notes to do so. The Indenture will provide that, if an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency or reorganization) 29 shall have occurred and be continuing, either the Trustee or the holders of 25% or more in aggregate principal amount of the Notes may declare the principal of all the Notes and the interest accrued thereon to be due and payable immediately, but if the Company cures all defaults (except the nonpayment of principal of and premium, if any, and accrued interest on Notes that shall have become due by acceleration) and certain other conditions are met, such declaration may be annulled and past defaults may be waived by the holders of a majority in aggregate principal amount of the Notes. Prior to a declaration of acceleration, certain Events of Default and past defaults may be waived by the holders of a majority in aggregate principal amount of the Notes. In the case of an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization, all unpaid principal of and accrued interest on the Notes then outstanding shall be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of Notes. Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Noteholders, unless such Noteholders have offered to the Trustee security or indemnity satisfactory to the Trustee. Subject to such provision for security or indemnification, the holders of a majority in aggregate principal amount of the Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that the Trustee will have the right to decline to follow any such direction if the Trustee is advised by counsel that the action or proceeding so directed may not lawfully be taken or the Trustee determines that the action or proceeding so directed could involve the Trustee in personal liability or would be unduly prejudicial to the rights of the holders not joining in such directions or would conflict with the Indenture. MODIFICATION OF THE INDENTURE The Indenture will contain provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority of the aggregate principal amount of the Notes then outstanding, to execute a supplemental indenture to add provisions to, or change in any manner or eliminate any provisions of, the Indenture or modify in any manner the rights of the holders of the Notes, provided that no such supplemental indenture may, among other things, (i) extend the time for payment of principal of or any premium or interest on any Note or reduce the principal amount thereof or the interest thereon or any premium payable upon the redemption thereof or impair the right of any holder to institute suit for payment of the Notes, or make the principal thereof or any premium or interest thereon payable in any coin or currency other than that provided in the Indenture, or modify the subordination provisions of the Indenture in a manner adverse to the holders or impair the right to convert the Notes into Common Stock or to require the Company to repurchase the Notes upon the occurrence of a Repurchase Event without the consent of the holder of each outstanding Note so affected, or (ii) reduce the aforesaid percentage of the aggregate principal amount of Notes, the holders of which must consent to authorize any such supplemental indenture, without the consent of the holders of all outstanding Notes. GOVERNING LAW The Indenture and the Notes will be governed by and construed in accordance with the laws of the State of New York, without giving effect to such state's conflicts of laws principles. BOOK-ENTRY The Notes will be issued in the form of a global note or notes (together, the "Global Note") deposited with, or on behalf of, DTC and registered in the name of Cede & Co. as DTC's nominee. Owners of beneficial interests in the Notes represented by the Global Note will hold such interests pursuant to the procedures and practices of DTC and must exercise any rights in respect of their interests (including any right to convert or require repurchase of their interests) in accordance with those procedures and practices. Such beneficial owners will not be deemed holders of Notes, and will not be entitled to any rights under the Global Note or the Indenture, with respect to the Global Note, and the Company and the Trustee, and any of their respective agents, may treat DTC as the sole holder and owner of the Global Note. 30 DTC has advised the Company as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants deposit with DTC. DTC also facilitates the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants include securities brokers and dealers (including the Underwriters), banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its direct participants and by the NYSE, the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to DTC and its participants are on file with the Securities and Exchange Commission. Unless and until it is exchanged in whole or in part for certificated Notes in definitive form as set forth below, the Global Note may not be transferred except as a whole by DTC to a nominee of DTC, or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee of DTC to a successor depositary or nominee of such successor depositary. The Notes represented by the Global Note will not be exchangeable for certificated Notes, provided that if (i) DTC is at any time unwilling, unable or ineligible to continue as depositary (unless the Company has approved a successor depositary within 90 days) or (ii) there shall have occurred or be continuing an Event of Default with respect to such Global Note, the Company will issue individual Notes in definitive form in exchange for the Global Note. In addition, the Company may at any time and in its sole discretion determine not to have a Global Note, and, in such event, will issue individual Notes in definitive form in exchange for the Global Note previously representing all such Notes. In such instances, an owner of a beneficial interest in a Global Note will be entitled to physical delivery of Notes in definitive form equal in principal amount to such beneficial interest and to have such Notes registered in its name. Individual Notes so issued in definitive form will be issued in denominations of $1,000 and any larger amount that is an integral multiple of $1,000 and will be issued in registered form only, without coupons. Payments of principal of and interest on the Notes will be made by the Company through the Trustee to DTC or its nominee, as the case may be, as the registered owner of the Global Note. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that DTC, upon receipt of any payment of principal or interest in respect of the Global Note, will credit the accounts of the related participants with payment in amounts proportionate to their respective holdings in principal amount of beneficial interest in the Global Note as shown on the records of DTC. The Company also expects that payments by participants to owners of beneficial interests in the Global Note will be governed by standing customer instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participants. So long as the Notes are represented by a Global Note, DTC or its nominee will be the only entity that can exercise a right to repayment pursuant to the holder's option to elect repayment of its Notes or the right of conversion of the Notes. Notice by participants or by owners of beneficial interests in a Global Note held through such participants of the exercise of the option to elect repayment, or the right of conversion, of beneficial interests in Notes represented by the Global Note must be transmitted to DTC in accordance with its procedures on a form required by DTC and provided to participants. In order to ensure that DTC's nominee will timely exercise a right to repayment, or the right of conversion, with respect to a particular Note, the beneficial owner of such Notes must instruct the broker or other participant through which it holds an interest in such Notes to notify 31 DTC of its desire to exercise a right to repayment, or the right of conversion. Different firms have different cut-off times for accepting instructions from their customers and, accordingly, each beneficial owner should consult the broker or other participant through which it holds an interest in a Note in order to ascertain the cut-off time by which such an instruction must be given in order for timely notice to be delivered to DTC. The Company will not be liable for any delay in delivery of such notice to DTC. LISTING The Notes have been approved for listing on the NYSE under the symbol "KNT 04" subject to official notice of issuance. CONCERNING THE TRUSTEE Texas Commerce Bank National Association will be the Trustee under the Indenture. The Indenture permits the Trustee to become a creditor of the Company and does not preclude the Trustee from enforcing its rights as a creditor, including rights as a holder of Senior Indebtedness, subject, however, to the provisions of the Trust Indenture Act regarding collection of claims against the Company. The Trustee is the lender under the Company's unsecured line of credit. As of August 20, 1997, there was no indebtedness outstanding under the line of credit. In addition, the Company and certain of its subsidiaries also maintain depository and other commercial banking and fiduciary relationships with the Trustee. 32 DESCRIPTION OF CAPITAL STOCK The following summary of the material terms and provisions of the Common Stock and the Preferred Stock (as defined below) is qualified in its entirety by reference to the Amended and Restated Articles of Incorporation of the Company, which expressly include the terms of the Common Stock and the Preferred Stock. The Company's Amended and Restated Articles of Incorporation are incorporated by reference as an exhibit to the Registration Statement of which this Prospectus is a part. COMMON STOCK The Company is authorized to issue 60,000,000 shares of Common Stock. Holders of Common Stock are entitled to one vote per share on all matters on which they are entitled to vote. Because holders of Common Stock do not have cumulative voting rights, holders of a majority of the shares voting for the election of directors can elect all of the members of the Board of Directors. Except as required by Texas law for certain extraordinary transactions and as set forth below under "Charter and Bylaw Provisions," a majority vote is also sufficient for other actions that require the vote or concurrence of shareholders. The Common Stock is not redeemable and has no conversion or preemptive rights. All of the outstanding shares of Common Stock are, and all of the shares issuable upon conversion of the Notes will be, when issued in accordance with the Indenture, fully paid and nonassessable. In the event of the liquidation or dissolution of the Company, subject to the rights of the holders of any outstanding shares of the Company's preferred stock, par value $1.00 per share ("Preferred Stock"), the holders of Common Stock are entitled to share pro rata in any balance of the corporate assets available for distribution to them. The Company may pay dividends when and as declared by the Board of Directors from funds legally available therefor. See "Dividend Policy." PREFERRED STOCK The Company's Board of Directors is authorized to issue up to 2,000,000 shares of Preferred Stock. No shares of Preferred Stock are currently outstanding. The Company's Board of Directors is authorized to divide the Preferred Stock into series and, with respect to each series, to determine the dividend rights, dividend rate, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund provisions, the number of shares constituting the series and the designation of such series. The Board of Directors could, without shareholder approval, issue Preferred Stock with voting rights and other rights that could adversely affect the voting power of holders of Common Stock and could be used to prevent a hostile takeover of the Company. The Board has set the terms and conditions of a series of Preferred Stock consisting of 200,000 shares designated as Series A Preferred Stock in connection with the adoption of a shareholder rights plan. See "--Shareholder Rights Plan." Except in connection with the possible triggering of such plan, the Company has no present plans to issue any shares of Preferred Stock. CHARTER AND BYLAW PROVISIONS The Company's charter has a "fair price" provision relating to certain business combinations, including certain mergers, consolidations, asset and stock conveyances, liquidations and reclassifications. The "fair price" provision provides that, except in certain circumstances, any such business combination between the Company and an interested shareholder (defined generally as a person or entity that owns or has owned within the past two years, directly or indirectly, 10% or more of the Company's outstanding voting stock) must be approved by the affirmative vote of the holders of 80% of the outstanding voting stock of the Company, unless certain pricing and procedural requirements regarding the business combination are satisfied. For instance, one such requirement is that the aggregate consideration to be paid for each share of Common Stock must be at least equal to the highest per share price paid by the interested shareholder to acquire any share of Common Stock during a specified period. Additionally, the higher voting requirements do not apply to transactions approved by a majority of the "continuing directors." Generally, a director is deemed to be a continuing director if he was a director on May 15, 1987, or was appointed by a majority of other continuing directors or elected by the shareholders after 33 having been recommended by a majority of other continuing directors. The "fair price" provision could make it more difficult for a third party to acquire control of the Company. The Board of Directors of the Company is classified into three classes of directors who serve staggered three-year terms. Vacancies or newly created directorships on the Board may be filled only by a majority vote of directors then in office, and directors may be removed during their term only for cause and only by the affirmative vote of two-thirds of all shares of voting stock. The Bylaws also require that the provisions described above may not be further amended, altered, changed or appealed, nor may the number of directors be increased, without either the affirmative vote of 80% of the shares of voting stock or the approval of a majority of directors in office. These provisions may have the effect of discouraging hostile or unsolicited takeover attempts or proxy contests or, alternatively, may encourage persons considering such actions to negotiate with the existing Board. SHAREHOLDER RIGHTS PLAN The Board of Directors has created certain rights (the "Rights") and authorized the issuance of one Right (subject to adjustment) for each outstanding share of Common Stock to shareholders of record at the close of business on May 24, 1990 (the "Record Date"). In addition, the related Rights Agreement (as defined below) provides for the issuance of one Right for each share of Common Stock issued after adoption of the Rights Agreement, which would include shares of Common Stock issuable upon conversion of the Notes. After adjustment for the Company's three-for-two stock split to shareholders of record on February 15, 1995, and the Company's two-for-one stock split to shareholders of record on February 15, 1996, there is currently one-third of a Right associated with each share of Common Stock. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock, $1.00 par value per share, of the Company (the "Series A Preferred Stock") at a price of $40.00 per one one-hundredth of a share (subject to adjustment), payable in cash. The description and terms of the Rights are set forth in a Rights Agreement between the Company and Ameritrust Company National Association, as Rights Agent, dated as of May 14, 1990 (the "Rights Agreement"). Although the Rights are not intended to prevent a takeover of the Company at a full and fair price, they have certain anti-takeover effects. They may deter an attempt to acquire the Company in a manner which seeks to deprive the Company's shareholders of the full and fair value of their investment and may deter attempts by significant shareholders to take advantage of the Company and its shareholders through certain self-dealing transactions. The Rights may cause substantial dilution to a person or group that acquires or attempts to acquire the Company without the rights being redeemed. Accordingly, the Rights should encourage any potential acquiror to seek to negotiate with the Company's Board of Directors. Unless the approval is first obtained from the Board of Directors of the Company, or, in limited circumstances, the shareholders of the Company, the Rights may deter transactions, including tender offers, which the majority of shareholders may believe are beneficial to them. Under the Rights Agreement, one-third of a Right (subject to adjustment) will also be issued with each share of Common Stock issued upon conversion of the Notes. 34 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of certain material United States federal income tax considerations relevant to initial holders of the Notes and shares of Common Stock issuable upon conversion of the Notes. Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. has issued to the Company and filed as an exhibit to the Registration Statement, of which this Prospectus is a part, a tax opinion that the following discussion of such tax considerations is accurate and complete in all material respects and constitutes its opinion of the material tax considerations to initial holders of the Notes and shares of Common Stock issuable upon conversion of the Notes. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This discussion does not purport to deal with all aspects of federal income taxation that may be relevant to a particular investor's decision to purchase the Notes or acquire shares of Common Stock on conversion of Notes, and it is not intended to be wholly applicable to all categories of investors, some of which, such as dealers in securities, banks, insurance companies, persons that will hold the Notes as a position in a "straddle" or as part of a hedging or "conversion" transaction for tax purposes, tax-exempt organizations and non-United States holders of Notes, may be subject to special rules. In addition, this discussion is limited to persons who purchase the Notes pursuant to this Prospectus, and who hold the Notes or shares of Common Stock issued on conversion of the Notes as a "capital asset" within the meaning of section 1221 of the Code. ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE SHARES OF COMMON STOCK ISSUABLE ON CONVERSION OF THE NOTES. OWNERSHIP BY U.S. PERSONS GENERAL. The following applies to a person (a "U.S. Holder") that is a citizen or resident of the United States, a corporation or partnership created or organized in the United States or any state thereof, an estate the income of which is includible in income for United States federal income tax purposes regardless of its source, or a trust as to which a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States fiduciaries have the authority to control all substantial decisions of the trust. PAYMENTS OF INTEREST. Interest on a Note generally will be taxable to a U.S. Holder as ordinary income at the time it is paid or accrued in accordance with the holder's method of accounting for tax purposes. CONVERSION OF NOTES INTO COMMON STOCK. In general, a U.S. Holder will recognize no gain or loss on a conversion of the Notes into shares of Common Stock, except with respect to cash received in lieu of a fractional share. The basis of the Common Stock received on conversion will be equal to the basis of the Notes converted, reduced by the portion of such basis allocated to any fractional share of Common Stock exchanged for cash. The holding period of a U.S. Holder in the Common Stock received on conversion will include the period during which the converted Notes were held. CONSTRUCTIVE DIVIDEND. A distribution to holders of Common Stock may cause a deemed distribution (which will be a dividend to the extent of the Company's current or accumulated earnings and profits) to U.S. Holders of the Notes if the conversion price or conversion ratio of the Notes is adjusted to reflect that distribution. MARKET DISCOUNT. Under the market discount rules of sections 1276 through 1278 of the Code, if a holder of a Note purchases the Note at market discount (i.e., at a price below its stated redemption price at maturity) in excess of a statutorily-defined de minimis amount and thereafter recognizes gain upon a disposition or retirement of the Note, then the lesser of the gain recognized or the portion of the market discount that accrued on a ratable 35 basis (or, if elected, on a constant interest rate basis) generally will be treated as ordinary income at the time of the disposition. Moreover, any market discount on a Note may be taxable to a U.S. Holder to the extent of appreciation at the time of certain otherwise non-taxable transactions, such as gifts. If a U.S. Holder converts a market discount Note into Common Stock, the theretofore unrecognized accrued market discount on such Note will not, in general, be recognized but will be treated as ordinary income on the later disposition of the Common Stock to the extent of any gain recognized at that time on the disposition of the Common Stock. DISTRIBUTIONS ON COMMON STOCK. Distributions on the Common Stock into which Notes have been converted will be taxable as dividends to the extent of the Company's current and/or accumulated earnings and profits. Such dividends may be eligible for the dividends-received deduction in the case of U.S. Holders which are domestic corporations, subject to applicable limitations. To the extent that the amount of any distribution exceeds the Company's current and accumulated earnings and profits, the distribution first will be treated as a tax-free return of capital until the U.S. Holder's adjusted basis in the Common Stock is reduced to zero, and the balance in excess of adjusted basis will be taxed as capital gain. DISPOSITION OF NOTES OR COMMON STOCK. Each U.S. Holder of Notes generally will recognize gain or loss upon the sale, redemption, repurchase, retirement or other disposition of those Notes measured by the difference (if any) between (i) the amount of cash and the fair market value of any property received (except to the extent that such cash or other property is attributable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary income) and (ii) the holder's adjusted tax basis in the Notes. Each U.S. Holder of Common Stock into which the Notes are converted will, in general, recognize gain or loss upon the sale or other disposition of the Common Stock measured under rules similar to those described in the preceding sentence in connection with the sale or other disposition of the Notes. Special rules may apply to redemptions of Common Stock which may result in different treatment. Any such gain or loss should be capital gain or loss (except as discussed under "--Market Discount" above), and would be long-term capital gain or loss if the holding period of the Note and/or the Common Stock was more than one year. Under the Taxpayer Relief Act of 1997, the maximum capital gains rate for individuals on gain on certain assets which are sold after July 28, 1997 and which are held for more than eighteen months is reduced to 20%. Each U.S. Holder of the Notes who is an individual should consult the holder's tax advisor to determine the application of this legislation to the holder. BACKUP WITHHOLDING. A U.S. Holder of Notes or Common Stock will be subject to back-up withholding at a rate of 31% with respect to certain "reportable payments," including interest payments, dividend payments and, under certain circumstances, principal payments on the Notes unless the holder provides a social security number or other taxpayer identification number in the manner prescribed by the IRS or otherwise establishes an exemption. Any amount withheld from a payment to a holder under the back-up withholding rules is creditable against the holder's federal income tax liability, provided the required information is furnished to the IRS. The Company will report to the holders of Notes and Common Stock and to the IRS the amount of any such reportable payments for each calendar year and the amount of tax withheld, if any, with respect to such payments. OWNERSHIP BY NON-U.S. HOLDERS GENERAL. The following discussion applies to a person (a "Non-U.S. Holder") that is not a U.S. Holder, as above defined, and is limited to items of income with respect to the Notes and Common Stock, such as interest, dividends, and gain or loss on disposition, which are not effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States. Any effectively connected items of income will be subject to the United States federal income tax that applies to U.S. Holders generally, and in the case of such a Non-U.S. Holder which is a foreign corporation, such items will also be subject to branch profits tax at 30% or such lower rate as may be specified by an applicable income tax treaty. The tax treatment of Non- U.S. Holders 36 may vary depending upon their particular situations. Prospective investors that will be Non-U.S. Holders are urged to consult their tax advisors regarding the United States federal tax consequences of acquiring, holding and disposing of Notes and Common Stock, as well as any tax consequences that may arise under the laws of any foreign, state, local or other taxing jurisdiction. INTEREST ON NOTES. Interest paid by the Company to a Non-U.S. Holder will not be subject to United States federal income or withholding tax if (i) the Non-U.S. Holder does not actually or constructively own 10% or more of the total voting power of all voting stock of the Company and is not a controlled foreign corporation with respect to which the Company is a "related person" within the meaning of the Code and (ii) the beneficial owner of the Notes (or, in certain cases, a specified financial institution) certifies, under penalties of perjury, that the beneficial owner is not a United States person and provides the beneficial owner's name and address. GAIN ON DISPOSITION OF NOTES OR COMMON STOCK. A Non-U.S. Holder generally will not be subject to United States federal income tax on any gain recognized on a sale, redemption or other disposition of a Note or on a sale or other disposition of Common Stock unless (i) the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and certain other requirements are met or (ii) under certain circumstances which the Company does not expect to apply, the Note or Common Stock is a "United States real property interest," within the meaning of section 897 of the Code. DIVIDENDS ON COMMON STOCK. Dividends paid on shares of Common Stock generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. Under current United States Treasury Regulations and practice, dividends paid to a shareholder having an address outside the United States are presumed to be paid to a resident of such country for purposes of determining the applicability of a tax treaty rate. Under proposed United States Treasury Regulations, however, which are presently expected to take effect beginning in 1999, a Non-U.S. Holder of Common Stock that wishes to claim the benefit of a treaty rate would be required to satisfy applicable certification and other requirements. A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of United States withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the IRS. FEDERAL ESTATE TAXES. If, at the time of death of a holder who is a nonresident alien individual, interest on the Notes is not effectively connected income to such holder and is otherwise exempt from withholding of United States federal income tax under the rules described above, the Notes will not be included in the estate of such holder for United States federal estate tax purposes. Common Stock owned, or treated as owned, by a nonresident alien individual at the time of death will be included in such holder's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. The rules for determining whether an individual is a nonresident alien for federal estate tax purposes are different from those for determining whether such individual is a nonresident alien for federal income tax purposes. INFORMATION REPORTING AND BACK-UP WITHHOLDING. The Company must report annually to the IRS and to each Non-U.S. Holder the amount of interest and dividends paid to such holder and the amount of any tax withheld, if any. These information reporting requirements apply regardless of whether withholding is required. Copies of the information returns reporting such interest and dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. Holder resides under the provisions of an applicable income tax treaty. Interest on a Note which is paid to a Non-U.S. Holder will be exempt from back-up withholding if the Non-U.S. Holder has provided a certificate in the form necessary to establish an exemption from withholding tax. See "--Interest on Notes." Under current United States Treasury Regulations, dividends which are paid to a Non-U.S. Holder at an address outside the United States are not subject to back-up withholding. The payment of proceeds of a sale by a Non- U.S. Holder of Notes or Common Stock will be subject to back-up withholding if the sale is made through a United States office of a broker unless the holder certifies that the holder is not a United States person or otherwise establishes an exemption. In addition, in certain circumstances the payment of 37 proceeds of a sale by a Non-U.S. Holder of Notes or Common Stock will be subject to information reporting if the sale is made through a foreign office of a broker. Back-up withholding is not an additional tax. Any amounts withheld under the back-up withholding rules may be refunded or credited against the Non-U.S. Holder's United States federal income tax liability, provided that the required information is furnished to the IRS. On April 15, 1996, the IRS issued proposed Treasury Regulations concerning the withholding of tax and information reporting as to certain amounts paid to nonresident individuals and foreign corporations. The proposed Treasury Regulations would, among other changes, eliminate the presumption under current regulations with respect to dividends paid to shareholders having addresses outside the United States. See "--Dividends on Common Stock." It is presently expected that the proposed Treasury Regulations will take effect beginning in 1999. Prospective Note purchasers should consult their tax advisors concerning the potential effect of such regulations to them with respect to their ownership of the Notes and the Common Stock. 38 UNDERWRITING Under the terms and subject to the conditions contained in the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), each of the underwriters named below (the "Underwriters"), has severally agreed to purchase from the Company the principal amount of Notes set forth opposite the name of such Underwriter below:
PRINCIPAL AMOUNT OF UNDERWRITERS NOTES ------------ ------------ Smith Barney Inc............................................ $ Merrill Lynch, Pierce, Fenner & Smith Incorporated....................................... BT Alex. Brown Incorporated................................. Donaldson, Lufkin & Jenrette Securities Corporation......... ------------ Total..................................................... $150,000,000 ============
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the Notes offered hereby are subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriters will be obligated to take and pay for all of the Notes offered hereby (other than those covered by the over-allotment option described below) if any of such Notes are purchased. The Underwriters initially propose to offer part of the Notes offered hereby directly to the public at the public offering price set forth on the cover page of this Prospectus and part of the Notes offered hereby to certain dealers at a price which represents a concession not in excess of % of the principal amount per Note under the price to public. The Underwriters may allow, and such dealers may reallow, a concession not in excess of % of the principal amount per Note to certain other dealers. After the Offering, the public offering price and such concessions may be changed by the Underwriters. The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to $22,500,000 principal amount of additional Notes at the public offering price set forth on the cover page hereof less underwriting discounts and commissions. The Underwriters may exercise such option to purchase additional Notes solely for the purpose of covering over-allotments, if any, incurred in connection with the sales of the Notes offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional Notes as the principal amount of Notes set forth opposite such Underwriter's name in the preceding Underwriters table bears to the total principal amount of Notes in such table. The Company and its directors and executive officers have agreed that, for a period of 90 days from the date of this Prospectus, they will not, without the prior written consent of Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of Common Stock (or any securities convertible into or exercisable or exchangeable for, Common Stock), or grant any options or warrants to purchase Common Stock, except in certain circumstances. In connection with the Offering and in compliance with applicable law, the Underwriters may engage in transactions which stabilize or maintain the market price of the Notes, the Common Stock, or both at levels above those which might otherwise prevail in the open market. Specifically, the Underwriters may over-allot in connection with the Offering creating a short position in the Notes for their own account. For the purposes of covering a syndicate short position or stabilizing the price of the Notes, the Underwriters may place bids for the Notes, the Common Stock, or both or effect purchases of the Notes, the Common Stock, or both in the open market. A syndicate short position may also be covered by exercise of the over-allotment option described above. Finally, the Underwriters may impose a penalty bid on certain Underwriters and dealers. This means that the 39 underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer for distributing the Notes in the Offering if the syndicate repurchases previously distributed Notes in transactions to cover syndicate short positions, in stabilization transactions or otherwise. The Underwriters are not required to engage in any of these activities and any such activities, if commenced, may be discontinued at any time. Smith Barney Inc. has from time to time performed various investment banking services for the Company and has received customary fees in respect of such services. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. The Company will apply for listing of the Notes on the NYSE. The Company has been advised by the Underwriters that they currently intend to make a market in the Notes. However, such entities are not obligated to do so, and any market making may be discontinued at any time without any notice. There can be no assurance as to whether an active trading market for the Notes will develop. LEGAL MATTERS The validity of the Notes offered hereby will be passed upon for the Company by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Houston, Texas. Certain matters relating to United States federal income tax considerations will also be passed upon for the Company by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. Certain legal matters will be passed upon for the Underwriters by Baker & Botts, L.L.P., Houston, Texas. EXPERTS The consolidated financial statements of the Company included in the Company's Annual Report on Form 10-K, as amended by Form 10-K/A, for the fiscal year ended March 29, 1997 have been audited by Grant Thornton LLP, independent certified public accountants, as indicated in its report thereto and are included herein in reliance upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the information requirements of the Exchange Act, and in accordance therewith, files reports, proxy statements, and other information with the Securities and Exchange Commission ("SEC"). The reports, proxy statements, and other information filed by the Company with the SEC can be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the SEC: New York Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048, and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC also maintains an Internet web site (http://www.sec.gov) that contains reports, proxy statements, and other information filed electronically by the Company with the SEC. In addition, the Company's Common Stock is listed on the NYSE and reports, proxy statements and other information concerning the Company described above may be inspected at the offices of the NYSE at 20 Broad Street, New York, New York 10005. The Company has filed with the SEC a registration statement on Form S-3 (the "Registration Statement") under the Securities Act with respect to the Notes offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Notes, reference is made to the Registration Statement and the exhibits and schedules filed as a part thereof. Statements made in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified 40 in all respects by such reference to such exhibit. The Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the SEC's New York Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048, and at the SEC's Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of the Registration Statement and the exhibits and schedules thereto may be obtained from the SEC at such offices upon payment of the charges prescribed by the SEC. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, filed by the Company with the SEC under the Exchange Act, are incorporated in this Prospectus by reference: (a) The Company's Annual Report on Form 10-K, as amended by Form 10-K/A, for the fiscal year ended March 29, 1997; (b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1997; (c) The description of the Company's Common Stock contained in a registration statement on Form 8-A filed on May 20, 1986 under Section 12 of the Exchange Act; and (d) The description of the Rights contained in a registration statement on Form 8-A filed on June 18, 1990 under Section 12 of the Exchange Act. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the Offering will be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein will be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits to such documents which are not specifically incorporated by reference in such documents). Requests for such copies should be directed to Mr. Stephen J. Chapko, Secretary, at the Company's principal executive offices located at 7433 Harwin Drive, Houston, Texas 77036; telephone number (713) 780-7770. 41 [THIS PAGE INTENTIONALLY LEFT BLANK] INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Certified Public Accountants....................... F-2 Consolidated Balance Sheets--March 30, 1996, March 29, 1997 and June 28, 1997.................................................................... F-3 Consolidated Statements of Earnings for the Fiscal Years Ended April 1, 1995, March 30, 1996 and March 29, 1997 and for the Thirteen Weeks Ended June 29, 1996 and June 28, 1997......................................... F-4 Consolidated Statements of Cash Flows for the Fiscal Years Ended April 1, 1995, March 30, 1996 and March 29, 1997 and for the Thirteen Weeks Ended June 29, 1996 and June 28, 1997......................................... F-5 Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended April 1, 1995, March 30, 1996 and March 29, 1997 and for the Thirteen Weeks Ended June 28, 1997............................................... F-6 Notes to Consolidated Financial Statements............................... F-7
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Kent Electronics Corporation We have audited the consolidated balance sheets of Kent Electronics Corporation and Subsidiaries as of March 29, 1997 and March 30, 1996, and the related consolidated statements of earnings, cash flows and stockholders' equity for each of the three years in the period ended March 29, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kent Electronics Corporation and Subsidiaries as of March 29, 1997 and March 30, 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 29, 1997, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Houston, Texas May 5, 1997 F-2 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 30, MARCH 29, JUNE 28, ASSETS 1996 1997 1997 ------ --------- --------- ----------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents (including temporary investments of $75,552 at March 30, 1996, $28,728 at March 29, 1997 and $26,502 at June 28, 1997).................... $ 73,431 $ 25,050 $ 21,035 Trading securities, net....................... 38,747 -- -- Accounts receivable, net...................... 60,210 88,835 92,476 Inventories Materials and purchased products............ 62,177 91,100 101,868 Work in process............................. 3,414 3,394 5,268 -------- -------- -------- 65,591 94,494 107,136 Other......................................... 4,551 4,023 3,974 -------- -------- -------- Total current assets........................ 242,530 212,402 224,621 PROPERTY AND EQUIPMENT Land.......................................... 7,422 7,439 7,439 Buildings..................................... 18,590 38,176 41,543 Equipment, furniture and fixtures............. 36,837 68,247 73,646 Leasehold improvements........................ 2,392 2,543 2,574 -------- -------- -------- 65,241 116,405 125,202 Less accumulated depreciation and amortization............................... (18,358) (25,515) (28,030) -------- -------- -------- 46,883 90,890 97,172 DEFERRED INCOME TAXES.......................... 1,315 1,280 1,255 OTHER ASSETS................................... 1,644 4,618 4,603 COST IN EXCESS OF NET ASSETS ACQUIRED, less accumulated amortization of $1,994 at March 30, 1996, $2,359 at March 29, 1997 and $2,508 at June 28, 1997.............................. 12,802 16,404 16,255 -------- -------- -------- $305,174 $325,594 $343,906 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Notes payable and current portion of long- term debt.................................... $ 9,740 $ -- $ -- Accounts payable.............................. 38,650 42,317 46,664 Accrued compensation.......................... 10,342 8,123 6,941 Other accrued liabilities..................... 5,750 8,051 9,696 Income taxes.................................. 5,290 3,027 5,840 -------- -------- -------- Total current liabilities................... 69,772 61,518 69,141 LONG-TERM DEBT, less current portion........... 1,258 -- -- LONG-TERM LIABILITIES.......................... 976 1,709 1,993 MANDATORILY REDEEMABLE PREFERRED STOCK......... 2,200 -- -- COMMITMENTS AND CONTINGENCIES.................. -- -- -- STOCKHOLDERS' EQUITY Preferred stock, $1 par value per share; authorized 2,000 shares; none issued......... -- -- -- Common stock, no par value; authorized 60,000 shares; 26,027 shares issued and outstanding at March 30, 1996; 26,302 shares issued and 26,252 shares outstanding at March 29, 1997; 26,314 shares issued and 26,264 shares outstanding at June 28, 1997................. 38,357 41,348 42,852 Additional paid-in capital.................... 112,702 116,522 116,648 Retained earnings............................. 79,909 105,474 114,249 -------- -------- -------- 230,968 263,344 273,749 Less common stock in treasury--at cost, 50 shares at March 29, 1997 and June 28, 1997... -- (977) (977) -------- -------- -------- 230,968 262,367 272,772 -------- -------- -------- $305,174 $325,594 $343,906 ======== ======== ========
The accompanying notes are an integral part of these statements. F-3 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THIRTEEN WEEKS FISCAL YEARS ENDED ENDED ------------------------------ ------------------ APRIL 1, MARCH 30, MARCH 29, JUNE 29, JUNE 28, 1995 1996 1997 1996 1997 -------- --------- --------- -------- -------- (UNAUDITED) Net sales.................... $279,676 $425,810 $516,757 $125,144 $152,080 Cost of sales................ 206,935 313,643 396,054 93,238 117,221 -------- -------- -------- -------- -------- Gross profit............... 72,741 112,167 120,703 31,906 34,859 Selling, general and administrative expenses..... 50,028 66,106 73,607 17,613 20,780 Merger and integration costs. -- -- 5,500 -- -- -------- -------- -------- -------- -------- Operating profit........... 22,713 46,061 41,596 14,293 14,079 Other income (expense) Interest expense........... (340) (898) (1,192) (304) (7) Other--net (principally interest and dividend income)................... 1,138 3,932 4,696 1,567 425 -------- -------- -------- -------- -------- Earnings before income taxes................... 23,511 49,095 45,100 15,556 14,497 Income taxes................. 8,910 19,303 17,479 6,125 5,722 -------- -------- -------- -------- -------- NET EARNINGS............. $ 14,601 $ 29,792 $ 27,621 $ 9,431 $ 8,775 ======== ======== ======== ======== ======== Earnings per share........... $ 0.68 $ 1.21 $ 1.00 $ 0.34 $ 0.32 ======== ======== ======== ======== ======== Weighted average shares...... 21,475 24,696 27,551 27,592 27,762 ======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements. F-4 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THIRTEEN WEEKS FISCAL YEARS ENDED ENDED ------------------------------ ------------------ APRIL 1, MARCH 30, MARCH 29, JUNE 29, JUNE 28, 1995 1996 1997 1996 1997 -------- --------- --------- -------- -------- (UNAUDITED) Cash flows from operating activities Net earnings................ $ 14,601 $ 29,792 $ 27,621 $ 9,431 $ 8,775 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization.............. 4,070 4,619 7,529 1,547 2,671 Provision for losses on accounts receivable....... 171 249 409 38 81 (Gain) loss on sale of property and equipment.... 27 40 (2) -- 4 Stock option expense....... 871 1,116 540 152 126 (Gain) loss on sale of trading securities........ 225 (45) (169) 50 -- Net sales (purchases) of trading securities........ (1,873) (21,869) 38,916 11,870 -- Change in assets and liabilities, net of effects from the acquisition accounted for as a purchase Increase in accounts receivable................ (10,180) (22,474) (26,828) (10,259) (3,722) Increase in inventories.... (14,878) (23,758) (23,904) (4,254) (12,642) (Increase) decrease in other..................... (748) (1,635) 507 (82) 49 (Increase) decrease in deferred income taxes..... 459 (504) 89 79 25 (Increase) decrease in other assets.............. (467) (585) (3,013) 22 15 Increase (decrease) in accounts payable.......... 1,623 19,709 699 (2,957) 4,347 Increase (decrease) in accrued compensation...... 2,184 5,534 (2,238) (5,838) (1,182) Increase in other accrued liabilities............... 1,444 2,136 2,419 1,646 1,645 Increase (decrease) in income taxes.............. 685 3,549 (2,230) 1,187 2,813 Increase in long-term liabilities............... 281 695 733 539 284 -------- -------- -------- -------- -------- Net cash provided (used) by operating activities.. (1,505) (3,431) 21,078 3,171 3,289 Cash flows from investing activities Capital expenditures........ (11,135) (22,125) (50,816) (14,658) (8,813) Acquisition accounted for as a purchase................. -- -- (7,000) -- -- Proceeds from related party receivable of pooled company.................... 124 -- -- -- -- Proceeds from sale of property and equipment..... 33 68 32 -- 5 -------- -------- -------- -------- -------- Net cash used by investing activities............... (10,978) (22,057) (57,784) (14,658) (8,808) Cash flows from financing activities Net (payments) borrowings under line of credit agreements of pooled companies.................. (147) 6,606 (11,550) 3,427 -- Proceeds from issuance of long-term debt of pooled company.................... 1,243 -- -- -- -- Payment of long-term debt of pooled companies........... (19) (15) (1,254) (5) -- Net payments to shareholder of pooled company.......... (69) (61) -- -- -- (Redemption of) proceeds from issuance of mandatorily redeemable preferred stock of pooled company.................... 2,200 -- (2,200) -- -- Proceeds from issuance of convertible preferred stock of pooled company.......... -- 1,000 -- -- -- Proceeds from sale of stock warrants of pooled company. 7 -- -- -- -- Issuance of common stock.... 2,497 86,281 3,458 106 114 Payment for fractional shares..................... (16) -- -- -- -- Purchase of treasury stock.. -- -- (977) -- -- Tax effect of common stock issued upon exercise of employee stock options..... 514 1,137 1,154 1,406 1,390 Distribution to shareholder of pooled company.......... (594) (582) (650) (345) -- -------- -------- -------- -------- -------- Net cash (used) provided by financing activities.. 5,616 94,366 (12,019) 4,589 1,504 -------- -------- -------- -------- -------- Net (decrease) increase in cash........................ (6,867) 68,878 (48,725) (6,898) (4,015) Adjustment for change in pooled companies' fiscal year ends................... -- -- 344 344 -- Cash and cash equivalents at beginning of year........... 11,420 4,553 73,431 73,431 25,050 -------- -------- -------- -------- -------- Cash and cash equivalents at end of year................. $ 4,553 $ 73,431 $ 25,050 $ 66,877 $ 21,035 ======== ======== ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest................... $ 302 $ 893 $ 1,285 $ 296 $ -- Income taxes............... $ 7,864 $ 16,537 $ 15,054 $ 3,582 $ 1,675
The accompanying notes are an integral part of these statements. F-5 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK ADDITIONAL --------------- PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS STOCK ------ ------- ---------- -------- -------- Balance at April 2, 1994, as previously reported............. 19,375 $32,703 $ 24,359 $ 35,457 $ -- Adjustment for pooling of interests....................... 1,042 10 581 1,235 -- ------ ------- -------- -------- ----- As restated...................... 20,417 32,713 24,940 36,692 -- Issuance of common stock and warrants of pooled company...... 657 7 970 -- -- Common stock issued upon exercise of employee stock options, including tax effect............ 235 2,040 -- -- -- Common stock split for fractional shares.......................... (1) -- (16) -- -- Amortization of unearned compensation related to stock option plans.................... -- -- 871 -- -- Distribution to shareholder of pooled company.................. -- -- -- (594) -- Net earnings for the year........ -- -- -- 14,601 -- ------ ------- -------- -------- ----- Balance at April 1, 1995......... 21,308 34,760 26,765 50,699 -- Net proceeds from public stock offering........................ 4,000 20 83,826 -- -- Issuance of common stock of pooled company.................. 391 4 996 -- -- Common stock issued upon exercise of employee stock options, including tax effect............ 328 3,572 -- -- -- Common stock split for fractional shares.......................... -- 1 (1) -- -- Amortization of unearned compensation related to stock option plans.................... -- -- 1,116 -- -- Distribution to shareholder of pooled company.................. -- -- -- (582) -- Net earnings for the year........ -- -- -- 29,792 -- ------ ------- -------- -------- ----- Balance at March 30, 1996........ 26,027 38,357 112,702 79,909 -- Issuance of common stock of pooled company.................. 19 -- 47 -- -- Common stock issued under employee bonus and upon exercise of employee stock options, including tax effect............ 256 2,991 1,574 -- -- Amortization of unearned compensation related to stock option plans.................... -- -- 540 -- -- Purchase of treasury stock....... (50) -- -- -- (977) Reclassification of undistributed subchapter "S" earnings of pooled company.................. -- -- 1,659 (1,659) -- Adjustment for change in fiscal year of pooled company.......... -- -- -- 253 -- Distribution to shareholder of pooled company.................. -- -- -- (650) -- Net earnings for the year........ -- -- -- 27,621 -- ------ ------- -------- -------- ----- Balance at March 29, 1997........ 26,252 41,348 116,522 105,474 (977) Common stock issued upon exercise of employee stock options, including tax effect (unaudited)..................... 12 1,504 -- -- -- Amortization of unearned compensation related to stock option plans (unaudited)........ -- -- 126 -- -- Net earnings for the period (unaudited)..................... -- -- -- 8,775 -- ------ ------- -------- -------- ----- Balance at June 28, 1997 (unaudited)..................... 26,264 $42,852 $116,648 $114,249 $(977) ====== ======= ======== ======== =====
The accompanying notes are an integral part of this statement. F-6 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Kent Electronics Corporation (the "Company") is a national specialty distributor of electronic products and a manufacturer of custom-made electronic assemblies. The Company distributes electronic connectors, electronic wire and cable, premise wiring products used in local area networks and wide area networks, and other passive and electromechanical products and interconnect assemblies used in assembling and manufacturing electronic equipment. The Company's contract manufacturing services include printed circuit board assembly, cable and harness assembly, sheet metal fabrication, plastic injection, battery power packs and final system integration. The Company's customers are primarily industrial users and original equipment manufacturers. BASIS OF PRESENTATION In 1997, the Company acquired Futronix Corporation ("Futronix") and Wire & Cable Specialties Corporation ("Wire & Cable") in a transaction accounted for as a pooling of interests. Accordingly, the consolidated financial statements for 1996 and 1995 have been restated to include the operations of Futronix and Wire & Cable. PRINCIPLES OF CONSOLIDATION Kent Electronics Corporation consolidates its accounts with those of its wholly owned subsidiaries. All material intercompany transactions have been eliminated. FISCAL YEAR The Company's fiscal year ends on the Saturday closest to the end of March. The fiscal years ended April 1, 1995, March 30, 1996 and March 29, 1997 all consisted of 52 weeks. USE OF ESTIMATES In preparing the financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company's presentation of cash includes cash equivalents. Cash equivalents are defined as short-term investments with maturity dates at purchase of ninety days or less. Securities purchased under agreements to resell (reverse repurchase agreements) result from transactions that are collateralized by negotiable securities and are carried at the amounts at which the securities will subsequently be resold. It is the policy of the Company not to take possession of securities purchased under agreements to resell. At March 29, 1997 and June 28, 1997, agreements to resell securities in the amount of $7,365 and $18,220, respectively, with a two-day maturity were outstanding. F-7 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS) Temporary investments may be greater than the cash and cash equivalents balance because they may be offset by individual bank accounts with a book overdraft position within the same bank where multiple accounts are maintained. TRADING SECURITIES The Company has classified all investment securities as trading securities which are measured at fair value in the financial statements with unrealized gains and losses included in earnings. Realized and unrealized gains and losses are reflected in the following table:
FISCAL YEARS ENDED ----------- 1996 1997 ---- ----- Net unrealized loss on trading securities at beginning of year....................................................... $302 $ 257 Decrease in unrealized loss included in earnings during the year....................................................... (45) (169) Realized loss from sale of trading securities............... -- (88) ---- ----- Net unrealized loss on trading securities at end of year.... $257 $ -- ==== =====
ACCOUNTS RECEIVABLE The Company's allowance for doubtful accounts was $1,048 at March 30, 1996, $1,256 at March 29, 1997 and $1,337 at June 28, 1997. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the lease or the service life of the improvements, whichever is shorter. OTHER ASSETS Other assets at March 29, 1997 and June 28, 1997 include $1,804 and $1,834, respectively, of receivables from certain officers and directors of the Company. COSTS IN EXCESS OF NET ASSETS ACQUIRED Costs in excess of net assets acquired represents the excess of the purchase price over the value of net assets acquired and is being amortized on a straight-line basis over 40 years. Management evaluates these costs for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Impairment would be recognized if the carrying amounts of such costs cannot be recovered by the net cash flows they will generate. F-8 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS) REVENUE RECOGNITION Revenue is recognized upon shipment of merchandise to customers. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and amounts included in other assets and liabilities meeting the definition of a financial instrument approximates fair value. NEW PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which is effective for financial statements issued after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. The effect of adopting this new standard has not been determined. INTERIM FINANCIAL INFORMATION Financial information as of June 28, 1997 and for the thirteen weeks ended June 29, 1996 and June 28, 1997, included herein, is unaudited. Such information includes all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial information for the interim periods. The results of operations for the thirteen weeks ended June 28, 1997 are not necessarily indicative of the results for the full fiscal year. BUSINESS ACQUISITIONS FUTRONIX AND WIRE & CABLE In January 1997, the Company acquired all the outstanding equity instruments of Futronix and Wire & Cable, both privately owned distributors of specialty wire and cable, in exchange for 2,109 shares of the Company's common stock in a merger transaction accounted for as a pooling of interests. Prior to the merger, Futronix and Wire & Cable used a calendar year end for financial reporting purposes. The Futronix and Wire & Cable balance sheets and results of operations for the years ended December 31, 1994 and 1995 have been combined with those of the Company for the years ended April 1, 1995 and March 30, 1996, respectively. The Futronix and Wire & Cable balance sheet and results of operations for the 52 weeks ending March 29, 1997 have been included in the consolidated financial statements for fiscal 1997. During the three-month period ended March 30, 1996, Futronix and Wire & Cable had net sales of $16,177, net earnings of $372 and shareholder distributions of $119. In order to reflect the change in fiscal year-ends, retained earnings for these amounts has been increased by combined net earnings and decreased by shareholder distributions. F-9 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) Combined and separate results of Kent, Futronix and Wire & Cable during the periods preceding the merger were as follows:
FISCAL FISCAL YEAR YEAR THIRTY-NINE ENDED ENDED WEEKS ENDED APRIL 1, MARCH DECEMBER 28, 1995 30, 1996 1996 -------- -------- ------------ (UNAUDITED) Net sales Kent........................................... $253,484 $372,019 $314,906 Futronix....................................... 5,950 29,280 40,679 Wire & Cable................................... 20,242 24,511 20,000 -------- -------- -------- Combined..................................... $279,676 $425,810 $375,585 ======== ======== ======== Net earnings Kent........................................... $ 13,386 $ 27,975 $ 22,136 Futronix....................................... 301 614 278 Wire & Cable................................... 914 1,203 806 -------- -------- -------- Combined..................................... $ 14,601 $ 29,792 $ 23,220 ======== ======== ========
In the fourth quarter of 1997, the Company recorded costs of $5,500 associated with the merger and integration of Futronix and Wire & Cable. OBLIGATIONS OF FUTRONIX AND WIRE & CABLE Included in the accompanying balance sheet at March 30, 1996, are notes payable to banks of $9,728 with interest rates approximating prime plus 1/2% and long-term debt payable to shareholders of $1,270 with interest at 7%. MANDATORILY REDEEMABLE PREFERRED STOCK OF FUTRONIX Included in the accompanying balance sheet at March 30, 1996, are 2,200 shares of issued and outstanding Futronix non-dividend paying mandatorily redeemable preferred stock having a $1 par value and redemption value per share. The stock was redeemed in 1997 in connection with the merger. EMC DISTRIBUTION DIVISION OF ELECTRONICS MARKETING CORPORATION In December 1996, the Company acquired certain assets of the EMC Distribution Division of Electronics Marketing Corporation, a privately owned Ohio-based specialty distributor of connectors, passive and electromechanical components, for $7,000 and the assumption of certain liabilities. The acquisition has been accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The operating results arising from the acquisition are included in the consolidated statements of earnings from the acquisition date. The excess of the purchase price over the value of the assets acquired is classified in the accompanying balance sheet as cost in excess of net assets acquired and is being amortized on a straight-line basis over 40 years. Pro forma financial information is not presented, as the effect of the acquisition was not significant to the financial statements. F-10 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS) INCOME TAXES The Company accounts for income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. The provision for income taxes consisted of the following:
THIRTEEN WEEKS FISCAL YEARS ENDED ENDED ------------------------ ----------------- JUNE 29, JUNE 28, 1995 1996 1997 1996 1997 ------ ------- ------- -------- -------- Current............................. $8,510 $19,934 $16,316 $4,694 $4,307 Tax reduction for exercise of stock options credited to stockholders' equity............................. 514 1,137 1,154 1,406 1,390 Deferred............................ (114) (1,768) 9 25 25 ------ ------- ------- ------ ------ $8,910 $19,303 $17,479 $6,125 $5,722 ====== ======= ======= ====== ======
A reconciliation of income taxes computed at the statutory federal income tax rate and income taxes reported in the consolidated statements of earnings follows:
THIRTEEN WEEKS FISCAL YEARS ENDED ENDED ------------------------ ----------------- JUNE 29, JUNE 28, 1995 1996 1997 1996 1997 ------ ------- ------- -------- -------- Tax at statutory rate.............. $8,214 $17,161 $15,785 $5,445 $5,074 Increases (reductions) State income taxes, net of federal tax effect.............. 748 1,687 1,377 700 550 Pre-acquisition earnings of acquired S corporation.......... (311) (409) (217) (81) -- Non-deductible merger and integration costs............... -- -- 291 -- -- Other-net........................ 259 864 243 61 98 ------ ------- ------- ------ ------ Income taxes as reported........... $8,910 $19,303 $17,479 $6,125 $5,722 ====== ======= ======= ====== ======
F-11 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS) Net deferred tax assets at March 30, 1996 and March 29, 1997 consist of the following:
1996 1997 ------- ------- Current deferred asset Allowance for doubtful accounts...................... $ 405 $ 493 Capitalization of additional inventory costs......... 870 805 Accrued expenses not currently deductible, net of reversals........................................... 522 641 Net operating losses................................. 320 314 Deferred compensation................................ 616 -- Other................................................ 562 399 ------- ------- $ 3,295 $ 2,652 ======= ======= Long-term deferred asset Depreciation......................................... $(2,061) $(2,766) Fixed asset bases differences........................ 630 450 Stock compensation................................... 1,291 1,495 Net operating losses................................. 770 457 Deferred compensation................................ 685 1,644 ------- ------- $ 1,315 $ 1,280 ======= =======
Acquired net operating losses of approximately $2,201 at March 29, 1997, expire in various amounts through 2003 and are subject to annual usage limitations. The current deferred asset is included in other current assets in the accompanying balance sheets. COMMITMENTS AND CONTINGENCIES The Company conducts a portion of its operations in leased office, warehouse, and manufacturing facilities and also leases transportation equipment. Rent expense for 1995, 1996, and 1997 was approximately $2,234, $2,877 and $3,512, respectively. For the thirteen weeks ended June 29, 1996 and June 28, 1997, rent expense was approximately $791 and $966, respectively. As of March 29, 1997, the Company's minimum rental commitments under noncancelable operating leases were $3,336 in 1998; $2,581 in 1999; $1,805 in 2000; $1,114 in 2001; $744 in 2002; and $748 thereafter. In June 1997, the Company obtained a $25,000 unsecured line of credit with a bank. At June 28, 1997, there was no indebtedness outstanding under the line of credit. The Company has instituted a self-insurance program for employees' major medical coverages. Claims under the self-insurance program are insured for amounts greater than $50 per employee. The aggregate annual self-insured amount varies based on participant levels and was limited to approximately $3,000 as of March 29, 1997. Claims are accrued as incurred and the total expense under the program was approximately $2,121, $2,103 and $2,809 in 1995, 1996 and 1997, respectively. For the thirteen weeks ended June 29, 1996 and June 28, 1997, total expense under the program was approximately $841 and $916, respectively. The Company is engaged in litigation occurring in the normal course of business. In the opinion of management, based upon advice of counsel, the ultimate outcome of these lawsuits will not have a material impact on the Company's consolidated financial statements. F-12 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) SALES TO MAJOR CUSTOMERS Sales to Compaq Computer Corporation represented 10.1% and 10.6% of net sales in 1995 and 1996, respectively. Sales to Applied Materials, Inc. represented 11.3% of net sales in 1995. No customer constituted 10% or more of net sales in 1997 and in the thirteen weeks ended June 29, 1996 and June 28, 1997. STOCKHOLDERS' EQUITY FAIR PRICE PROVISION The Company has adopted a fair price provision relating to certain business combinations. The fair price provision provides that, except in certain circumstances, a business combination between the Company and an interested shareholder must be approved by the affirmative vote of the holders of 80% of the outstanding voting stock, unless certain pricing and procedural requirements regarding the business combination are satisfied. STOCKHOLDER RIGHTS PLAN The Company has adopted a stockholder rights plan, declaring a distribution of one equity purchase right on each outstanding share of the Company's common stock. Upon the occurrence of certain events, each right would entitle the holder to purchase, at a price of $40, one one-hundredth of a share of the Company's Series A Preferred Stock. Additionally, under certain circumstances, the holder of rights may be entitled to purchase either the Company's common stock or securities of an acquiring entity at half of market value. STOCK SPLIT The Company's common stock was split three-for-two to stockholders of record on February 15, 1995, and was effected as a 50% stock dividend. The Company's common stock was split two-for-one to stockholders of record on February 15, 1996, and was effected as a 100% stock dividend. All issued and outstanding shares, stock option data and earnings per share amounts in the consolidated financial statements have been restated to give effect to the stock splits. F-13 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) BENEFIT PLANS STOCK OPTIONS At March 29, 1997 and June 28, 1997, the Company had nonqualified stock option plans which allow for the grant of 4,060 and 4,039 common shares for options, respectively, of which 621 and 512, respectively, are available for future grants. Options granted under the plans have a maximum term of 15 years and are exercisable under the terms of the respective option agreements. Under some plans, options may be granted with exercise prices of less than the stock's market value at the date of grant. Options on 358, 450 and 1,553 shares were exercisable at April 1, 1995, March 30, 1996 and March 29, 1997 with a weighted average exercise price of $7.27, $7.51 and $7.68, respectively. A summary of the Company's stock option activity, and related information follows:
FISCAL YEARS ENDED -------------------------------------------------- 1995 1996 1997 ---------------- ---------------- ---------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Outstanding at beginning of year....................... 2,316 $ 5.30 2,181 $ 5.25 2,570 $ 8.44 Granted..................... 143 7.75 803 17.58 1,144 19.72 Exercised................... (235) 6.96 (328) 7.58 (208) 8.49 Lapsed/forfeited............ (43) 6.96 (86) 16.09 (71) 17.84 ----- ------ ----- ------ ----- ------ Outstanding at end of year.. 2,181 $ 5.25 2,570 $ 8.44 3,435 $12.00 ===== ====== ===== ====== ===== ======
The following table summarizes the weighted average fair value per share of options granted during the year:
FISCAL YEARS ENDED ----------------------------------- 1996 1997 ----------------- ----------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE FAIR EXERCISE FAIR EXERCISE VALUE PRICE VALUE PRICE -------- -------- -------- -------- Exercise price equals market price.......... $ 4.44 $20.73 $ 5.00 $19.73 Exercise price is below market price........ 9.67 7.25 26.11 19.31
The following table summarizes significant ranges of outstanding and exercisable options at March 29, 1997:
OPTIONS OPTIONS OUTSTANDING EXERCISABLE -------------------------- ---------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE LIFE (IN EXERCISE EXERCISE RANGE OF EXERCISE PRICES OPTIONS YEARS) PRICE OPTIONS PRICE - ------------------------ ------- --------- -------- ------- -------- $3.63-$5.45........................ 1,155 10.76 $ 3.63 855 $ 3.63 $5.46-$6.96........................ 467 1.24 6.96 429 6.96 $7.25-$10.88....................... 210 12.49 7.56 23 10.17 $17.00-$25.63...................... 1,520 4.51 19.55 176 20.18 $28.75-$32.50...................... 83 4.45 29.86 70 29.36
F-14 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) The Company has adopted only the disclosure provisions of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123). The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans other than for options granted with exercise prices of less than the stock's market value at the date of grant. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
FISCAL YEARS ENDED --------------------- 1996 1997 ---------- ---------- Expected life............................................. 3.1 years 2.3 years Interest rate............................................. 6.0% 6.3% Volatility................................................ 26.5% 34.6% Dividend yield............................................ 0.0% 0.0%
Stock-based compensation costs would have reduced net earnings by approximately $488 and $1,434 in 1996 and 1997 and $0.02 and $0.05 per share if the fair values of the options granted in those years had been recognized as compensation expense over the vesting period of the grant. The pro forma disclosures only include the effects of options granted in the fiscal years ended 1996 and 1997. TAX-DEFERRED SAVINGS AND RETIREMENT PLAN AND TRUST The Company sponsors a Tax-Deferred Savings and Retirement Plan (the Plan) covering substantially all employees. Under the Plan, a participating employee may allocate up to 12% of salary, and the Company makes matching contributions of up to 3% thereof. Additionally, the Company may elect to make additional contributions at its option. Such contributions accrue to employee accounts regardless of whether they have elected to participate in the salary deferral option of the Plan. The Company contributed approximately $639, $618 and $870 to the Plan in fiscal years ended April 1, 1995, March 30, 1996 and March 29, 1997, respectively. The Company contributed approximately $252 and $331 to the Plan for the thirteen weeks ended June 29, 1996 and June 28, 1997, respectively. The Company has deferred compensation plans for management and highly compensated associates of the Company. Under one plan, a participant may elect to defer a minimum of 3% of their compensation. The Company has agreed to match the participant's compensation amount, limited to 50% of the first 6% of compensation deferred. Participants become vested in the Company matching contributions at the rate of 10% per plan year or vest fully at age 60. Under another deferred benefit plan, the participant will receive minimum annual payments subsequent to retirement of the participant for the greater of 15 years or life. Under the first plan, the Company has accrued at March 30, 1996, March 29, 1997 and June 28, 1997, approximately $976, $1,703 and $1,987, respectively, for participant and Company contributions which are recorded as long term liabilities on the balance sheet. Under the second plan, annual expense will range from $1,200 to $1,600 through March 31, 2001, based on accruing the present value of the minimum benefits through the date the participant vests in the payments. F-15 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INFORMATION AS OF JUNE 28, 1997 AND RELATING TO THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JUNE 28, 1997 IS UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) EARNINGS PER SHARE Earnings per share are based upon the weighted average number of common shares outstanding during each year. Options are included in periods where they have a dilutive effect. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited quarterly financial data for fiscal years 1995, 1996 and 1997:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- Year ended April 1, 1995 Net sales................................. $ 61,516 $ 66,117 $ 71,563 $ 80,480 Gross profit.............................. 16,004 17,204 18,564 20,969 Net earnings.............................. 3,164 3,439 3,774 4,224 Earnings per share........................ .15 .16 .18 .19 Year ended March 30, 1996 Net sales................................. $ 87,255 $102,776 $116,064 $119,715 Gross profit.............................. 22,940 27,035 30,673 31,519 Net earnings.............................. 5,254 6,346 8,652 9,540 Earnings per share........................ .24 .28 .32 .35 Year ended March 29, 1997 Net sales................................. $125,144 $124,034 $126,407 $141,172 Gross profit.............................. 31,906 28,018 28,840 31,939 Net earnings.............................. 9,431 6,852 6,937 4,401 Earnings per share........................ .34 .25 .25 .16
F-16 INSIDE BACK COVER OF PROSPECTUS [PHOTOGRAPH] Houston distribution center. [PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH] Kent Datacomm technical Futronix Systems' Kent sales support center provides specialized inventories representatives undergo troubleshooting supplied by leading continuous training. assistance. manufacturers. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO- RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NOTES OF- FERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAW- FUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ----------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 6 Use of Proceeds........................................................... 9 Price Range of Common Stock............................................... 10 Dividend Policy........................................................... 10 Capitalization............................................................ 11 Selected Consolidated Financial Data...................................... 12 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 13 Business.................................................................. 17 Management................................................................ 21 Description of Notes...................................................... 23 Description of Capital Stock.............................................. 33 Certain Federal Income Tax Considerations................................. 35 Underwriting.............................................................. 39 Legal Matters............................................................. 40 Experts................................................................... 40 Available Information..................................................... 40 Incorporation of Certain Documents by Reference .......................... 41 Index to Consolidated Financial Statements................................ F-1
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- $150,000,000 KENT ELECTRONICS CORPORATION % CONVERTIBLE SUBORDINATED NOTES DUE 2004 [LOGO OF KENT ELECTRONICS APPEARS HERE] ------- PROSPECTUS , 1997 ------- SMITH BARNEY INC. BT ALEX. BROWN DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH & CO. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses payable by the Company in connection with the offering described in this Registration Statement are as follows: SEC registration fee........................................... $ 52,273 NASD fee....................................................... 17,750 Printing expenses.............................................. 75,000 Accounting fees and expenses................................... 45,000 Legal fees and expenses........................................ 235,000 Trustee fees and expenses...................................... 7,000 Rating agency fees............................................. 48,750 Miscellaneous expenses......................................... 19,227 -------- Total...................................................... $500,000 ========
- -------- * To be filed by amendment ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 6.10 of the Amended and Restated Bylaws of the Company provides for indemnification of present and former officers and directors of the Company to the maximum extent permissible under applicable provisions of the Texas Business Corporation Act and expressly authorizes the Company to purchase insurance on behalf of its directors, officers and employees. The Company has purchased a directors and officers liability insurance policy which provides for insurance of the directors and officers of the Company against certain liabilities they may incur in their capacities as such. ITEM 16. EXHIBITS. 1.1* --Form of Underwriting Agreement. 4.1 --Amended and Restated Articles of Incorporation of Kent Electronics Corporation. Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-20265) filed with the Securities and Exchange Commission ("SEC") on January 23, 1997. 4.2 --Certificate of Designation, Preferences and Rights of Series A Preferred Stock. Incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 30, 1991. 4.3 --Amended and Restated Bylaws of Kent Electronics Corporation. Incorporated by reference to Exhibit 3.5 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 30, 1996. 4.4* --Form of Indenture between Kent Electronics Corporation, as issuer, and Texas Commerce Bank National Association, as Trustee, including the form of Note. 4.5 --Specimen stock certificate for the Common Stock of Kent Electronics Corporation. Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-2 (Registration No. 33-40066) filed with the SEC on April 19, 1991. 4.6 --Rights Agreement dated as of May 14, 1990 between Kent Electronics Corporation and Ameritrust Company National Association. Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K dated May 14, 1990.
II-1 4.7 --First Amendment to Rights Agreement dated as of May 14, 1990 between Kent Electronics Corporation and Ameritrust Company National Association. Incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 28, 1992. 5.1* --Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. 8.1* --Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. 12.1** --Statement of Computation of Ratio of Earnings to Fixed Charges. 23.1* --Consent of Grant Thornton LLP. 23.2* --Consents of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included as part of Exhibits 5.1 and 8.1). 24.1 --Powers of Attorney (included on signature page of this Registration Statement). 25.1* --Statement of Eligibility of Trustee on Form T-1. 27.1** --Financial Data Schedule.
- -------- * Filed herewith. ** Previously filed. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Company's annual report pursuant to section 13(a) or section 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above, or otherwise, the registrant has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, THE STATE OF TEXAS, ON SEPTEMBER 15, 1997. KENT ELECTRONICS CORPORATION /s/ Morrie K. Abramson By: _________________________________ Morrie K. Abramson (Chairman of the Board, Chief Executive Officer and President)
SIGNATURE TITLE DATE --------- ----- ---- /s/ Morrie K. Abramson Chairman of the Board, Chief September 15, 1997 ____________________________________ Executive Officer, President Morrie K. Abramson and Director (Principal Executive Officer) /s/ Stephen J. Chapko Executive Vice President, September 15, 1997 ____________________________________ Chief Financial Officer, Stephen J. Chapko Treasurer and Secretary (Principal Financial Officer) * Vice President, Corporate September 15, 1997 ____________________________________ Controller (Principal David D. Johnson Accounting Officer)
II-3
SIGNATURE TITLE DATE --------- ----- ---- * Director September 15, 1997 ____________________________________ Terrence M. Hunt * Director September 15, 1997 ____________________________________ Max S. Levit * Director September 15, 1997 ____________________________________ David Siegel * Director September 15, 1997 ____________________________________ Richard C. Webb * Director September 15, 1997 ____________________________________ Alvin L. Zimmerman
*By: /s/ Morrie K. Abramson - ------------------------------- Morrie K. Abramson, Attorney-in-Fact II-4 EX-1.1 2 UNDERWRITING AGREEMENT $_____________ KENT ELECTRONICS CORPORATION ____% Convertible Subordinated Notes due 2004 UNDERWRITING AGREEMENT ---------------------- September __, 1997 SMITH BARNEY INC. BT ALEX. BROWN INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Dear Sirs: Kent Electronics Corporation, a Texas corporation (the "Company"), proposes, upon the terms and subject to the conditions set forth herein, to issue and sell $___________ aggregate principal amount of its ___% Convertible Subordinated Notes due 2004 (the "Firm Notes"), to the several Underwriters named in Schedule I hereto (the "Underwriters"). The Company also proposes, upon the terms and subject to the conditions set forth herein, to sell to the several Underwriters up to an additional $__________ aggregate principal amount of its ___% Convertible Subordinated Notes due 2004 (the "Additional Notes"). The Firm Notes and the Additional Notes are hereinafter sometimes collectively referred to as the "Notes." The Notes will be issued pursuant to the provisions of an Indenture to be dated as of September __, 1997 (the "Indenture"), between the Company and Texas Commerce Bank National Association, as Trustee (the "Trustee"). The Company's common stock, without par value, is hereinafter referred to as the "Common Stock." The Company wishes to confirm as follows its agreement with you in connection with the several purchases of the Notes by the Underwriters. 1. Registration Statement and Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3 (Registration No. 333-34045) under the Act (the "registration statement"), including a prospectus subject to completion relating to the Notes and the shares of Common Stock issuable on conversion of the Notes. The term "Registration Statement" as used in this Agreement means the registration statement (including all financial schedules and exhibits), as amended at the time it becomes effective, or, if the registration statement became effective prior to the execution of this Agreement, as supplemented or amended prior to the execution of this Agreement. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed and must be declared effective before the offering of the Notes may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. If it is contemplated, at the time this Agreement is executed, that a registration statement will be filed pursuant to Rule 462(b) under the Act before the offering of the Notes may commence, the term "Registration Statement" as used in this Agreement includes such registration statement. The term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement, or, if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means the prospectus subject to completion in the form included in the registration statement at the time of the initial filing of the registration statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. Any reference in this Agreement to the registration statement, the Registration Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of the registration statement, the Registration Statement, such Prepricing Prospectus or the Prospectus, as the case may be, and any reference to any amendment or supplement to the registration statement, the Registration Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act"), which, upon filing, are incorporated by reference therein, as required by paragraph (b) of Item 12 of Form S-3. As used herein, the term "Incorporated Documents" means the documents which at the time are incorporated by reference in the registration statement, the Registration Statement, any Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto. 2. Agreements to Sell and Purchase. The Company hereby agrees, upon the terms and subject to all the conditions set forth herein, to issue and sell to each Underwriter and, upon the basis of the representations, warranties and agreements of the Company herein contained and upon the terms and subject to all the conditions set forth herein, each Underwriter agrees, -2- severally and not jointly, to purchase from the Company, at a purchase price of ___% of the principal amount thereof, the principal amount of the Firm Notes set forth opposite the name of such Underwriter in Schedule I hereto (or such principal amount of Firm Notes increased as set forth in Section 10 hereof). The Company also hereby agrees, upon the terms and subject to all the conditions set forth herein, to sell to the Underwriters, and, upon the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Company, pursuant to an option (the "over-allotment option") which may be exercised at any time and from time to time prior to 9:00 P.M., New York City time, on the 30th day after the date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the New York Stock Exchange is open for trading), up to $__________ aggregate principal amount of Additional Notes. The purchase price of any Additional Notes which the Underwriters may elect to purchase shall be the same as the purchase price of the Firm Notes, plus accrued interest, if any, from the date of issuance of the Firm Notes to the date of delivery of and payment for the Additional Notes. Additional Notes may be purchased only for the purpose of covering over-allotments made in connection with the offering of the Firm Notes. Upon any exercise of the over-allotment option, each Underwriter, severally and not jointly, agrees to purchase from the Company the principal amount of Additional Notes which bears the same proportion to the aggregate principal amount of Additional Notes to be purchased by the Underwriters as the principal amount of Firm Notes set forth opposite the name of such Underwriter in Schedule I hereto (or such principal amount of Firm Notes increased as set forth in Section 10 hereof) bears to the aggregate principal amount of the Firm Notes. 3. Terms of Public Offering. The Company has been advised by you that the Underwriters propose to make a public offering of their respective portions of the Notes as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable and initially to offer the Notes upon the terms set forth in the Prospectus. 4. Delivery of the Notes and Payment Therefor. The Notes to be purchased hereunder will be represented by one or more definitive global Notes in book- entry form which will be deposited by or on behalf of the Company with The Depository Trust Company ("DTC") or its designated custodian. Delivery to the Underwriters of the Firm Notes, against payment of the purchase price therefor in Federal (same day) funds, shall be made by causing DTC to credit the Firm Notes to the account or accounts designated by Smith Barney on behalf of the Underwriters at DTC. The time and date of such delivery shall be 10:00 A.M., New York City time, on September __, 1997 (the "Closing Date"). The other documents to be delivered at the Closing Date by or on behalf of the parties hereto shall be delivered at such time and date at the offices -3- of Baker & Botts, L.L.P., 910 Louisiana, Houston, Texas 77002. The place of closing for the Firm Notes and the Closing Date may be varied by agreement between you and the Company. Delivery to the Underwriters of the Additional Notes to be purchased by the Underwriters, against payment of the purchase price therefor in Federal (same day) funds, shall be made by causing DTC to credit the Additional Notes to the account or accounts designated by Smith Barney on behalf of the Underwriters at DTC at such time on such date (the "Option Closing Date"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than two nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from you on behalf of the Underwriters to the Company of the Underwriters' determination to purchase a principal amount, specified in such notice, of Additional Notes. The other documents to be delivered at the Option Closing Date by or on behalf of the parties hereto shall be delivered at such time and date at the offices of Baker & Botts, L.L.P., 910 Louisiana, Houston, Texas 77002. The place of closing for any Additional Notes and the Option Closing Date for such Notes may be varied by agreement between you and the Company. The global certificates representing the Notes to be delivered to the Underwriters shall be made available to you at the office of DTC or its custodian for inspection not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date or the Option Closing Date, as the case may be. 5. Agreements of the Company. The Company agrees with the several Underwriters as follows: (a) If, at the time this Agreement is executed and delivered, it is necessary for the Registration Statement or a post-effective amendment thereto to be declared effective before the offering of the Notes may commence, the Company will endeavor to cause the Registration Statement or such post-effective amendment to become effective as soon as possible and will advise you promptly and, if requested by you, will confirm such advice in writing, when the Registration Statement or such post-effective amendment has become effective. (b) The Company will advise you promptly and, if requested by you, will confirm such advice in writing: (i) of any request by the Commission for amendment of or a supplement to the Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Notes for offering or sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) within the period of time referred to in paragraph (f) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event, which makes any statement of a material fact made in the Registration Statement or the Prospectus (as then amended or supplemented) untrue or which -4- requires the making of any additions to or changes in the Registration Statement or the Prospectus (as then amended or supplemented) in order to state a material fact required by the Act to be stated therein or necessary in order to make the statements therein not misleading, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. (c) The Company will furnish to you, without charge (i) five EDGAR versions of the registration statement as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits to the registration statement, (ii) five manually signed copies of the registration statement corresponding to the EDGAR version filed with the Commission and of each amendment thereto, including financial statements and all exhibits to the registration statement, (iii) such number of conformed copies of the registration statement as originally filed and of each amendment thereto, but without exhibits, as you may request, (iv) such number of copies of the Indenture and of the Incorporated Documents, without exhibits, as you may reasonably request, and (v) five copies of the exhibits to the Incorporated Documents. (d) The Company will not file any amendment to the Registration Statement or make any amendment or supplement to the Prospectus or, prior to the end of the period of time referred to in the first sentence in paragraph (f) below, file any document which, upon filing becomes an Incorporated Document, of which you shall not previously have been advised or to which, after you shall have received a copy of the document proposed to be filed, you shall reasonably object. (e) Prior to the execution and delivery of this Agreement, the Company has delivered to you, without charge, in such quantities as you have requested, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Notes are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (f) As soon after the execution and delivery of this Agreement as possible and thereafter from time to time for such period as in the opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer, the Company will expeditiously deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as you may request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Notes are offered by the several Underwriters and by all dealers to whom Notes may be sold, both in connection with the offering and sale of the Notes -5- and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus (or to file under the Exchange Act any document which, upon filing, becomes an Incorporated Document) in order to comply with the Act or any other law, the Company will forthwith prepare and, subject to the provisions of paragraph (d) above, file with the Commission an appropriate supplement or amendment thereto (or to such document), and will expeditiously furnish to the Underwriters and dealers a reasonable number of copies thereof. In the event that the Company and you agree that the Prospectus should be amended or supplemented, the Company, if requested by you, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement. Each Underwriter agrees that upon the receipt of any supplement or amendment to a Prospectus, it will not deliver a Prospectus other than as supplemented or amended. (g) The Company will cooperate with you and with counsel for the Underwriters in connection with the registration or qualification of the Notes and the shares of Common Stock issuable upon conversion of the Notes for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such registration or qualification; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Notes, in any jurisdiction where it is not now so subject. (h) The Company will make generally available to its security holders a consolidated earnings statement (in form complying with the provisions of Rule 158 under the Act), which need not be audited, covering a twelve-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act. (i) So long as any of the Notes are outstanding, the Company will furnish to you (i) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and (ii) from time to time such other information concerning the Company as you may reasonably request. (j) If this Agreement shall terminate or shall be terminated after execution pursuant to any provision hereof (otherwise than pursuant to the second paragraph of Section 10 hereof or by notice given by you terminating this Agreement pursuant to Section 10 or Section -6- 11 hereof) or if this Agreement shall be terminated by the Underwriters because of any failure or refusal on the part of the Company to comply with the terms or fulfill any condition of this Agreement, the Company agrees to reimburse you for all out-of-pocket expenses (including fees and expenses of counsel for the Underwriters) reasonably incurred by you in connection herewith. (k) The Company will apply the net proceeds from the sale of the Notes substantially in accordance with the description set forth in the Prospectus. (l) If Rule 430A of the Act is employed, the Company will timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the time and manner of such filing. (m) Except as provided in this Agreement, the Company will not (i) offer, sell, contract to sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, except pursuant to outstanding options to purchase Common Stock under the Amended and Restated 1987 Kent Electronics Corporation Stock Option Plan, the Kent Electronics Corporation 1996 Employee Incentive Plan or the Stock Option Plan and Agreement dated as of February 14, 1996 by and between the Company and Dr. Stanley Zimmerman, (ii) file or effect a registration statement under the Act (other than in connection with the registration of securities pursuant to an employee stock option, stock purchase, dividend reinvestment plan or similar plan or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Act) registering shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or (iii) grant any options or warrants to purchase Common Stock, except for the grant of options to purchase Common Stock under the Amended and Restated 1987 Kent Electronics Corporation Stock Option Plan or the Kent Electronics Corporation 1996 Employee Incentive Plan, for a period of 90 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc. (n) The Company has furnished to you agreements signed by each of its current executive officers and directors, whereby each executive officer and director has agreed that he or she will not sell, offer to sell, solicit an offer to buy, contract to sell, grant any option to purchase, or otherwise transfer or dispose of, any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for Common Stock, for a period of 90 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc. (o) Except as stated in this Agreement and in the Prepricing Prospectus and the Prospectus, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock or Notes to facilitate the sale or resale of the Notes. -7- (p) The Company will use its best efforts: (i) to have the Notes listed on the New York Stock Exchange concurrently with the effectiveness of the Registration Statement; and (ii) to have the shares of Common Stock issuable upon conversion of the Notes listed, subject to notice of issuance, on the New York Stock Exchange prior to the Closing Date. 6. Representations and Warranties of the Company. The Company represents and warrants to each Underwriter that: (a) Each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in all material respects with the provisions of the Act and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus. (b) The Company and the offering of the Notes contemplated by this Agreement meet the requirements for using Form S-3 under the Act. The registration statement in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective and the Prospectus and any supplement or amendment thereto, when filed with the Commission under Rule 424(b) under the Act, complied or will comply in all material respects with the provisions of the Act and did not or will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the Registration Statement or the Prospectus made in reliance upon and in conformity with (i) information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein, or (ii) the Trustee's Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939, as amended (the "1939 Act"). (c) The Incorporated Documents heretofore filed, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects with the requirements of the Exchange Act, any further Incorporated Documents so filed will, when they are filed, conform in all material respects with the requirements of the Exchange Act; no such document when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained an 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 not misleading; and no such further document, when it is filed, will contain an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. -8- (d) The Indenture has been duly and validly authorized and, upon its execution and delivery by the Company and assuming due execution and delivery by the Trustee, will be a valid and binding agreement of the Company, enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally and general principles of equity, and has been (or will have been) duly qualified under the 1939 Act and conforms to the description thereof in the Registration Statement and the Prospectus. (e) The Notes have been duly authorized and, when executed by the Company and authenticated by the Trustee in accordance with the Indenture and delivered to you against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity, and the Notes will conform to the description thereof in the Registration Statement and the Prospectus. (f) All the outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the shares of Common Stock issuable upon conversion of the Notes have been duly authorized and reserved for issuance and, when delivered upon conversion of the Notes in accordance with the terms of the Indenture, will have been validly issued and fully paid and will be nonassessable and free of any preemptive or similar rights; and the capital stock of the Company conforms to the description thereof in the Registration Statement and the Prospectus. (g) The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Texas with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and the Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse Effect"). (h) All of the Company's subsidiaries that are "significant subsidiaries" (as defined in Regulation S-X) (collectively, the "Subsidiaries") are listed in an exhibit to the Company's Annual Report on Form 10-K, as amended, which is incorporated by reference into the Registration Statement. Each Subsidiary is a corporation duly organized, validly existing and in good standing in the jurisdiction of its incorporation, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration -9- Statement and the Prospectus, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a Material Adverse Effect; all the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, and are owned by the Company directly, or indirectly through one of the other Subsidiaries, free and clear of any lien, adverse claim, security interest, equity or other encumbrance. (i) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened, against the Company or any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or to which any of their respective properties is subject, that are required to be described in the Registration Statement or the Prospectus but are not described as required, and there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement or any Incorporated Document that are not described or filed as required by the Act or the Exchange Act. (j) Neither the Company nor any of the Subsidiaries is in violation of its certificate or articles of incorporation or by-laws, or other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries, or in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any material agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound, which violation or default would, singly or in the aggregate, have a Material Adverse Effect. (k) Neither the issuance and sale of the Notes, the issuance of the Common Stock upon conversion of the Notes, the execution, delivery or performance of this Agreement and the Indenture by the Company nor the consummation by the Company of the transactions contemplated hereby and thereby (i) requires any consent, approval, authorization or other order of or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required for the registration of the Notes under the Act and the Exchange Act, registration under the Act of the shares of Common Stock issuable upon conversion of the Notes, qualification of the Indenture under the 1939 Act, and compliance with the securities or Blue Sky laws of various jurisdictions, all of which have been or will be effected in accordance with this Agreement and except for consents, approvals, authorizations, orders, registrations or filings outside the United States which are required under the securities laws of any such foreign jurisdiction) or conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation or by-laws, or other organizational documents, of the Company or any of the Subsidiaries (ii) conflicts -10- or will conflict with or constitutes or will constitute a breach of, or a default under, any agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties may be bound, which conflict, breach or default would, singly or in the aggregate, have a Material Adverse Effect, (iii) violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Company or any of the Subsidiaries or any of their respective properties, which violation would, singly or in the aggregate, have a Material Adverse Effect, or (iv) will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of the property or assets of any of them is subject, which lien, charge or encumbrance would, singly or in the aggregate, have a Material Adverse Effect. (l) The accountants, Grant Thornton LLP, who have certified or shall certify the financial statements included or incorporated by reference in the Registration Statement and the Prospectus (or any amendment or supplement thereto), are independent public accountants as required by the Act. (m) The financial statements, together with related schedules and notes, included or incorporated by reference in the Registration Statement and the Prospectus (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in financial position of the Company and the Subsidiaries on the basis stated in the Registration Statement at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data included or incorporated by reference in the Registration Statement and the Prospectus (and any amendment or supplement thereto) are accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company and the Subsidiaries. (n) The execution and delivery of, and the performance by the Company of its obligations under, this Agreement have been duly and validly authorized by the Company, and this Agreement has been duly executed and delivered by the Company and constitutes the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except as (i) rights to indemnity and contribution hereunder may be limited by federal or state securities laws and (ii) enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights generally and general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). (o) Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement thereto), subsequent to the respective dates as of which such -11- information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), neither the Company nor any of the Subsidiaries has incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Company and the Subsidiaries taken as a whole, and there has not been any change in the capital stock (other than any change in capital stock relating to the exercise of outstanding options), or material increase in the short-term debt or long-term debt, of the Company or any of the Subsidiaries, or any Material Adverse Effect, or any development involving or which may reasonably be expected to involve, a prospective Material Adverse Effect. (p) Each of the Company and the Subsidiaries has good and marketable title to all property (real and personal) described in the Prospectus as being owned by it, free and clear of all liens, claims, security interests or other encumbrances except such as are described in the Registration Statement and the Prospectus or in a document filed as an exhibit to the Registration Statement and all the property described in the Prospectus as being held under lease by each of the Company and the Subsidiaries is held by it under valid, subsisting and enforceable leases. (q) The Company has not distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Notes, will not distribute any offering material in connection with the offering and sale of the Notes other than the Registration Statement, any Prepricing Prospectus, the Prospectus or other materials, if any, permitted by the Act. (r) The Company and each of the Subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its respective properties and to conduct its business in the manner described in the Prospectus, subject to such qualifications as may be set forth in the Prospectus; the Company and each of the Subsidiaries has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; and, except as described in the Prospectus, none of such permits contains any restriction that is materially burdensome to the Company or any of the Subsidiaries. (s) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. -12- (t) To the Company's knowledge, neither the Company nor any of its Subsidiaries nor any employee or agent of the Company or any Subsidiary has made any payment of funds of the Company or any Subsidiary or received or retained any funds in violation of any law, rule or regulation, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus. (u) The Company and each of the Subsidiaries have filed all tax returns required to be filed, which returns, to the Company's knowledge, are complete and correct, and neither the Company nor any Subsidiary is in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto. (v) No holder of any security of the Company has any right to require registration of shares of Common Stock or any other security of the Company because of the filing of the registration statement or consummation of the transactions contemplated by this Agreement. (w) The Company and the Subsidiaries own or possess all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by them or any of them or necessary for the conduct of their respective businesses, and the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company and the Subsidiaries with respect to the foregoing. (x) None of the transactions by the Company or its Subsidiaries contemplated by this Agreement (including, without limitation, the use of proceeds from the sale of the Notes) will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System. (y) The Company is not and, as a result of placing the proceeds from the sale of the Notes contemplated hereby in the short-term investments contemplated under the caption "Use of Proceeds" in the Prospectus, will not be, an "investment company" as that term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"), or subject to regulation under the Investment Company Act. 7. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each of you and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus or in the Registration Statement or the Prospectus or in any amendment or supplement thereto, or -13- arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Underwriter furnished in writing to the Company by or on behalf of any Underwriter through you expressly for use in connection therewith; provided, however, that the indemnification contained in this paragraph (a) with respect to any Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Notes by such Underwriter to any person if a copy of the Prospectus shall not have been delivered or sent to such person within the time required by the Act, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Prepricing Prospectus was corrected in the Prospectus, provided that the Company has delivered the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit such delivery or sending. The foregoing indemnity agreement shall be in addition to any liability which the Company may otherwise have. (b) If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company, such Underwriter or such controlling person shall promptly notify the Company and the Company shall assume the defense thereof, including the employment of counsel and payment of all reasonable fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the Company has agreed in writing to pay such fees and expenses, (ii) the Company has failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the Company and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and the Company by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the Company shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the Company shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by Smith Barney Inc., and that all such reasonable fees and expenses shall be reimbursed as they are incurred. The Company -14- shall not be liable for any settlement of any such action, suit or proceeding effected without its written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the Company agrees to indemnify and hold harmless any Underwriter and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment, to the extent provided in paragraph (a) above. (c) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company, any of its directors, any such officer, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (c), such Underwriter shall have the rights and duties given to the Company by paragraph (b) above (except that if the Company shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officer, and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which the Underwriters may otherwise have. (d) If the indemnification provided for in this Section 7 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Notes, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus; provided -15- that, in the event that the Underwriters shall have purchased any Additional Notes hereunder, any determination of the relative benefits received by the Company or the Underwriters from the offering of the Notes shall include the net proceeds (before deducting expenses) received by the Company and the underwriting discounts and commissions received by the Underwriters, from the sale of such Additional Notes, in each case computed on the basis of the respective amounts set forth in the notes to the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Notes underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective principal amounts of Firm Notes set forth opposite their names in Schedule I hereto (or such principal amounts of Firm Notes increased as set forth in Section 10 hereof) and not joint. (f) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. (g) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or -16- expenses are incurred. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers, or any person controlling the Company, (ii) acceptance of any Notes and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter or any person controlling any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 7. 8. Conditions of Underwriters' Obligations. The several obligations of the Underwriters to purchase the Firm Notes hereunder are subject to the following conditions: (a) If, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Notes may commence, the registration statement or such post-effective amendment shall have become effective not later than 5:30 P.M., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings, if any, required by Rules 424 and 430A under the Act shall have been timely made; no stop order suspending the effectiveness of the registration statement shall have been issued and no proceeding for that purpose shall have been instituted or, to the knowledge of the Company or any Underwriter, threatened by the Commission, and any request of the Commission for additional information (to be included in the registration statement or the prospectus or otherwise) shall have been complied with to your satisfaction. (b) Subsequent to the effective date of this Agreement, there shall not have occurred (i) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business, properties, net worth, or results of operations of the Company or the Subsidiaries not disclosed in the Prospectus, which in your opinion, would materially and adversely affect the market for the Notes, or (ii) any event or development relating to or involving the Company or any officer or director of the Company which makes any statement made in the Prospectus untrue or which, in the opinion of the Company and its counsel or the Underwriters and their counsel, requires the making of any addition to or change in the Prospectus in order to state a material fact required by the Act or any other law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Prospectus to reflect such event or development would, in your opinion, materially and adversely affect the market for the Notes. (c) You shall have received on the Closing Date, an opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel for the Company, dated the Closing Date and addressed to you, to the effect that: -17- (i) The Company is a corporation duly incorporated and validly existing in good standing under the laws of the State of Texas with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a Material Adverse Effect; (ii) Each of the Subsidiaries is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its organization, with full corporate power and authority to own, lease, and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto); and all the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, and are owned by the Company directly, or indirectly through one of the other Subsidiaries, free and clear of any perfected security interest, or, to the best knowledge of such counsel after reasonable inquiry, any other security interest, lien, adverse claim, equity or other encumbrance; (iii) The authorized and outstanding capital stock of the Company is as set forth under the caption "Capitalization" in the Prospectus; and the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Capital Stock"; (iv) All the shares of capital stock of the Company outstanding prior to the issuance of the Notes have been duly authorized and validly issued, and, to the best knowledge of such counsel, are fully paid and nonassessable; (v) To the best knowledge of such counsel after reasonable inquiry, except as set forth in the Registration Statement or the Incorporated Documents, there are no outstanding options, warrants or other rights calling for the issuance of, nor any commitment, plan or arrangement to issue, any shares of capital stock of the Company or any security convertible into or exchangeable or exercisable for capital stock of the Company; (vi) To the best knowledge of such counsel after reasonable inquiry, except as described in the Prospectus, there is no holder of any security of the Company or any other person who has the right, contractual or otherwise, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, the Notes or the shares of Common Stock issuable upon conversion of the Notes or the right to have any Common Stock or other securities of the Company included in the registration statement or the right, as a result of the filing of the registration statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. -18- (vii) The Registration Statement and all post-effective amendments, if any, have become effective under the Act and, to the best knowledge of such counsel after reasonable inquiry, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or contemplated by the Commission; and any required filing of the Prospectus pursuant to Rule 424(b) has been made in accordance with Rule 424(b); (viii) The Company has corporate power and authority to enter into this Agreement and to issue, sell and deliver the Notes to the Underwriters as provided herein, and this Agreement has been duly authorized, executed and delivered by the Company and, assuming due execution and delivery by the Underwriters, is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforcement of rights to indemnity and contribution hereunder may be limited by Federal or state securities laws or principles of public policy and subject to the qualification that the enforceability of the Company's obligations hereunder may be limited by bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally, and by general equitable principles; (ix) The Indenture has been duly authorized, executed and delivered by the Company and, assuming due execution and delivery by the Trustee, is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights generally and by general equitable principles, and has been duly qualified under the 1939 Act; (x) The Notes have been duly authorized and executed by the Company and, assuming due authentication of the Notes by the Trustee, upon delivery to the Underwriters against payment therefor in accordance with the terms hereof and the Indenture, will have been validly issued and delivered, and will constitute valid and binding obligations of the Company entitled to the benefits of, and subject to the restrictions in, the Indenture; (xi) The shares of Common Stock issuable upon conversion of the Notes have been duly authorized and reserved for issuance and, when delivered upon conversion of the Notes in accordance with the terms of the Indenture, will have been validly issued and fully paid and will be non-assessable and free of preemptive, or to the best knowledge of such counsel after reasonable inquiry, similar rights that entitle or will entitle any person to acquire any shares of Common Stock upon the issuance thereof by the Company; (xii) Neither the Company nor any of the Subsidiaries is in violation of its respective certificate or articles of incorporation or by-laws, or other organizational documents, or to the best knowledge of such counsel after reasonable inquiry, is in default in the performance -19- of any material obligation, agreement or condition contained in any bond, debenture, note or other evidence of indebtedness, except as may be disclosed in the Prospectus; (xiii) Neither the offer, sale or delivery of the Notes, the issuance of Common Stock upon conversion of the Notes, the execution, delivery or performance of this Agreement and the Indenture, compliance by the Company with the provisions hereof and thereof nor consummation by the Company of the transactions contemplated hereby or thereby (a) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation or by-laws, or other organizational documents, of the Company or any of the Subsidiaries or any agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties is bound that is an exhibit to the Registration Statement or to any Incorporated Document, or is known to such counsel after reasonable inquiry, or (b) will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries, which lien, charge or encumbrance would, singly or in the aggregate, have a Material Adverse Effect, nor will any such action result in any violation of any existing law, regulation, ruling (assuming compliance with all applicable state and foreign securities and Blue Sky laws), judgment, injunction, order or decree known to such counsel after reasonable inquiry, applicable to the Company, the Subsidiaries or any of their respective properties, which violation would, singly or in the aggregate, have a Material Adverse Effect; (xiv) No consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency, or official is required on the part of the Company (except as have been obtained under the Act, the Exchange Act, the 1939 Act, and such as may be required under state and foreign securities or Blue Sky laws governing the purchase and distribution of the Notes and the shares of Common Stock issuable upon conversion of the Notes) for the valid issuance and sale of the Notes to the Underwriters as contemplated by this Agreement; (xv) The Registration Statement and the Prospectus and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which such counsel need not express any opinion) comply as to form in all material respects with the requirements of the Act; and each of the Incorporated Documents (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which counsel need not express any opinion) complies as to form in all material respects with the Exchange Act and the rules and regulations of the Commission thereunder; (xvi) To the best knowledge of such counsel after reasonable inquiry, (A) other than as described or contemplated in the Prospectus (or any supplement thereto), there are no legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or any of their property, is -20- subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto) and (B) there are no agreements, contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or to be filed as an exhibit to the Registration Statement or any Incorporated Document that are not described or filed as required, as the case may be; (xvii) To the best knowledge of such counsel after reasonable inquiry, neither the Company nor any of the Subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or of any decree of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries; (xviii) The statements in the Registration Statement and Prospectus, insofar as they are descriptions of contracts, agreements or other legal documents, or refer to statements of law or legal conclusions, are accurate and present fairly the information required to be shown; (xix) The Company is not and, as a result of placing the proceeds from the sale of the Notes contemplated hereby in the short-term investments contemplated under the caption "Use of Proceeds" in the Prospectus, will not be, an "investment company" as such term is defined in the Investment Company Act; (xx) None of the transactions by the Company or its Subsidiaries contemplated by this Agreement (including, without limitation, the use of proceeds from the sale of the Notes) will violate Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System; (xxi) A Texas state court, or a federal court applying Texas choice of law principles, would give effect to the provisions of this Agreement and the Indenture selecting the law of the State of New York as the governing law for those documents. (xxii) Although counsel has not undertaken, except as otherwise indicated in their opinion, to determine independently, and does not assume any responsibility for, the accuracy or completeness of the statements in the Registration Statement, such counsel has participated in the preparation of the Registration Statement and the Prospectus, including review and discussion of the contents thereof (including review and discussion of the contents of all Incorporated Documents), and nothing has come to the attention of such counsel that has caused them to believe that the Registration Statement (including the Incorporated Documents) at the time the Registration Statement became effective, or the Prospectus, as of its date and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements -21- therein not misleading or that any amendment or supplement to the Prospectus, as of its respective date, and as of the Closing Date or the Option Closing Date, as the case may be, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and the notes thereto and the schedules and other financial and statistical data included in the Registration Statement or the Prospectus or any Incorporated Document). In rendering their opinion as aforesaid, counsel may rely upon an opinion or opinions, each dated the Closing Date, of other counsel retained by them or the Company as to laws of any jurisdiction other than the United States or the State of Texas, provided that (1) each such local counsel is acceptable to you, (2) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to you and is in form and substance satisfactory to you and your counsel, and (3) counsel shall state in their opinion that they believe that they and the Underwriters are justified in relying thereon. (d) You shall have received on the Closing Date an opinion of Baker & Botts, L.L.P., counsel for the Underwriters, dated the Closing Date and addressed to you with respect to the matters referred to in clauses (vii), (ix), (x), (xi), (xv), and (xxii) of the foregoing paragraph (c) and such other related matters as you may request. (e) You shall have received letters addressed to you, and dated the date hereof and the Closing Date from Grant Thornton LLP, independent certified public accountants, substantially in the forms heretofore approved by you. (f) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock of the Company nor any material increase in the short-term or long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Registration Statement or the Prospectus (or any amendment or supplement thereto); (iii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), except as may otherwise be stated in the Registration Statement and Prospectus (or any amendment or supplement thereto), any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company and the Subsidiaries, taken as a whole, other than those reflected in the Registration Statement or the Prospectus (or any amendment or supplement thereto); and (v) all the representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date hereof and on and as -22- of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company (or such other officers as are acceptable to you), to the effect set forth in this Section 8(f) and in Section 8(g) hereof. (g) The Company shall not have failed at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (h) There shall not have been any announcement by any "nationally recognized statistical rating organization," as defined for purposes of Rule 436(g) under the Act, that (i) it is downgrading its rating assigned to the Notes, or (ii) it is reviewing its rating assigned to the Notes with a view to possible downgrading, or with negative implications, or direction not determined. (i) The Notes shall have been listed, subject to notice of issuance, on the New York Stock Exchange and the shares of Common Stock issuable upon conversion of the Notes shall have been listed, subject to notice of issuance, on the New York Stock Exchange. (j) The Notes shall have been registered under the Exchange Act. (k) The Company shall have furnished or caused to be furnished to you such further certificates and documents as you shall have reasonably requested. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are satisfactory in form and substance to you and your counsel. Any certificate or document signed by any officer of the Company and delivered to you or to counsel for the Underwriters, shall be deemed a representation and warranty by the Company to each Underwriter as to the statements made therein. The several obligations of the Underwriters to purchase Additional Notes hereunder are subject to the satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 8, except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (f) shall be dated the Option Closing Date in question and the opinions called for by paragraphs (c) and (d) shall be revised to reflect the sale of Additional Notes. 9. Expenses. The Company agrees to pay the following costs and expenses and all other costs and expenses incident to the performance by it of its obligations hereunder: (i) the preparation, printing or reproduction, and filing with the Commission of the registration statement -23- (including financial statements and exhibits thereto), each Prepricing Prospectus, the Prospectus, and each amendment or supplement to any of them, and the Statement of Eligibility and Qualification of the Trustee; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the registration statement, each Prepricing Prospectus, the Prospectus, the Incorporated Documents, and all amendments or supplements to any of them, as may be reasonably requested for use in connection with the offering and sale of the Notes; (iii) the preparation, printing, authentication, issuance and delivery of the Notes, including any stamp taxes in connection with the original issuance and sale of the Notes; (iv) the printing (or reproduction) and delivery of this Agreement, the Indenture and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Notes; (v) the registration of the Notes under the Exchange Act and the listing of the Notes and the shares of Common Stock issuable upon conversion of the Notes on the New York Stock Exchange; (vi) the registration or qualification of the Notes and the shares of Common Stock issuable upon conversion of the Notes for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 5(g) hereof (including the reasonable fees, expenses and disbursements of counsel for the Underwriters relating to such registration and qualification); (vii) the filing fees and the fees and expenses of counsel for the Underwriters in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (viii) the fees and expenses of the Trustee; (ix) the fees and expenses associated with obtaining ratings for the Notes from nationally recognized statistical rating organizations; (x) the transportation and other expenses incurred by or on behalf of Company representatives in connection with presentations to prospective purchasers of the Notes; and (xi) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company. 10. Effective Date of Agreement. This Agreement shall become effective: (i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is executed and delivered, it is necessary for the registration statement or a post-effective amendment thereto to be declared effective before the offering of the Notes may commence, when notification of the effectiveness of the registration statement or such post-effective amendment has been given by the Commission. Until such time as this Agreement shall have become effective, it may be terminated by the Company, by notifying you, or by you, by notifying the Company. If any one or more of the Underwriters shall fail or refuse to purchase Notes which it or they are obligated to purchase hereunder on the Closing Date, and the aggregate principal amount of Notes which such defaulting Underwriter or Underwriters are obligated but fail or refuse to purchase is not more than one-tenth of the aggregate principal amount of Notes which the Underwriters are obligated to purchase on the Closing Date, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the principal amount of Firm Notes set forth opposite its name in Schedule I hereto bears to the aggregate principal amount of Firm Notes set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in accordance with Section 20 of the Master Agreement Among Underwriters of -24- Smith Barney Inc., to purchase the Notes which such defaulting Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If any one or more of the Underwriters shall fail or refuse to purchase Notes which it or they are obligated to purchase on the Closing Date and the aggregate principal amount of Notes with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Notes which the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to you and the Company for the purchase of such Notes by one or more non-defaulting Underwriters or other party or parties approved by you and the Company are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case which does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. The term "Underwriter" as used in this Agreement includes, for all purposes of this Agreement, any party not listed in Schedule I hereto who, with your approval and the approval of the Company, purchases Notes which a defaulting Underwriter is obligated, but fails or refuses, to purchase. Any notice under this Section 10 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter. 11. Termination of Agreement. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Company by notice to the Company, if prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to the Additional Notes), as the case may be, (i) trading in the Common Stock shall be suspended or subject to any restriction or limitation not in effect on the date of this Agreement; (ii) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited; (iii) a general moratorium on commercial banking activities in New York or Texas shall have been declared by either federal or state authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States is such as to make it, in your judgment, impracticable or inadvisable to commence or continue the offering of the Notes on the terms set forth on the cover page of the Prospectus or to enforce contracts for the resale of the Notes by the Underwriters. Notice of such termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. 12. Information Furnished by the Underwriters. The statements set forth in the last paragraph on the cover page, the stabilization legend on the inside front cover, and the statements in the first, third and sixth paragraphs under the caption "Underwriting" in any Prepricing -25- Prospectus and in the Prospectus, constitute the only information furnished by or on behalf of the Underwriters through you as such information is referred to in Sections 6(b) and 7 hereof. 13. Miscellaneous. Except as otherwise provided in Sections 5, 10 and 11 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at 1111 Gillingham Lane, Sugar Land, Texas 77478, Attention: Mr. Morrie K. Abramson, Chairman of the Board, Chief Executive Officer and President; or (ii) if to you, care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment Banking Division. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers, and the other controlling persons referred to in Section 7 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from any Underwriter of any of the Notes in his status as such purchaser. 14. Applicable Law; Counterparts. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. -26- Please confirm that the foregoing correctly sets forth the agreement between the Company and the several Underwriters. Very truly yours, KENT ELECTRONICS CORPORATION By: ____________________________ Morrie K. Abramson Chairman of the Board, Chief Executive Officer and President Confirmed as of the date first above mentioned on behalf of themselves and the other several Underwriters named in Schedule I hereto. SMITH BARNEY INC. BT ALEX. BROWN INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: SMITH BARNEY INC. By: _________________________________ Name: Title: -27- SCHEDULE I KENT ELECTRONICS CORPORATION Principal Amount Underwriter of Firm Notes ----------- ------------- Smith Barney Inc. .............................................. $ BT Alex. Brown Incorporated ................................... Donaldson, Lufkin & Jenrette Securities Corporation ........... Merrill Lynch, Pierce, Fenner & Smith Incorporated ............ ____________ Total... $ -28- EX-4.4 3 INDENTURE ================================================================================ KENT ELECTRONICS CORPORATION AS ISSUER TO TEXAS COMMERCE BANK NATIONAL ASSOCIATION AS TRUSTEE INDENTURE Dated as of September ___, 1997 $___________ (including $__________ issuable upon exercise of an over-allotment option granted by the Issuer to certain underwriters) ____% Convertible Subordinated Notes Due 2004 ================================================================================ Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939: Section 310(a)(1) ............................. 609 (a)(2) ............................. 609 (a)(3) ............................. Not Applicable (a)(4) ............................. Not Applicable (a)(5) ............................. 609 (b) ............................. 608 (c) ............................. Not Applicable Section 311(a) ............................. 613 (b) ............................. 613 (c) ............................. Not Applicable Section 312(a) ............................. 701 ............................. 702(a) (b) ............................. 702(b) (c) ............................. 702(c) Section 313(a) ............................. 703(a) (b)(1) ............................. Not Applicable (b)(2) ............................. 703(a) (c) ............................. 703(a) (d) ............................. 703(b) Section 314(a) ............................. 704 (a)(4) ............................. 1004 (b) ............................. Not Applicable (c)(1) ............................. 102 (c)(2) ............................. 102 (c)(3) ............................. Not Applicable (d) ............................. Not Applicable (e) ............................. 102 (f) ............................. Not Applicable Section 315(a) ............................. 601 (b) ............................. 602 (c) ............................. 601 (d) ............................. 601 (e) ............................. 514 Section 316(a)(1)(A) ............................. 502 ............................. 512 (a)(1)(B) ............................. 513 (a)(2) ............................. Not Required (a) (last sentence) ............................. definition of Outstanding (b) ............................. 508 (c) ............................. 104(c) Section 317(a)(1) ............................. 503 (a)(2) ............................. 504 (b) ............................. 1003 Section 318(a) ............................. 107 ______________ Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. TABLE OF CONTENTS* Page ARTICLE 1. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions................................................. 1 Act......................................................... 2 Affiliate................................................... 2 Agent Member................................................ 2 Applicable Procedures....................................... 2 Authenticating Agent........................................ 2 Beneficial Owner............................................ 2 Board of Directors.......................................... 2 Board Resolution............................................ 2 Business Day................................................ 3 Change in Control........................................... 3 Close of Business........................................... 3 Commission.................................................. 3 Common Stock................................................ 3 Company..................................................... 3 Company Request............................................. 3 Company Order............................................... 3 Corporate Trust Office...................................... 3 Corporation................................................. 4 Credit Facility............................................. 4 Current Market Price........................................ 4 Daily Market Price.......................................... 4 Defaulted Interest.......................................... 5 Depositary.................................................. 5 DTC......................................................... 5 Event of Default............................................ 5 Exchange Act................................................ 5 Global Security............................................. 5 Holder...................................................... 5 Indenture................................................... 5 Interest Payment Date....................................... 5 Maturity.................................................... 5 _______________ *Note: This Table of Contents shall not, for any purposes, be deemed to be a part of the Indenture. -i- Officers' Certificate........................................ 6 Opinion of Counsel........................................... 6 Outstanding.................................................. 6 Paying Agent................................................. 6 Person....................................................... 6 Predecessor Security......................................... 7 Record Date.................................................. 7 Redemption Date.............................................. 7 Redemption Price............................................. 7 Regular Record Date.......................................... 7 Repurchase Date.............................................. 7 Repurchase Event............................................. 7 Repurchase Price............................................. 7 Security Register............................................ 7 Security Registrar........................................... 7 Senior Indebtedness.......................................... 7 Special Record Date.......................................... 8 Stated Maturity.............................................. 8 Subsidiary................................................... 8 Termination of Trading....................................... 8 Time of Determination........................................ 8 Trust Indenture Act.......................................... 8 Trustee...................................................... 8 Vice President............................................... 9 Section 102. Compliance Certificates and Opinions......................... 9 Section 103. Form of Documents Delivered to Trustee....................... 9 Section 104. Acts of Holders; Record Dates................................ 10 Section 105. Notices, Etc., to Trustee and Company........................ 11 Section 106. Notice to Holders; Waiver.................................... 11 Section 107. Conflict With Trust Indenture Act............................ 12 Section 108. Effect of Headings and Table of Contents..................... 12 Section 109. Successors and Assigns....................................... 12 Section 110. Separability Clause.......................................... 12 Section 111. Benefits of Indenture........................................ 13 Section 112. Governing Law................................................ 13 Section 113. Legal Holidays............................................... 13 Section 114. No Security Interest Created................................. 13 Section 115. Limitation on Individual Liability........................... 13 -ii- ARTICLE 2. SECURITY FORMS Section 201. Forms Generally.............................................. 14 Section 202. Form of Face of Security..................................... 14 Section 203. Form of Reverse of Security.................................. 16 Section 204. Form of Trustee's Certificate of Authentication.............. 22 ARTICLE 3. THE SECURITIES Section 301. Title and Terms.............................................. 23 Section 302. Denominations................................................ 24 Section 303. Execution, Authentication, Delivery and Dating............... 24 Section 304. Temporary Securities......................................... 25 Section 305. Registration, Registration of Transfer and Exchange.......... 25 Section 306. Mutilated, Destroyed, Lost and Stolen Securities............. 27 Section 307. Payment of Interest; Interest Rights Preserved............... 28 Section 308. Persons Deemed Owners........................................ 30 Section 309. Cancellation................................................. 30 Section 310. Computation of Interest...................................... 30 Section 311. CUSIP Number................................................. 30 ARTICLE 4. SATISFACTION AND DISCHARGE Section 401. Satisfaction and Discharge of Indenture...................... 30 Section 402. Application of Trust Money................................... 32 Section 403. Reinstatement................................................ 32 ARTICLE 5. REMEDIES Section 501. Events of Default............................................ 32 Section 502. Acceleration of Maturity; Rescission and Annulment........... 34 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee.................................................. 36 Section 504. Trustee May File Proofs of Claim............................. 36 Section 505. Trustee May Enforce Claims Without Possession of Securities............................................... 37 Section 506. Application of Money Collected............................... 37 -iii- Section 507. Limitation on Suits.......................................... 37 Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert......................... 38 Section 509. Restoration of Rights and Remedies........................... 38 Section 510. Rights and Remedies Cumulative............................... 38 Section 511. Delay or Omission Not Waiver................................. 39 Section 512. Control by Holders........................................... 39 Section 513. Waiver of Past Defaults...................................... 39 Section 514. Undertaking for Costs........................................ 40 Section 515. Waiver of Stay or Extension Laws............................. 40 ARTICLE 6. THE TRUSTEE Section 601. Certain Duties and Responsibilities.......................... 40 Section 602. Notice of Defaults........................................... 41 Section 603. Certain Rights of Trustee.................................... 41 Section 604. Not Responsible for Recitals or Issuance of Securities....... 42 Section 605. May Hold Securities.......................................... 42 Section 606. Money Held in Trust.......................................... 42 Section 607. Compensation and Reimbursement............................... 43 Section 608. Disqualification; Conflicting Interests...................... 43 Section 609. Corporate Trustee Required; Eligibility...................... 43 Section 610. Resignation and Removal; Appointment of Successor............ 44 Section 611. Acceptance of Appointment by Successor....................... 45 Section 612. Merger, Conversion, Consolidation or Succession to Business.. 45 Section 613. Preferential Collection of Claims Against Company............ 46 Section 614. Appointment of Authenticating Agent.......................... 46 ARTICLE 7. HOLDERS' LIST AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders.... 48 Section 702. Preservation of Information; Communication to Holders........ 48 Section 703. Reports by Trustee........................................... 48 Section 704. Reports by Company........................................... 49 -iv- ARTICLE 8. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER or LEASE Section 801. Company May Consolidate, Etc., Only on Certain Terms........ 49 Section 802. Successor Substituted....................................... 50 ARTICLE 9. SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures Without Consent of Holders........... 50 Section 902. Supplemental Indentures with Consent of Holders.............. 51 Section 903. Execution of Supplemental Indentures......................... 52 Section 904. Effect of Supplemental Indentures............................ 52 Section 905. Conformity with Trust Indenture Act.......................... 52 Section 906. Reference in Securities to Supplemental Indentures........... 52 Section 907. Notice of Supplemental Indenture............................. 53 ARTICLE 10. COVENANTS Section 1001. Payment of Principal, Premium and Interest................... 53 Section 1002. Maintenance of Office or Agency.............................. 53 Section 1003. Money for Security Payments to Be Held in Trust.............. 53 Section 1004. Statement by Officers as to Default.......................... 55 Section 1005. Existence.................................................... 55 Section 1006. Waiver of Certain Covenants.................................. 55 ARTICLE 11. REDEMPTION OF SECURITIES Section 1101. Right of Redemption.......................................... 55 Section 1102. Applicability of Article..................................... 56 Section 1103. Election to Redeem; Notice to Trustee........................ 56 Section 1104. Selection by Trustee of Securities to Be Redeemed............ 56 Section 1105. Notice of Redemption......................................... 56 Section 1106. Deposit of Redemption Price.................................. 57 Section 1107. Securities Payable on Redemption Date........................ 58 Section 1108. Securities Redeemed in Part.................................. 58 Section 1109. Conversion Arrangements on Call for Redemption............... 58 -v- ARTICLE 12. SUBORDINATION OF SECURITIES Section 1201. Securities Subordinated to Senior Indebtedness............... 59 Section 1202. Payment Over of Proceeds Upon Dissolution, Etc............... 59 Section 1203. Acceleration of Securities................................... 60 Section 1204. No Payment When Senior Indebtedness in Default............... 60 Section 1205. Subrogation to Rights of Holders of Senior Indebtedness...... 61 Section 1206. Provisions Solely to Define Relative Rights.................. 62 Section 1207. Trustee to Effectuate Subordination.......................... 62 Section 1208. No Waiver of Subordination Provisions........................ 62 Section 1209. Notice to Trustee............................................ 63 Section 1210. Reliance on Judicial Order or Certificate of Liquidating Agent........................................... 63 Section 1211. Trustee Not Fiduciary for Holders of Senior Indebtedness..... 64 Section 1212. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights............................ 64 Section 1213. Article Applicable to Paying Agents.......................... 64 Section 1214. Rights with respect to Conversion and Certain Payments....... 64 ARTICLE 13. CONVERSION OF SECURITIES Section 1301. Conversion Privilege and Conversion Price.................... 65 Section 1302. Exercise of Conversion Privilege............................. 65 Section 1303. Fractions of Shares.......................................... 66 Section 1304. Adjustment of Conversion Price............................... 67 Section 1305. Notice of Adjustments of Conversion Price.................... 71 Section 1306. Notice of Certain Corporate Action........................... 71 Section 1307. Company to Reserve Common Stock.............................. 72 Section 1308. Taxes on Conversions......................................... 72 Section 1309. Covenant as to Common Stock.................................. 73 Section 1310. Cancellation of Converted Securities......................... 73 Section 1311. Provisions as to Consolidation, Merger or Sale of Assets..... 73 Section 1312. Disclaimer of Responsibility for Certain Matters............. 74 ARTICLE 14. RIGHT TO REQUIRE REPURCHASE Section 1401. Right to Require Repurchase.................................. 75 -vi- Section 1402. Notice; Method of Exercising Repurchase Right................ 75 Section 1403. Deposit of Repurchase Price.................................. 76 Section 1404. Securities Not Repurchased on Repurchase Date................ 76 Section 1405. Securities Repurchased in Part............................... 76 Section 1406. Certain Definitions.......................................... 77 Testimonium Signatures and Seals Acknowledgments -vii- INDENTURE, dated as of September __, 1997 between KENT ELECTRONICS CORPORATION, a corporation duly organized and existing under the laws of the State of Texas (herein called the "Company"), having its principal executive offices at 7433 Harwin Drive, Houston, Texas 77036, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as Trustee (herein called the "Trustee"), having an office at 600 Travis, Suite 1150, Houston, Texas 77002. RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its _____% Convertible Subordinated Notes Due 2004 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE 1. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with United States generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required and permitted hereunder shall mean United States accounting principles as are generally accepted at the date of this Indenture; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms used in either Article Twelve or Thirteen are defined in such Article. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "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 the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Global Security to the extent applicable to such transaction and as in effect from time to time. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities. The term "Beneficial Owner" is determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "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 the Trustee. -2- "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York, New York or the city in which the Corporate Trust Office is located are authorized or obligated to close by law or executive order. "Change in Control" has the meaning specified in Section 1406. "Close of Business" means 5:00 p.m. in New York, New York. "Commission" means the Securities and Exchange Commission as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Section 1311, shares issuable on conversion of Securities shall include only shares of the class designated as Common Stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order delivered to the Trustee and signed in the name of the Company by (a) the Chairman of the Board, the President or any Vice President of the Company and (b) the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company. "Corporate Trust Office" means the office of the Trustee, at which at any particular time its corporate trust business shall be administered, as follows: For payment, registration, transfer, exchange and tender of the Securities: -3-
BY HAND BY MAIL Texas Commerce Bank National Association Texas Commerce Bank National Association Attention: Registered Bond Events Attention: Registered Bond Events One Main Place P.O. Box 2320 1201 Main Street, 10th Floor Dallas, Texas 75221-2320 Dallas, Texas 75202
Telephone: (214) 871-9393 or (800) 275-2048 IN NEW YORK Texas Commerce Bank National Association c/o Texas Commerce Trust Company of New York 55 Water Street, North Building Room 234 Windows 20 and 21 New York, New York 10041 Telephone: (212) 638-4020 or 638-4021 Telecopy No.: (212) 638-7267 For all other communications relating to the Securities: Texas Commerce Bank National Association 600 Travis Street, Suite 1150 Houston, Texas 77002 Attention: Corporate Trust Officer Telephone: (713) 216-5811 Telecopy: (713) 216-5476 "Corporation" means a corporation, association, company, joint- stock company, business trust, limited liability company or other similar entity. "Credit Facility" means the revolving promissory note with agreement dated as of June 12, 1997 between the Company and Texas Commerce Bank National Association, as may be amended from time to time, and any agreement evidencing the refinancing, replacement, renewal or refunding thereof. "Current Market Price" has the meaning specified in Section 1304(f). "Daily Market Price" means the price of a share of Common Stock on the relevant date, determined on the basis of the last reported sale price regular way of the Common Stock as reported on the composite tape, or similar reporting system, for issues listed on the New York Stock -4- Exchange (or if the Common Stock is not then listed on that Exchange, on the principal national securities exchange upon which the Common Stock is listed or, if not listed on any national securities exchange, on the Nasdaq National Market, if the Common Stock shall be listed thereon or, if there is no such reported sale on the day in question, on the basis of the average of the closing bid and asked quotations regular way as so reported, or, if the Common Stock is not listed on any national securities exchange or on the Nasdaq National Market, on the basis of the average of the high bid and low asked quotations regular way on the day in question in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System, or if not so quoted, as reported by National Quotation Bureau, Incorporated, or a similar organization. "Defaulted Interest" has the meaning specified in Section 307. "Depositary" means, with respect to any Global Securities, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as a Depositary for such Global Securities (or any successor securities clearing agency so registered). "DTC" means The Depository Trust Company, a New York limited purpose trust company. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Global Security" means a Security that is registered in the Security Register in the name of a Depositary or nominee thereof. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity thereof or by declaration of acceleration, redemption or otherwise. -5- "Officers' Certificate" means a certificate delivered to the Trustee and signed by (a) the Chairman of the Board, the President or any Vice President of the Company and (b) the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for or an employee of the Company, and who shall not be unacceptable to the Trustee. "Outstanding," when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for the payment or redemption of which moneys in the necessary amount have been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided, that if such Securities, or portions thereof, are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of and premium, if any, or interest on any Securities on behalf of the Company. "Person" means any individual, Corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. -6- "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Record Date" means either a Regular Record Date or a Special Record Date, as applicable. "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture on the applicable Redemption Date. "Regular Record Date," for the interest payable on any Interest Payment Date, means the February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Repurchase Date" has the meaning specified in Section 1401. "Repurchase Event" has the meaning specified in Section 1406. "Repurchase Price" has the meaning specified in Section 1401. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305(a). "Senior Indebtedness" means (a) principal of, premium, if any, and accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company) on (i) indebtedness of the Company for money borrowed, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed, (ii) guarantees by the Company of indebtedness for money borrowed by any other person, or reimbursement obligations under letters of credit, in either case, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed, (iii) indebtedness evidenced by notes (other than the Securities), debentures, bonds or other instruments of indebtedness for the payment of which the Company is responsible or liable, by guarantees or otherwise, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed, (iv) obligations of the Company under interest rate and currency swaps, caps, floors, collars or similar agreements or arrangements intended to protect the Company against fluctuations in interest or currency rates, whether outstanding on the date of execution of this Indenture or thereafter created, incurred or assumed and (v) obligations of the Company under any agreement to lease, or any lease of, any real or personal property, which obligations, whether outstanding on the date of execution -7- of this Indenture or thereafter created, incurred or assumed, are required to be capitalized on the books of the Company in accordance with generally accepted accounting principles, or guarantees by the Company of similar obligations of others, and (b) modifications, renewals, extensions and refundings of any such indebtedness, obligations or guarantees; unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such indebtedness, obligations or guarantees or such modification, renewal, extension or refunding thereof are not superior in right of payment to the Securities; provided, however, that Senior Indebtedness shall not be deemed to include, and the Securities will rank pari passu in right of payment with, any obligation of the Company to any Subsidiary. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307(a). "Stated Maturity," when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Termination of Trading" has the meaning specified in Section 1406(c). "Time of Determination" means (1) for purposes of Section 1304(b) or (c), the time and date of the earlier of (a) the record date for determining shareholders entitled to receive the rights, warrants or distributions referred to in Section 1304(b) and (c), or (b) the commencement of "ex-dividend" trading on the exchange or market referred to in the definition of the term "Daily Market Price"; and (2) for purposes of Section 1304(e) the Expiration Time (as defined in Section 1304(e)). "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. -8- "Vice President," when used with respect to the Company, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". Section 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by or covered by an opinion of any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certification or Opinion of Counsel unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate of public officials -9- or upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 104. Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. Notwithstanding the foregoing, the Company shall not set a record date for, -10- and the provisions of this paragraph shall not apply with respect to, any Act by the Holders pursuant to Section 501, 502 or 512. (d) The ownership of Securities shall be proved by the Security Register. (e) Any Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer therefor or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (f) Without limiting the foregoing, a Holder entitled hereunder to give or take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any different part of such principal amount. Section 105. Notices, Etc., to Trustee and Company. Any Act of Holders or other documents provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (a) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at the address specified in the first paragraph of this Indenture or such other address as previously furnished in writing by the Trustee, or (b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company, addressed to it at the address of its principal executive offices specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. Section 106. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at its address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail any notice nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such -11- notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 107. Conflict With Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 108. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 110. Separability Clause. In case any provision in this Indenture or in the Securities 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. -12- Section 111. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Indebtedness and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 112. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York, but without regard to the principles of conflicts of laws of such State. Section 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security or the last date on which a Holder has the right to convert its Securities shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal and premium, if any, or conversion of the Securities need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, or on such last day for conversion; provided, that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or last day for conversion, as the case may be. Section 114. No Security Interest Created. Nothing in this Indenture or in the Securities, express or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect in any jurisdiction where property of the Company or its Subsidiaries is or may be located. Section 115. Limitation on Individual Liability. No recourse under or upon any obligation, covenant or agreement contained in this Indenture or in any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers or directors, as such, of the Company or any successor Person, or any of them, because of the creation of the indebtedness hereby authorized, or -13- under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, shareholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Security. ARTICLE 2. SECURITY FORMS Section 201. Forms Generally. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any law or with the rules of any securities exchange on which the Securities are listed or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. The definitive Securities (other than a Global Security) shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. Section 202. Form of Face of Security. A legend in substantially the following form shall also appear on the face of each Global Security: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE REFERRED TO BELOW AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS THE OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES. A legend in substantially the following form shall also appear on the face of each Global Security for which The Depository Trust Company is to be the Depositary: -14- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED SECURITIES IN DEFINITIVE REGISTERED FORM, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. KENT ELECTRONICS CORPORATION ___% Convertible Subordinated Notes Due 2004 No. _________ $____________ CUSIP No. ____________ KENT ELECTRONICS CORPORATION, a corporation duly organized and existing under the laws of the State of Texas (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to _______________, or registered assigns, upon presentment and surrender hereof, the principal sum of ____________ Dollars on September 1, 2004, and to pay interest thereon from and including the date of the initial issuance of Securities under the Indenture referred to on the reverse side of this Security or from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 1 and September 1 in each year, commencing March 1, 1998 at the rate of ____% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the Close of Business on the Regular Record Date for such interest, which shall be the February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or -15- more Predecessor Securities) is registered at the Close of Business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Notice of a Special Record Date shall be given to Holders of Securities not less than ten days prior to such Special Record Date. Payment of the principal of and premium, if any, and interest on this Security will be made (i) in same day funds on or prior to the payment dates with respect to such amounts in the case of Securities held of record by DTC or its nominee and (ii) at the offices of the Trustee in New York, New York (or such other office maintained for that purpose pursuant to Section 1002) in the case of Securities held of record by Holders other than DTC or its nominee, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made, with respect to Securities held of record by a Holder other than DTC or its nominee, by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: ______________________ KENT ELECTRONICS CORPORATION By:_________________________ [Title] Attest:______________________ [Title] Section 203. Form of Reverse of Security. This Security is one of a duly authorized issue of Securities of the Company designated as its ______% Convertible Subordinated Notes Due 2004 (herein called the "Securities"), limited in aggregate principal amount to $___________ (including $__________ -16- principal amount of the Securities issuable upon exercise of an underwriters' over-allotment option), issued and to be issued under an Indenture, dated as of September ___, 1997 (herein called the "Indenture"), between the Company and Texas Commerce Bank National Association, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at its option, at any time on or before the Close of Business on September 1, 2004, or in case this Security or a portion hereof is called for redemption, then in respect of this Security or such portion hereof until and including, but (unless the Company defaults in making the payment due upon redemption) not after, the Close of Business on the Business Day immediately preceding the Redemption Date, to convert this Security (or any portion of the principal amount hereof which is $1,000 or an integral multiple thereof), at the principal amount hereof, or of such portion, into fully paid and non-assessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock of the Company at a conversion price equal to $__________ principal amount for each share of Common Stock (or at the adjusted conversion price at the Close of Business on the Redemption Date if an adjustment has been made as provided in the Indenture) by surrender of this Security, duly endorsed or assigned to the Company or in blank, to the Company at its office or agency maintained for that purpose pursuant to Section 1002 of the Indenture, accompanied by written notice to the Company in the form provided in this Security (or such other notice as is acceptable to the Company) that the Holder hereof elects to convert this Security, or if less than the entire principal amount hereof is to be converted, the portion hereof to be converted, and, in case such surrender shall be made after the Close of Business on any Regular Record Date next preceding any Interest Payment Date and before the Close of Business on such Interest Payment Date (unless there exists a default in the payment of interest on this Security or this Security or the portion thereof being converted has been called for redemption), also accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted. Subject to the aforesaid requirement for payment and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an installment of interest (with certain exceptions provided in the Indenture), no payment or adjustment is to be made upon conversion on account of any interest accrued hereon or on account of any dividends on the Common Stock issued upon conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional share the Company shall pay a cash adjustment as provided in the Indenture. The conversion price is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations, mergers or statutory exchanges of securities with another corporation to which the Company is a party or the sale or conveyance of the assets of the Company substantially as an entirety, the Indenture shall be amended, without the consent of any Holders of Securities, so that -17- this Security, if then outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger, statutory exchange or transfer by a holder of the number of shares of Common Stock into which this Security was convertible immediately prior to such consolidation, merger, statutory exchange or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount of consideration received per share by a plurality of nonelecting shares). The Securities are subject to redemption upon not less than 15 and not more than 60 days' notice by mail, at any time on or after September 6, 2000, as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount) plus accrued interest to the Redemption Date, provided that interest installments whose Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the Close of Business on the relevant Record Dates, all as provided in the Indenture. If redeemed during the 12-month period beginning September 1 in the year indicated (September 6, in the case of the year 2000), the Redemption Price shall be: Redemption Year Price ---- ----- 2000 % 2001 % 2002 % 2003 % If all accrued interest on the Securities has not been paid, the Securities may not be redeemed in part and the Company may not purchase or acquire any Security otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of the Securities. In certain circumstances involving the occurrence of a Repurchase Event (as defined in the Indenture), the Holder hereof shall have the right to require the Company to repurchase this Security at 100% of the principal amount hereof, together with accrued interest to the Repurchase Date, but interest installments whose Stated Maturity is on or prior to such Repurchase Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the Close of Business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. In the event of redemption, conversion or repurchase of this Security in part only, a new Security or Securities for the unredeemed, unconverted or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. -18- Any Securities called for redemption, unless surrendered for conversion by the Close of Business on the Business Day immediately preceding the date fixed for redemption, are subject to being purchased from the Holder of such Securities at the redemption price by one or more investment banking firms or other purchasers who may agree with the Company to purchase such Securities and convert them into Common Stock. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided, and (c) appoints the Trustee its attorney-in-fact for any and all such purposes. If an Event of Default shall occur and be continuing, the principal of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed or to convert this Security as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer in any place where the principal of and premium, if any, and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, in each case, with an appropriate signature guarantee, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. -19- The Securities are issuable only in fully registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange except as provided in the Indenture. The Company may require payment of a sum sufficient to cover any tax or other governmental charge and any other expenses (including the fees and reasonable expenses of the Trustee) payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, except as provided in this Security, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. -20- [FORM OF CONVERSION NOTICE] TO KENT ELECTRONICS CORPORATION: The undersigned registered owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (which is $1,000 or a multiple thereof) designated below, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for a fractional share and any Security representing any unconverted principal amount hereof, be issued and delivered to the registered owner hereof unless a different name has been provided below. Except as otherwise provided in the Indenture, if this Notice is being delivered on a date after the Close of Business on a Regular Record Date and before the Close of Business on the related Interest Payment Date, this Notice is accompanied by payment in funds acceptable to the Company, of an amount equal to the interest payable on such Interest Payment Date on the principal of this Security to be converted. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Dated:________________________ _______________________________________ _______________________________________ Signature(s) -21- Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. __________________________________ Signature Guarantee Fill in for registration of shares of Common Stock if they are to be delivered, or Securities if they are to be issued, other than to and in the name of the registered owner: __________________________________ (Name) __________________________________ (Street Address) _________________________________ (City, State and Zip code) (Please print name and address) Register: _____ Common Stock _____ Securities (Check appropriate line(s)). Principal amount to be converted (if less than all): $_________,000 _____________________________________ Social Security or other Taxpayer Identification Number of owner Section 204. Form of Trustee's Certificate of Authentication. The Trustee's certificate of authentication shall be in substantially the following form: -22- This is one of the Securities referred to in the within-mentioned Indenture. Texas Commerce Bank National Association, as Trustee By________________________________________ Authorized Signatory ARTICLE 3. THE SECURITIES Section 301. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $___________ (including $__________ aggregate principal amount of Securities that may be sold by the Company pursuant to the over-allotment option granted pursuant to the Underwriting Agreement, dated September ___, 1997, among the Company, Smith Barney Inc., BT Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated), except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 906, 1108, 1302 or 1405. The Securities shall be known and designated as the "____% Convertible Subordinated Notes Due 2004" of the Company. Their Stated Maturity shall be September 1, 2004 and they shall bear interest at the rate of ____ % per annum, from and including the date of the initial issuance of Securities under this Indenture or from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on March 1 and September 1 commencing March 1, 1998, until the principal thereof is paid or made available for payment. Each payment of interest shall include interest accrued to but excluding the Interest Payment Date on which payment is to be made. The Company shall pay interest on overdue principal at the rate borne by the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. The principal of and premium, if any, and interest on the Securities shall be payable (i) in same day funds on or prior to the payment dates with respect to such amounts in the case of Securities held of record by DTC or its nominee and (ii) at the offices of the Trustee in New York, New York (or such other office maintained for that purpose pursuant to Section 1002) in the case of Securities held of record by Holders other than DTC or its nominee; provided, however, that at the option of the Company payment of interest may be made, with respect to Securities held of -23- record by a Holder other than DTC or its nominee, by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. The Securities shall be redeemable as provided in Article Eleven. The Securities shall be subordinated in right of payment to Senior Indebtedness as provided in Article Twelve. The Securities shall be subject to repurchase at the option of the Holder as provided in Article Fourteen. Section 302. Denominations. The Securities shall be issuable only in fully registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. Section 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal or a facsimile thereof reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall either at one time or from time to time pursuant to such instructions as may be described therein authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein duly executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of the Indenture. -24- Section 304. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon receipt of a Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. Every such temporary Security shall be executed by the Company and shall be authenticated and delivered by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Security or Securities in lieu of which it is issued. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of a like principal amount of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. For purposes of this Section 304 each Global Security shall be considered a definitive Security. Section 305. Registration, Registration of Transfer and Exchange. (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. At all reasonable times the Security Register shall be open for inspection by the Company. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at the office or agency maintained for that purpose. Whenever any Securities are -25- so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. (b) All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or its attorney duly authorized in writing, and, in the case of a transfer, with an appropriate guarantee of signature. No service charge shall be made for any registration of transfer or exchange of Securities except as provided in Section 306. The Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906, 1108, 1302 or 1405 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 1104 and ending at the Close of Business on the day of such mailing, (ii) to register the transfer of or exchange of any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part, or (iii) to register the transfer or exchange of any Securities surrendered for conversion or repurchase upon the occurrence of a Repurchase Event. The provisions of clauses (1), (2), (3), (4) and (5) below shall apply only to Global Securities; (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act at a time when the Depositary is required to be so registered to act as depositary, in each case unless the Company has approved a successor Depositary within 90 days, (B) there shall have occurred and be continuing an Event of Default with -26- respect to such Global Security or (C) the Company in its sole discretion determines that such Global Security will be so exchangeable or transferable. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article Three or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof. (5) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under this Indenture and the Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through records maintained by the Depositary or its nominee or its Agent Members and such owners of beneficial interests in a Global Security will not be considered the owners or holders thereof. Neither the Company nor the Trustee will have any responsibility or obligation to the Depositary or any of its Agent Members with respect to (i) the accuracy of any records maintained by the Depositary (ii) the payment by the Depositary or any Agent Members of any amount due to any owner of beneficial interests in a Global Security in respect of any Securities, (iii) the delivery of any notice by the Depositary or any Agent Member, or (iv) any other action taken by the Depositary or any Agent Members. Section 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (a) evidence to their satisfaction of the destruction, loss or theft of any Security and (b) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. -27- In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and reasonable expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 307. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the Close of Business on the Regular Record Date for such interest. At the option of the Company, interest on any Security held of record by any Holder other than DTC or its nominee may be paid by mailing checks to the addresses of the Holders thereof as such addresses appear in the Securities Register. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the Close of Business on a Special Record Date for the payment of such Defaulted Interest which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, which payment date shall be at least 30 calendar days after such notice delivered by the Company to the Trustee (or such shorter period as is satisfactory to the Trustee), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for -28- such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon, the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at its address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the Close of Business on such Special Record Date and shall no longer be payable pursuant to the following Clause (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. In the case of any Security which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the Close of Business on such Regular Record Date; provided, however, that Securities so surrendered for conversion shall (except in the case of Securities or portions thereof (i) which have been called for redemption or (ii) as to which there exists a default in the payment of interest thereon) be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount being surrendered for conversion. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Security which is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable. -29- Section 308. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and premium, if any, and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 309. Cancellation. All Securities surrendered for payment, redemption, registration of transfer, exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order. Section 310. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. Section 311. CUSIP Number. The Company in issuing the Securities may use a "CUSIP" number and, if it does so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. ARTICLE 4. SATISFACTION AND DISCHARGE Section 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of conversion or registration of transfer or exchange of Securities herein -30- expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (i) all Securities theretofore authenticated and delivered (other than (A) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (B) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee for cancellation (A) have become due and payable, or (B) will become due and payable at their Stated Maturity within one year, or (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, or (D) are delivered to the Trustee for conversion in accordance with Article Thirteen; and the Company, in the case of (A), (B), (C) or (D) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation for principal and premium, if any, and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to any Authenticating Agent under Section 614 and, if -31- money shall have been deposited with the Trustee pursuant to subclause (ii) of Clause (a) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. Section 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and premium, if any, and interest for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon Company Request. Section 403. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article Four by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article Four until such time as the Trustee or Paying Agent is permitted to apply all money held in trust with respect to the Securities; provided, however, that if the Company makes any payment of principal of or any premium or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of the Securities to receive such payment from the money so held in trust. ARTICLE 5. REMEDIES Section 501. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Twelve or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any interest upon any Security when it becomes due and payable, whether or not such payment is prohibited by the provisions of Article Twelve, and continuance of such default for a period of 30 days; or -32- (b) default in the payment of the principal of or premium, if any, on any Security at its Maturity, whether or not such payment is prohibited by the provisions of Article Twelve; or (c) default in the payment of the Repurchase Price in respect of any Security on the Repurchase Date therefor, whether or not such payment is prohibited by the provisions of Article Twelve or failure to provide timely notice of a Repurchase Event as required by Section 1402; or (d) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 45 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) default under one or more bonds, debentures, notes or other evidences of indebtedness for money borrowed by the Company or any Subsidiary or under one or more mortgages, indentures or instruments under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any Subsidiary, whether such indebtedness is outstanding on the date of this Indenture or thereafter created, which default individually or in the aggregate shall constitute a failure to pay the principal of indebtedness in excess of $15,000,000 when due and payable after the expiration of any applicable grace period with respect thereto or shall have resulted in indebtedness in excess of $15,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or (f) a final judgment or final judgments for the payment of money against the Company or any Subsidiary the entry by a court or courts of competent jurisdiction of which remain undischarged for a period (during which execution shall not be effectively stayed, the posting of any required bond not being deemed an execution for purposes hereof) of 30 days, provided that the aggregate amount of all such judgments exceeds $15,000,000 (net of amounts to which the Company or such Subsidiary is entitled pursuant to insurance policies which can reasonably be expected to be paid in the ordinary course); or (g) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any Subsidiary in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) a -33- decree or order adjudging the Company or any Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or (h) the commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company or any Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Subsidiary in furtherance of any such action. Upon receipt by the Trustee of any Notice of Default pursuant to this Section 501, a record date shall automatically and without any other action by any Person be set for the purpose of determining the Holders of Outstanding Securities entitled to join in such Notice of Default, which record date shall be the Close of Business on the day the Trustee receives such Notice of Default. The Holders of Outstanding Securities on such record date (or their duly appointed agents), and only such Persons, shall be entitled to join in such Notice of Default, whether or not such Holders remain Holders after such record date; provided, that unless such Notice of Default shall have become effective by virtue of the Holders of the requisite principal amount of Outstanding Securities on such record date (or their duly appointed agents) having joined therein on or prior to the 90th day after such record date, such Notice of Default shall automatically and without any action by any Person be canceled and of no further force or effect. Section 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 501(g) or (h)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal plus any interest accrued on the Securities to the date of declaration shall become immediately due and payable. In the case of an Event of Default specified in Section 501(g) or (h), all unpaid principal of and accrued interest on -34- the Securities then outstanding shall be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of Securities. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue interest on all Securities, (ii) the principal of and premium, if any, on any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, (iii) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities, and (iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (b) all Events of Default, other than the nonpayment of the principal of Securities which has become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission and waiver shall affect any subsequent default or impair any right consequent thereon. Upon receipt by the Trustee of any declaration of acceleration, or any rescission and annulment of any such declaration, pursuant to this Section 502, a record date shall automatically and without any other action by any Person be set for the purpose of determining the Holders Of Outstanding Securities entitled to join in such declaration, or rescission and annulment, as the case may be, which record date shall be the Close of Business on the day the Trustee receives such declaration, or rescission and annulment, as the case may be. The Holders of Outstanding Securities on such record date (or their duly appointed agents), and only such Persons, shall be entitled to join in such declaration, or rescission and annulment, as the case may be, whether or not such Holders remain Holders after such record date; provided, that unless such declaration, or rescission and annulment, as the case may be, shall have become effective by virtue of Holders of the requisite principal amount of Outstanding Securities on such record date (or their duly appointed agents) having joined therein on or prior to the 90th day after such record date, such declaration, or rescission and annulment, as the case may be, shall automatically and without any action by any Person be canceled and of no further force or effect. -35- Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of or premium, if any, on any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and premium, if any, and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium, if any, and on any overdue interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default specified in Section 503(a) or (b) occurs and is continuing with respect to the Securities, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the collection of such sums due and unpaid. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 504. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, including filing proofs of claim in federal bankruptcy proceedings, to take any and all actions authorized under the Trust Indenture Act in order to have the claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. -36- No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the Creditors' Committee. Section 505. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 506. Application of Money Collected. Subject to Article Twelve, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or premium, if any, or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To payment of all amounts due the Trustee under Section 607; SECOND: To the payment of the amounts then due and unpaid for principal of and premium, if any, and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and premium, if any, and interest, respectively; and THIRD: The balance, if any, to the Company or any other Person or Persons determined to be entitled thereto. Section 507. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in -37- respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and premium, if any, and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date or, in the case of a repurchase pursuant to Article Fourteen, on the Repurchase Date) and to convert such Security in accordance with Article Thirteen and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder. Section 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. -38- Section 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 512. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, that (a) such direction shall not be in conflict with any rule of law or with this Indenture; and (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and (c) subject to the provisions of Section 601, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall determine that the action so directed would involve the Trustee in personal liability or would be unduly prejudicial to Holders not joining in such direction. Upon receipt by the Trustee of any such direction, a record date shall automatically and without any other action by any Person be set for the purpose of determining the Holders of Outstanding Securities entitled to join in such direction, which record date shall be the Close of Business on the day the Trustee receives such direction. The Holders of Outstanding Securities on such record date (or their duly appointed agents), and only such Persons, shall be entitled to join in such direction, whether or not such Holders remain Holders after such record date; provided, that unless such direction shall have become effective by virtue of Holders of the requisite principal amount of Outstanding Securities on such record date (or their duly appointed agents) having joined therein on or prior to the 90th day after such record date, such direction shall automatically and without any action by any Person be canceled and of no further force or effect. Section 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default -39- (a) in the payment of the principal of or premium, if any, or interest on any Security, or, without the consent of the Holder of the Security affected, in the repurchase of any Security or part thereof in accordance with Article Fourteen, or (b) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 514. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court in its discretion may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess reasonable costs against any such party litigant, including reasonable attorneys' fees, in the manner and to the extent provided in the Trust Indenture Act; provided, that this Section shall not be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or in any suit for the enforcement of the right to convert any Security in accordance with Article Thirteen. Section 515. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 6. THE TRUSTEE Section 601. Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have -40- reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. Section 602. Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder known to the Trustee in the manner and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(d), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. Notwithstanding the foregoing, the Trustee shall be entitled to withhold notice of any default hereunder to the extent permitted by Section 315(b) of the Trust Indenture Act. Section 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel satisfactory to it and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; -41- (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (h) the Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. Section 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificate of authentication, shall be taken as the statements of the Company, and the Trustee and any Authenticating Agent assume no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee and any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. Section 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. Section 606. Money Held in Trust. Money held by the Trustee or any Paying Agent in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee or any Paying Agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. -42- Section 607. Compensation and Reimbursement. The Company agrees: (a) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder as may be mutually agreed upon in writing by the Company and the Trustee (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the reasonable expenses and disbursements of its agents and counsel) except to the extent any such expense, disbursement or advance may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. As security for the performance of the obligations of the Company under this Section 607, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities. Section 608. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 609. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, or any State or Territory or the District of Columbia that (a) is eligible pursuant to the Trust Indenture Act to act as such, (b) has (or, in the case of a corporation included in a bank holding company system, whose related bank holding company has) a combined capital and surplus of at least $50,000,000 and (c) has an office in the Borough of Manhattan, The City of New York as required by Section 1002. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of a Federal or state supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set -43- forth in its most recent report of condition so published. No obligor upon the Securities or Affiliate of such obligor shall serve as Trustee upon the Securities. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the resigning Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by the Company or by an Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Trustee and to the Company. (d) If at any time: (i) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for the last six months, or (ii) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee and such successor Trustee shall comply with the -44- applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611 become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Section 611. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication -45- and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. Section 613. Preferential Collection of Claims Against Company. The Trustee shall comply with Section 311 of the Trust Indenture Act, provided that the Trustee shall have the benefit of the provisions of Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311 of the Trust Indenture Act to the extent indicated therein. Section 614. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer, partial conversion or partial redemption, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a Person organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any Person into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any Person succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such Person shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any -46- time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment under this Section shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible to act as such under the provisions of this Section. Any Authenticating Agent by the acceptance of its appointment shall be deemed to have represented to the Trustee that it is eligible for appointment as Authenticating Agent under this Section and to have agreed with the Trustee that: it will perform and carry out the duties of an Authenticating Agent as herein set forth, including among other things the duties to authenticate Securities when presented to it in connection with the original issuance and with exchanges, registrations of transfer or redemptions or conversions thereof or pursuant to Section 306; it will keep and maintain, and furnish to the Trustee from time to time as requested by the Trustee, appropriate records of all transactions carried out by it as Authenticating Agent and will furnish the Trustee such other information and reports as the Trustee may reasonably require; and it will notify the Trustee promptly if it shall cease to be eligible to act as Authenticating Agent in accordance with the provisions of this Section. Any Authenticating Agent by the acceptance of its appointment shall be deemed to have agreed with the Trustee to indemnify the Trustee against any loss, liability or expense incurred by the Trustee and to defend any claim asserted against the Trustee by reason of any acts or failures to act of such Authenticating Agent, but such Authenticating Agent shall have no liability for any action taken by it in accordance with the specific written direction of the Trustee. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities described in the within-mentioned Indenture. _______________________________________ As Trustee By:____________________________________ As Authenticating Agent By:____________________________________ Authorized Officer -47- ARTICLE 7. HOLDERS' LIST AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require containing all the information in the possession or control of the Company, or any of its Paying Agents, other than the Trustee, as to the names and addresses of the Holders as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished. Notwithstanding the foregoing, so long as the Trustee is the Security Registrar, no such list shall be required to be furnished. Section 702. Preservation of Information; Communication to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) The Company, the Trustee and any other Person shall have the protection of Section 312(c) of the Trust Indenture Act. Section 703. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports dated as of August 15 concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the -48- Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. Section 704. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided, that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, as amended, shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE 8. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER or LEASE Section 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company, unless: (a) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and premium, if any, and interest on all the Securities and the performance and observance of each covenant and obligation on the part of the Company to be performed or observed under this Indenture and shall have provided for conversion rights in accordance with Section 1311; (b) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing; (c) such consolidation, merger, conveyance, transfer or lease does not adversely affect the validity or enforceability of the Securities; and -49- (d) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. Section 802. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE 9. SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company, or successive successions, and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (b) to add to the covenants of the Company for the benefit of the Holders or an additional Event of Default, or to surrender any right or power herein conferred upon the Company; or (c) to secure the Securities; or (d) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Section 1311; or -50- (e) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities; or (f) to cause the Indenture and the Securities to comply with applicable law, including the Trust Indenture Act; or (g) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to amend any other provisions with respect to matters or questions arising under this Indenture; provided, that such action pursuant to this clause (g) shall not adversely affect the interests of the Holders in any material respect. Section 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each outstanding Security affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or make the principal thereof or any premium or interest thereon payable in any coin or currency other than that provided for in the form of Security hereinabove set forth or modify the provisions of this Indenture with respect to the subordination of the Securities in a manner adverse to the Holders, or impair the right to convert the Securities into Common Stock or to require the Company to repurchase the Securities upon the occurrence of a Repurchase Event, subject to the terms set forth herein, or (b) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture, or (c) modify any of the provisions of this Section, Section 513 or Section 1006, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this Clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in -51- this Section and Section 1006, or the deletion of this proviso, in accordance with the requirements of Section 901(e). It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not (except to the extent required in the case of a supplemental indenture entered into under 901(f)) be obligated to, enter into any such supplemental indenture which adversely affects in a material way the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act, as then in effect. Section 906. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Company, bear a notation in form approved by the Company and the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. -52- Section 907. Notice of Supplemental Indenture. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to Section 902, the Trustee shall transmit to the Holders a notice setting forth the substance of such supplemental indenture. ARTICLE 10. COVENANTS Section 1001. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of and premium, if any, and interest on the Securities in accordance with the terms of the Securities and this Indenture. Section 1002. Maintenance of Office or Agency. The Company will maintain in New York, New York an office or agency (which may be the Corporate Trust Office or other office of the Trustee) where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer, where Securities may be surrendered for exchange, conversion or repurchase in accordance with the terms of this Indenture and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in New York, New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. If the Company shall at any time act as its own Paying Agent, on or before each due date of the principal of and premium, if any, or interest on any of the Securities, the Company will segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and premium, if any, or interest so becoming due until such sums shall be paid to such -53- Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, on or prior to each due date of the principal of and premium, if any, or interest on any Securities, the Company will deposit with a Paying Agent a sum sufficient to pay the principal and any premium and interest so becoming due, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (a) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and hold all sums held by it for the payment of principal of or any premium or interest on the Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; and (b) at any time during the continuance of any default by the Company (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of and premium, if any, or interest on any Security and remaining unclaimed for two years after such principal and premium, if any, or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in New York, New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. -54- Section 1004. Statement by Officers as to Default. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate stating whether or not to the best knowledge of the signers thereof the Company is in compliance with all conditions and covenants under this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. Section 1005. Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. Section 1006. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Section 1005, if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect. ARTICLE 11. REDEMPTION OF SECURITIES Section 1101. Right of Redemption. The Securities may be redeemed at the election of the Company, in whole or from time to time in part, at any time on or after September 6, 2000 at the Redemption Prices specified in the form of Security hereinbefore set forth, together with accrued interest, to the Redemption Date; provided, however, that if all accrued interest on the Securities has not been paid, the Securities may not be redeemed in part and the Company may not redeem any Security other than pursuant to a purchase or exchange offer to all holders of the Securities. -55- Section 1102. Applicability of Article. Redemption of Securities at the election of the Company as permitted by any provision of this Indenture shall be made in accordance with such provision and this Article. Section 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 30 days prior to the Redemption Date fixed by the Company (unless a shorter period shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed. Section 1104. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by lot or by such other method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Securities of a denomination equal to or larger than $1,000. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be practical) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. In any case where more than one Security is registered in the same name, the Trustee in its sole discretion may treat the aggregate principal amount so registered as if it were represented by one Security. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. -56- Section 1105. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at its address appearing in the Security Register. All notices of redemption shall state: (a) the Redemption Date, (b) the Redemption Price, (c) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular Securities to be redeemed, (d) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, (e) the conversion price, the date on which the right to convert the Securities to be redeemed will terminate and the place or places where such Securities may be surrendered for conversion, and (f) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Section 1106. Deposit of Redemption Price. At or prior to 10:00 am on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay on such date the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the Redemption Date. If any Security called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to -57- receive interest as provided in the last paragraph of Section 307) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust. Section 1107. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date, on the later of the Redemption Date or the date such Security is surrendered; provided, however, that installments of interest whose Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the Close of Business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption as provided herein, the principal and premium, if any, shall, until paid, bear interest from the Redemption Date at the rate borne by the Security. The Company shall be deemed to have made payment as provided herein if checks are mailed to the appropriate Persons not later than the Redemption Date. Section 1108. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company maintained for that purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or its attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. Section 1109. Conversion Arrangements on Call for Redemption. In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities surrendered for redemption by an agreement with one or more investment banking firms or other purchasers to purchase such Securities by paying to the Holders thereof, or to the Trustee or Paying Agent in trust for such Holders, at or before 10:00 a.m. on the Redemption Date, an amount not less than the Redemption Price, together with interest accrued to the Redemption Date, payable by the Company on redemption of such Securities. Notwithstanding anything to the contrary contained in this Article Eleven, the obligation of the Company to pay the Redemption Price of such Securities, together with interest accrued to the -58- Redemption Date, shall be satisfied and discharged to the extent such amount is so paid by such purchasers. Pursuant to such an agreement, any Securities tendered by the Holder thereof for redemption or not duly surrendered for conversion by such Holder shall be deemed acquired by such purchasers from such Holders and surrendered by such purchasers for conversion, all as of immediately prior to the Close of Business on the Redemption Date, subject to payment of the above amount as aforesaid. ARTICLE 12. SUBORDINATION OF SECURITIES Section 1201. Securities Subordinated to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the indebtedness represented by the Securities and the payment of the principal of and premium, if any, and interest on each and all of the Securities, and the amount, if any, of the Repurchase Price payable in respect of Securities pursuant to Article Fourteen, are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. Section 1202. Payment Over of Proceeds Upon Dissolution, Etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding, relative to the Company or to its creditors, as such, or to its assets, or (b) any proceeding for the liquidation, dissolution or other winding up of the Company, whether total or partial, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company, then and in any such event the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, on account of principal of or premium, if any, or interest on the Securities (including the Repurchase Price payable in respect of Securities pursuant to Article Fourteen), and to that end the holders of Senior Indebtedness shall be entitled to receive, for application, to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Securities, which may be payable or deliverable in respect of the Securities in any such case, proceeding, dissolution, liquidation or other winding up or event. -59- In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Securities, before all Senior Indebtedness is paid in full, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this Article only, the words "cash, property or securities" shall not be deemed to include securities of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment that does not adversely alter the rights of holders of Senior Indebtedness which are subordinated in right of payment to all Senior Indebtedness which may at the time be outstanding to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article Eight shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article Eight. Section 1203. Acceleration of Securities. Notwithstanding anything in this Indenture to the contrary, neither the Trustee nor any Holder shall exercise any right either may have to accelerate the maturity of the Securities at any time when payment of any amount owing on the Securities is prohibited, in whole or in part, pursuant to Section 1202 or 1204; provided, however, that such right may nevertheless be so exercised upon the earliest of (i) the acceleration of the maturity of any Senior Indebtedness, (ii) the exercise by any holder of Senior Indebtedness of any remedies available to it upon a default with respect to Senior Indebtedness, or (iii) the occurrence of an Event of Default described in Section 501(g) or (h). Section 1204. No Payment When Senior Indebtedness in Default. (a) In the event (i) and during the continuation of any default in the payment of principal of, premium, if any, or interest on any Senior Indebtedness, whether at the date of a -60- required payment, maturity, upon mandatory purchase, redemption or otherwise, or (ii) that any other default with respect to any Senior Indebtedness shall have occurred and be continuing, then no payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Securities) shall be made by the Company on account of the principal of or premium, if any, or interest on the Securities or on account of the purchase, redemption or other acquisition of Securities (x) in the case of any default described in clause (i) above, unless and until the Senior Indebtedness to which such default relates is discharged or such default shall have been cured or waived or shall have ceased to exist or the holders of such Senior Indebtedness or their agents have waived the benefits of this Section 1204(a), and (y) in the case of any default specified in clause (ii) above, from the date the Company or the Trustee receives written notice of such default (a "Senior Default Notice") from the (1) the lender(s) under the Credit Facility if such default relates to the Credit Facility, or (2) the holders of at least 25% in principal amount of the kind or category of Senior Indebtedness to which such default relates or any representative of such holders if such default does not relate to the Credit Facility, until the earlier of (A) 180 days after such date or (B) the date, if any, on which the Senior Indebtedness to which such default relates is discharged or such default shall have been cured or waived or shall have ceased to exist or the holders of such Senior Indebtedness or their agents shall have waived the benefits of this Section 1204(a); provided, however, that not more than one Senior Default Notice shall be given during any period of 360 consecutive days, regardless of the number of defaults specified in clause (ii) above with respect to Senior Indebtedness during such 360-day period. (b) In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, then and in such event such payment shall be paid over and delivered forthwith to the Company; provided, however, that the Trustee shall only be required to return to the Company such payment or any portion of such payment that is held by the Trustee. The provisions of this Section shall not apply to any payment with respect to which Section 1202 would be applicable. Section 1205. Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all amounts due on or in respect of Senior Indebtedness, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to other indebtedness of the Company to substantially the same extent as the Securities are subordinated and is entitled to like rights of subrogation) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of and premium, if any, and interest on the Securities shall be paid in full. For 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 the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments -61- over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. Section 1206. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of and premium, if any, and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. Section 1207. Trustee to Effectuate Subordination. Each Holder of a Security by its acceptance thereof authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee its attorney-in-fact for any and all such purposes. Section 1208. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided 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 noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which -62- Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. Section 1209. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 601, shall be entitled in all respects to assume that no such facts exist. Subject to the provisions of Section 601, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 1210. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 601, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or 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. -63- Section 1211. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. Section 1212. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607. Section 1213. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 1212 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. Section 1214. Rights with respect to Conversion and Certain Payments. Nothing contained in this Article or elsewhere in this Indenture, or in any of the Securities, shall prevent (x) the application by the Trustee or any Paying Agent (including by the Company if the Company shall then be acting as Paying Agent) of any moneys deposited with it hereunder to the payment of or on account of the principal of and premium, if any, or interest on Securities, including, without limitation, redemptions or repurchases pursuant to Articles Eleven or Fourteen, if, at the time of such deposit (provided that the time of such deposit was not more than 10 days prior to the time of such payment), such payment would not have been prohibited by the foregoing provisions of this Article, or (y) conversion of Securities. -64- ARTICLE 13. CONVERSION OF SECURITIES Section 1301. Conversion Privilege and Conversion Price. Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any Security or any portion of the principal amount thereof which equals $1,000 or any integral multiple thereof may be converted at the principal amount thereof, or of such portion thereof, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock, at the conversion price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the Close of Business on September 1, 2004. In case a Security or portion thereof is called for redemption, such conversion right in respect of the Security or portion so called shall expire at the Close of Business on the Business Day immediately preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption. The price at which shares of Common Stock shall be delivered upon conversion (herein called the "conversion price") shall be initially $_______ per share of Common Stock. The conversion price shall be adjusted in certain instances as provided in paragraphs (a), (b), (c), (d), (e) and (h) of Section 1304. Section 1302. Exercise of Conversion Privilege. In order to exercise the conversion privilege, the Holder of any Security shall surrender such Security, duly endorsed or assigned to the Company or in blank, at any office or agency of the Company maintained pursuant to Section 1002, accompanied by written notice to the Company in the form provided in the Security (or such other notice as is acceptable to the Company) at such office or agency that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted. In the case of any Security which is surrendered for conversion during the period from the Close of Business on any Regular Record Date through and including but before the Close of Business on the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the Close of Business on such Regular Record Date (unless the Company shall default in the payment of interest on such Interest Payment Date, in which case such amount shall be paid to the person who made the payment referred to below); provided, however, that Securities so surrendered for conversion shall be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount being surrendered for conversion; provided, however, that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Securities or if such Securities or portion thereof being -65- converted shall have been called for redemption. Except as provided in the immediately preceding sentence, in the case of any Security which is converted, (a) interest on such Security whose Stated Maturity is after the date of conversion of such Security shall not be payable and (b) no payment or adjustment shall be made upon conversion on account of any dividends on the Common Stock issued upon conversion. Securities shall be deemed to have been converted immediately prior to the Close of Business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock as and after such time. As promptly as practicable on or after the conversion date, the Company shall issue and shall deliver at any office or agency of the Company maintained pursuant to Section 1002 a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 1303. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of such Security. Section 1303. Fractions of Shares. No fractional share of Common Stock shall be issued upon conversion of Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Security or Securities (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fractional share in an amount equal to such fraction multiplied by the Closing Price (as hereinafter defined) at the Close of Business on the day of conversion (or, if such day is not a Trading Day (as hereafter defined), on the Trading Day immediately preceding such day). For the purposes of this Indenture, "Closing Price" shall mean the closing price per share of Common Stock as quoted on the composite tape of the principal national securities exchange upon which the Common Stock is listed or the NASDAQ National Market System or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the NASDAQ National Market System or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose, or, if such prices are not available, the fair market value set by, or in a manner established by, the Board of Directors of the Company in good faith. For the purposes of this Indenture, "Trading Day" shall mean, any day on which (A) trading in the Common Stock is not -66- suspended on any national securities exchange or association or over-the-counter market at the close of business and (B) the Common Stock has traded at least once on the national securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock. Section 1304. Adjustment of Conversion Price. (a) In case the Company shall (i) issue Common Stock as a dividend or distribution on its capital stock, including the Common Stock, (ii) combine its outstanding shares of Common Stock into a smaller number of shares, (iii) subdivide its outstanding shares of Common Stock into a greater number of shares, or (iv) issue by reclassification of its Common Stock any shares of capital stock of the Company, the conversion price in effect immediately prior to such action shall be adjusted so that the holder of any Security thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock or other capital stock of the Company that it would have owned or been entitled to receive immediately following such action had such Security been converted immediately prior to the occurrence of such action. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date, in the case of a dividend or distribution, or immediately after the effective date, in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this subsection (a), the holder of any Securities thereafter surrendered for conversion shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a statement filed by the Company with the Trustee and with any conversion agent as soon as practicable) shall determine the allocation of the adjusted conversion price between or among shares of such classes of capital stock or shares of Common Stock and other capital stock. (b) In case the Company shall issue rights, warrants or options to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share less than the Current Market Price per share (as determined pursuant to subsection (f) of this Section 1304) of the Common Stock, the conversion price in effect immediately prior thereto shall be adjusted so that it shall equal the price determined by multiplying the conversion price in effect immediately prior to the date of issuance of such rights, warrants or options by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, warrants or options (immediately prior to such issuance) plus the number of shares that the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, warrants or options (immediately prior to such issuance) plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any rights, warrants or options are issued, and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights, warrants or options. In determining whether any rights, warrants or options entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current -67- Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Company for such rights, warrants or options, the value of such consideration, if other than cash, to be determined by the Board of Directors (whose determination shall be conclusive and shall be described in a certificate filed by the Company with the Trustee and with any conversion agent as soon as practicable); provided, however, that rights, warrants or options issued by the Company to all holders of its Common Stock entitling the holders thereof to subscribe for or purchase shares of Common Stock, which rights, warrants or options (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuance of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or events, shall, for purposes of this Section 1304, not be deemed issued until the occurrence of the earliest such specified event. (c) In case the Company shall distribute to all holders of its outstanding Common Stock any shares of capital stock (other than Common Stock), evidences of its indebtedness or assets (including securities and cash, but excluding any regular periodic cash dividend paid from surplus of the Company and dividends or distributions payable in stock for which adjustment is made pursuant to subsection (a) of this Section 1304) or rights, warrants or options to subscribe for or purchase securities of the Company (excluding those referred to in subsection (b) of this Section 1304), then in each such case the conversion price shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the record date of such distribution by a fraction of which the numerator shall be the Current Market Price per share (as determined pursuant to the subsection (f) of this Section 1304) of the Common Stock less the fair market value on such record date (as determined by the Board of Directors, whose determination shall be conclusive and shall be described in a certificate filed by the Company with the Trustee and with any conversion agent as soon as practicable) of the portion of the capital stock or the evidences of indebtedness or the assets so distributed to the holder of one share of Common Stock or of such rights, warrants or options applicable to one share of Common Stock, and of which the denominator shall be such Current Market Price per share of Common Stock. Such adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution; provided, however, that rights, warrants or options issued by the Company to all holders of its Common Stock entitling the holders thereof to subscribe for or purchase shares of securities of the Company (excluding those referred to in subsection (b) of this Section 1304), which rights, warrants or options (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuance of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or events, shall, for purposes of this Section 1304, not be deemed issued until the occurrence of the earliest such specified event. (d) In case the Company shall, by dividend or otherwise, at any time make a distribution to all holders of the Common Stock consisting exclusively of cash (excluding any cash that is distributed as part of a distribution referred to in subsection (c) of this Section 1304 or in connection with a transaction to which Section 1311 applies) in an aggregate amount that, together with (A) the aggregate amount of any other distributions to all holders of the Common Stock made exclusively in cash (excluding any cash distributions referred to in subsection (c) of this Section -68- 1304 or in connection with a transaction to which Section 1311 applies) made within the 12 months preceding such distribution and in respect of which no conversion price adjustment pursuant to this subsection (d) has been made and (B) the aggregate of any cash plus the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and shall be described in a certificate filed by the Company with the Trustee and with any conversion agent as soon as practicable) of other consideration payable in respect of any previous tender offer by the Company or a Subsidiary for the Common Stock consummated within the 12 months preceding such distribution and in respect of which no adjustment pursuant to subsection (e) of this Section 1304 has been made, exceeds 10% of the product of the Current Market Price per share (determined pursuant to subsection (f) of this Section 1304) of the Common Stock on the date fixed for determining the shareholders entitled to such distribution times the number of shares of Common Stock outstanding on such date, the conversion price shall be reduced by multiplying the conversion price in effect immediately prior to the Close of Business on such date of determination by a fraction of which the numerator shall be the Current Market Price per share (determined pursuant to subsection (f) of this Section 1304) of Common Stock on such date of determination less the amount of cash to be distributed at such time applicable to one share of Common Stock and the denominator of which shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day after such date of determination. (e) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall be consummated and such tender offer shall involve an aggregate consideration having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and shall be described in a certificate filed by the Company with the Trustee and with any conversion agent as soon as practicable) on the last time (the "Expiration Time") tenders may be made pursuant to such tender offer (as it may have been amended) that, together with (X) the aggregate of the cash plus the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and shall be described in a certificate filed by the Company with the Trustee and with any conversion agent as soon as practicable), of other consideration paid or payable in respect of any previous tender offer by the Company or a Subsidiary for all or any portion of the Common Stock consummated within the 12 months preceding the consummation of such tender offer and in respect of which no conversion price adjustment pursuant to this paragraph (e) has been made, such cash plus the fair market value of other consideration to be calculated in each case as of the expiration of each such previous tender offer, and (Y) the aggregate amount of all cash distributions to holders of Common Stock (excluding any cash that is distributed as part of a distribution referred to in subsection (c) of this Section 1304) within the 12 months preceding the consummation of such tender offer and in respect of which no conversion price adjustment pursuant to this paragraph (e) has been made, exceeds 10% of the product of the Current Market Price per share (determined pursuant to subsection (f) of this Section 1304) of the Common Stock at the Expiration Time times the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time, the conversion price shall be reduced so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the Expiration Time by a fraction of which the numerator shall be (i) the product of the Current Market Price per share (determined pursuant -69- to subsection (f) of this Section 1304) of the Common Stock at the Expiration Time times the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time minus (ii) the fair market value (determined as aforesaid) of the aggregate consideration paid or payable to shareholders based on the number of validly tendered shares to be purchased and not withdrawn prior to the Expiration Time (the number of shares so purchased being hereinafter referred to as the "Purchased Shares") and the denominator of which shall be the product of (i) such Current Market Price per share on the Expiration Time times (ii) such number of outstanding shares on the Expiration Time less the number of Purchased Shares, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (f) For the purpose of any computation under subsections (b), (c), (d) and (e) of this Section 1304, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the Daily Market Prices for the shorter of (i) 30 consecutive Business Days ending on the last full Trading Day on the exchange or market referred to in determining such Daily Market Prices prior to the Time of Determination or (ii) the period commencing on the date next succeeding the first public announcement of the issuance of such rights or warrants, such distribution, or such tender offer, as the case may be, through such last full Trading Day prior to the Time of Determination. (g) In any case in which this Section 1304 shall require that an adjustment be made immediately following a record date or an effective date, the Company may elect to defer (but only until five Business Days following the filing by the Company with the Trustee and any conversion agent of the certificate required by Section 1305) issuing to the holder of any Security converted after such record date or effective date the shares of Common Stock issuable upon such conversion over and above the shares of Common Stock issuable upon such conversion on the basis of the conversion price prior to adjustment, and paying to such holder any amount of cash in lieu of a fractional share. (h) No adjustment in the conversion price shall be required to be made unless such adjustment would require an increase or decrease of at least 1% of such price; provided, however, that any adjustments that by reason of this subsection (h) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 1304 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. Anything in this Section 1304 to the contrary notwithstanding, the Company shall be entitled to make such reduction in the conversion price, in addition to those adjustments required by this Section 1304, as it in its discretion shall determine to be advisable in order that any stock dividend, subdivision of shares, distribution of rights to purchase stock or securities or distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its shareholders shall not be taxable to the recipients. (i) In the event that at any time as a result of an adjustment made pursuant to subsection (a) of this Section 1304, the holder of any Security thereafter surrendered for conversion shall become entitled to receive any shares of the Company other than shares of Common Stock, -70- thereafter the conversion price of such other shares so receivable upon conversion of any Security shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Article Thirteen. Section 1305. Notice of Adjustments of Conversion Price. Whenever the conversion price is adjusted as herein provided: (a) the Company shall compute the adjusted conversion price in accordance with Section 1304 and shall prepare a certificate signed by the Treasurer or Chief Financial Officer of the Company setting forth the adjusted conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed (with a copy to the Trustee) at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002; and (b) a notice stating that the conversion price has been adjusted and setting forth the adjusted conversion price shall forthwith be prepared, and as soon as practicable after it is prepared, such notice shall be furnished by the Company to the Trustee and mailed by the Trustee at the expense of the Company to all Holders at their last addresses as they shall appear in the Security Register. Section 1306. Notice of Certain Corporate Action. In case: (a) the Company shall take an action that would require a conversion price adjustment pursuant to Section 1304(b), (c), (d) or (e); or (b) the Company shall grant to the holders of its Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class (excluding shares of capital stock or options for capital stock issued pursuant to a benefit plan for employees, officers or directors of the Company and excluding rights or warrants described in the provisos to Sections 1304(b) and 1304(c)); or (c) of any reclassification of the Common Stock (other than a subdivision or combination of the outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the sale or transfer of the properties and assets of the Company as an entirety or substantially as an entirety to any Person; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or -71- (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the outstanding shares of Common Stock (or shall amend any such tender offer to change the maximum number of shares being sought or the amount or type of consideration being offered therefor); then the Company shall cause to be filed at each office or agency maintained pursuant to Section 1002, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, at least 20 days (or 10 days in any case specified in clause (a), (b) or (e) above) prior to the applicable record, effective or expiration date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record who will be entitled to such dividend, distribution, rights or warrants are to be determined, (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up, or (z) the date on which such tender offer commenced, the date on which such tender offer is scheduled to expire unless extended, the consideration offered and the other material terms thereof (or the material terms of any amendment thereto). Neither the failure to give any such notice nor any defect therein shall affect the legality or validity of any action described in clauses (a) through (e) of this Section 1306. Section 1307. Company to Reserve Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of the authorized but unissued Common Stock or out of the Common Stock held in treasury, for the purpose of effecting the conversion of Securities, the full number of shares of Common Stock then issuable upon the conversion of all outstanding Securities. Before taking any action that would cause an adjustment reducing the conversion price below the then par value (if any) of the shares of Common Stock deliverable upon conversion of the Securities, the Company will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted conversion price. Section 1308. Taxes on Conversions. The Company will pay any and all original issuance, transfer, stamp and other similar taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, -72- and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. Section 1309. Covenant as to Common Stock. The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issuance in accordance with the terms of this Indenture be validly issued, fully paid and nonassessable. The Company further covenants that for so long as the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange, the Company will, if permitted by the rules of such exchange, list and keep listed all Common Stock issuable upon conversion of the Securities. Section 1310. Cancellation of Converted Securities. All Securities delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 309. Section 1311. Provisions as to Consolidation, Merger or Sale of Assets. Notwithstanding any other provision herein to the contrary, in case of any consolidation or merger to which the Company is a party (other than a merger or consolidation in which the Company is the continuing corporation and in which the Common Stock outstanding immediately prior to the merger or consolidation is not exchanged for cash or the securities or other property of another corporation), or in case of any sale or conveyance to another corporation of the properties and assets of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (other than in connection with a merger or acquisition), the corporation formed by such consolidation or the corporation whose securities, cash or other property will immediately after the merger or consolidation be owned, by virtue of the merger or consolidation by the holders of Common Stock of the Company immediately prior to the merger, or the corporation that shall have acquired such assets or securities of the Company, as the case may be, shall promptly execute and deliver to the Trustee a supplemental indenture providing that the holder of each Security then outstanding shall have the right thereafter to convert such Security into the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance by a holder of the number of shares of Common Stock into which such Security might have been converted immediately prior to such consolidation, merger, statutory exchange, sale or conveyance assuming such holder of Common Stock did not exercise its rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of -73- Common Stock in respect of which such rights of election shall not have been exercised (a "non-electing share"), then for the purposes of this Section 1311, the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each non- electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for appropriate adjustment with respect to the rights of the holders of the Securities, to the end that the provisions set forth in this Article Thirteen shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the conversion of the Securities. Any such adjustment shall be evidenced by a certificate delivered to the Trustee and any paying agent. The above provisions of this Section 1311 shall similarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances. The Company shall give notice of the execution of such a supplemental indenture to the holders of Securities in the manner provided in Section 1006 within 30 days after the execution thereof; provided, however, that such notice need not be given if such information has been provided prospectively in the notice given pursuant to Section 1306. Failure to give such notice, or any defects therein, shall not affect the legality or validity of any such supplemental indenture. Section 1312. Disclaimer of Responsibility for Certain Matters. Neither the Trustee nor any conversion agent shall at any time be under any duty or responsibility to any holder of Securities to determine whether any facts exist that may require any adjustment of the conversion price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee nor any conversion agent shall be accountable with respect to the listing referred to in Section 1309 or the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities, cash or other property that may at any time be issued or delivered upon the conversion of any Security; and neither the Trustee nor any conversion agent makes any representation with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or to make any cash payment upon the surrender of any Security for the purpose of conversion or, subject to the provisions of Section 601, to comply with any of the covenants contained in this Article Thirteen. -74- ARTICLE 14. RIGHT TO REQUIRE REPURCHASE Section 1401. Right to Require Repurchase. In the event that there shall occur a Repurchase Event (as defined in Section 1406), then each Holder shall have the right, at such Holder's option, to require the Company to purchase, and upon the exercise of such right, the Company shall, subject to the provisions of Article Twelve, purchase all (or any portion with a principal amount equal to $1,000 or an integral multiple thereof) of such Holder's Securities on the date (the "Repurchase Date") that is 30 days after the date the Company gives notice of the Repurchase Event as contemplated in Section 1402(a) at a price (the "Repurchase Price") equal to 100% of the principal amount thereof, together with accrued and unpaid interest to the Repurchase Date. Section 1402. Notice; Method of Exercising Repurchase Right. (a) On or before the 15th day after the occurrence of a Repurchase Event, the Company, or at the written request of the Company received by the Trustee at least 40 days prior to the Repurchase Date, the Trustee (in the name and at the expense of the Company), in its capacity as tender agent (for which services it shall be reasonably compensated), shall give notice of the occurrence of the Repurchase Event and of the repurchase right set forth herein arising as a result thereof by first-class mail, postage prepaid, to the Trustee and to each Holder of the Securities at such Holder's address appearing in the Security Register. The Company shall also deliver a copy of such notice of a repurchase right to the Trustee. Each notice of a repurchase right shall state: (i) the event constituting the Repurchase Event and the date thereof, (ii) the Repurchase Date, (iii) the date by which the repurchase right must be exercised, (iv) the Repurchase Price, and (v) the instructions a Holder must follow to exercise a repurchase right. No failure of the Company to give the foregoing notice shall limit any Holder's right to exercise a repurchase right. The Trustee shall have no affirmative obligation to determine if there shall have occurred a Repurchase Event. -75- (b) To exercise a repurchase right, a Holder shall deliver to the Company (or an agent designated by the Company for such purpose in the notice referred to in (a) above) and to the Trustee on or before the Close of Business on the Repurchase Date (i) written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Security or Securities (or portion of a Security which is $1,000 or an integral multiple thereof) to be repurchased, and a statement that an election to exercise the repurchase right is being made thereby, and (ii) the Security or Securities with respect to which the repurchase right is being exercised, duly endorsed for transfer to the Company. Such written notice may be withdrawn at any time on or before the Close of Business on the Repurchase Date. If the Repurchase Date falls between any Regular Record Date and the next succeeding Interest Payment Date, Securities to be repurchased must be accompanied by payment from the Holder of an amount equal to the interest thereon which the registered Holder thereof is to receive on such Interest Payment Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall on or promptly following the Repurchase Date pay or cause to be paid in cash to the Holder thereof the Repurchase Price of the Security or Securities as to which the repurchase right had been exercised. Section 1403. Deposit of Repurchase Price. On or prior to the Close of Business on the Repurchase Date the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Repurchase Price of the Securities which are to be repaid on or promptly following the Repurchase Date. Section 1404. Securities Not Repurchased on Repurchase Date. Interest on any Security surrendered for repurchase shall cease to accrue from and after the Repurchase Date unless the Company shall default in the payment of any such Security at the purchase price, together with interest accrued thereon to the Repurchase Date. Section 1405. Securities Repurchased in Part. Any Security which is to be repurchased only in part shall be surrendered at any office or agency of the Company designated for that purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or its attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the repurchased portion of the principal of the Security so surrendered. -76- Section 1406. Certain Definitions. For purposes of this Article: (a) A "Repurchase Event" shall have occurred upon the occurrence of a Change in Control or Termination of Trading after the date of this Indenture and on or prior to September 1, 2004. (b) A "Change in Control" shall occur when: (i) all or substantially all of the Company's assets are sold as an entirety to any Person or related group of Persons; (ii) there shall be consummated any consolidation or merger of the Company (A) in which the Company is not the continuing or surviving corporation (other than a consolidation or merger with a wholly owned Subsidiary of the Company in which all shares of Common Stock outstanding immediately prior to the effectiveness thereof are changed into or exchanged for the same consideration) or (B) pursuant to which the Common Stock would be converted into cash, securities or other property, in each case, other than a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the total voting power of all classes of capital stock entitled to vote generally in the election of directors of the continuing or surviving corporation immediately after such consolidation or merger in substantially the same proportion as their ownership of Common Stock immediately before such transaction; (iii) any Person, or any Persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof, shall be the Beneficial Owner of at least 40% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of directors of the Company; or (iv) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or -77- (v) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution. (c) A "Termination of Trading" shall occur if the Common Stock (or other common stock into which the Securities are then convertible) is neither listed for trading on a national securities exchange in the United States nor approved for trading on an established automated over-the-counter trading market in the United States. This instrument may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -78- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. KENT ELECTRONICS CORPORATION By:____________________________________ Name: Title: Attest: ________________________ Name: Title: TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Trustee By:____________________________________ Name: Title: Attest: ________________________ Name: Title: -79- EX-5.1 4 LIDDELL, SAPP OPINION EXHIBIT 5.1 September 15, 1997 Kent Electronics Corporation 7433 Harwin Drive Houston, Texas 77036 Ladies and Gentlemen: We have acted as counsel for Kent Electronics Corporation, a Texas corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of the offering and sale by the Company of (i) $150,000,000 aggregate principal amount of Convertible Subordinated Notes Due 2004 (the "Notes") ($172,500,000 aggregate principal amount of the Notes if the Underwriter's over-allotment option is exercised) and (ii) an indeterminate number of shares of the Company's common stock, without par value, issuable upon conversion of the Notes (the "Conversion Shares"). The terms and conditions of such offering and sale are described in the Registration Statement on Form S-3 (Registration No. 333-34045) filed by the Company with the Securities and Exchange Commission on August 21, 1997, as amended (the "Registration Statement"). In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents and instruments: (i) the Registration Statement; (ii) the Form of Indenture proposed to be entered into between the Company, as Issuer, and Texas Commerce Bank National Association, as Trustee, governing the Notes (the "Indenture"); (iii) certain corporate documents and records of the Company, including its Amended and Restated Articles of Incorporation, Amended and Restated Bylaws, minutes of meetings of its directors and shareholders and written consents evidencing action taken by its directors and shareholders in lieu of meetings; and (iv) such other records, documents, and instruments as in our judgment are necessary or appropriate to enable us to render this opinion. With respect to certain factual matters we have relied on statements of officers of the Company. Kent Electronics Corporatino September 15, 1997 Page 2 Based upon the foregoing, and having regard for such legal considerations as we deem relevant, we are of the opinion that: 1. the Notes are duly authorized, and when executed and authenticated in the manner set forth in the Indenture and when duly delivered against payment of the agreed consideration therefor in accordance with the Underwriting Agreement and the Indenture referred to in the Registration Statement, will be valid and binding obligations of the Company entitled to the benefits of, and subject to the restrictions in, the Indenture; and 2. the Conversion Shares issuable upon conversion of the Notes have been duly authorized and reserved for issuance upon such conversion, and when issued upon conversion of the Notes in accordance with the terms of the Indenture, will have been validly issued, fully paid and nonassessable. This opinion is furnished to you solely for use in connection with the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "LEGAL MATTERS" in the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act and the rules and regulations thereunder. Very truly yours, Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. EX-8.1 5 LIDDELL, SAPP OPINION EXHIBIT 8.1 September 15, 1997 Kent Electronics Corporation 7433 Harwin Drive Houston, Texas 77036 Ladies and Gentlemen: We have acted as tax counsel for Kent Electronics Corporation, a Texas corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of the offering and sale by the Company of (i) $150,000,000 aggregate principal amount of Convertible Subordinated Notes Due 2004 (the "Notes") ($172,500,000 aggregate principal amount of the Notes if the Underwriter's over-allotment option is exercised) and (ii) an indeterminate number of shares of the Company's common stock, without par value, issuable upon conversion of the Notes (the "Conversion Shares"). The terms and conditions of such offering and sale are described in the Registration Statement on Form S-3 (Registration No. 333-34045) filed by the Company with the Securities and Exchange Commission on August 21, 1997, as amended (the "Registration Statement"). In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the following documents and instruments: (i) the Registration Statement; (ii) the Form of Indenture proposed to be entered into between the Company, as Issuer, and Texas Commerce Bank National Association, as Trustee, governing the Notes (the "Indenture"); and (iii) such other documents as we have deemed necessary or appropriate in order to enable us to render our opinion. Our opinion is based and conditioned upon the initial and continuing accuracy of the facts and the factual matters assumed as set forth in the Registration Statement and the Indenture regarding the offering and terms of the Notes and Conversion Shares issuable upon conversion of the Notes. Our opinion is also based upon existing provisions of the Internal Revenue Code of 1986, as amended, regulations promulgated or proposed thereunder and interpretations thereof by the Internal Revenue Service and the courts, all of which are subject to change with prospective or retroactive effect, and our opinion could be adversely affected or rendered obsolete by any such change. Based on the foregoing, we are of the opinion that the discussion and legal conclusions set forth in the Registration Statement under the caption "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" are accurate and complete in all material respects and constitute our opinion of the material tax considerations to initial holders of the Notes and shares of Common Stock issuable upon conversion of the Notes. This opinion is furnished to you solely for use in connection with the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "LEGAL MATTERS" in the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act and the rules and regulations thereunder. Very truly yours, Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. EX-23.1 6 GRANT THORNTON CONSENT Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated May 5, 1997, accompanying the consolidated financial statements of Kent Electronics Corporation contained in the Registration Statement and Prospectus and accompanying the financial statements and schedule included in the Annual Report on Form 10-K/A for the year ended March 29, 1997, which is incorporated by reference in the Registration Statement and Prospectus. We consent to the use and incorporation by reference of the aforementioned reports in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts". /s/ Grant Thornton LLP ----------------------- GRANT THORNTON LLP Houston, Texas September 15, 1997 EX-25.1 7 FORM T-1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) ____ ____________________ TEXAS COMMERCE BANK NATIONAL ASSOCIATION (Exact name of trustee as specified in its charter) 74-0800980 (I.R.S. Employer Identification Number) 712 MAIN STREET, HOUSTON, TEXAS 77002 (Address of principal executive offices) (Zip code) LEE BOOCKER, 712 MAIN STREET, 26TH FLOOR HOUSTON, TEXAS 77002 (713) 216-2448 (Name, address and telephone number of agent for service) KENT ELECTRONICS CORPORATION (Exact name of obligor as specified in its charter) TEXAS 74-1763541 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 7433 HARWIN DRIVE, HOUSTON, TEXAS 77036-2015 (Address of principal executive offices) (Zip code) __% CONVERTIBLE SUBORDINATED NOTES DUE 2004 (Title of indenture securities) ================================================================================ ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of the Currency, Washington, D.C. Federal Deposit Insurance Corporation, Washington, D.C. Board of Governors of the Federal Reserve System, Washington, D.C. (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee. (See Note on Page 7.) ITEM 3. VOTING SECURITIES OF THE TRUSTEE. FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF VOTING SECURITIES OF THE TRUSTEE. COL. A COL. B TITLE OF CLASS AMOUNT OUTSTANDING --------------- ------------------ Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES. IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY OTHER SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, FURNISH THE FOLLOWING INFORMATION: (A) TITLE OF THE SECURITIES OUTSTANDING UNDER EACH SUCH OTHER INDENTURE. Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. 1 ITEM 4. (CONTINUED) (B) A BRIEF STATEMENT OF THE FACTS RELIED UPON AS A BASIS FOR THE CLAIM THAT NO CONFLICTING INTEREST WITHIN THE MEANING OF SECTION 310(B)(1) OF THE ACT ARISES AS A RESULT OF THE TRUSTEESHIP UNDER ANY SUCH OTHER INDENTURE, INCLUDING A STATEMENT AS TO HOW THE INDENTURE SECURITIES WILL RANK AS COMPARED WITH THE SECURITIES ISSUED UNDER SUCH OTHER INDENTURE. Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH OBLIGOR OR UNDERWRITERS. IF THE TRUSTEE OR ANY OF THE DIRECTORS OR EXECUTIVE OFFICER OF THE TRUSTEE IS A DIRECTOR, OFFICER, PARTNER, EMPLOYEE, APPOINTEE, OR REPRESENTATIVE OF THE OBLIGOR OR OF ANY UNDERWRITER FOR THE OBLIGOR, IDENTIFY EACH SUCH PERSON HAVING ANY SUCH CONNECTION AND STATE THE NATURE OF EACH SUCH CONNECTION. Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS. FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE TRUSTEE OWNED BENEFICIALLY BY THE OBLIGOR AND EACH DIRECTOR, PARTNER AND EXECUTIVE OFFICER OF THE OBLIGOR. COL. A COL. B COL. C COL. D PERCENTAGE OF VOTING SECURITIES REPRESENTED BY AMOUNT OWNED AMOUNT GIVEN IN NAME OF OWNER TITLE OF CLASS BENEFICIALLY COL. C ------------- -------------- ------------ ----------------- Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. 2 ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS. FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE TRUSTEE OWNED BENEFICIALLY BY EACH UNDERWRITER FOR THE OBLIGOR AND EACH DIRECTOR, PARTNER AND EXECUTIVE OFFICER OF EACH SUCH UNDERWRITER. COL. A COL. B COL. C COL. D PERCENTAGE OF VOTING SECURITIES REPRESENTED BY AMOUNT OWNED AMOUNT GIVEN IN NAME OF OWNER TITLE OF CLASS BENEFICIALLY COL. C -------------- -------------- ------------ ------------------ Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE. FURNISH THE FOLLOWING INFORMATION AS TO THE SECURITIES OF THE OBLIGOR OWNED BENEFICIALLY OR HELD AS COLLATERAL SECURITY FOR OBLIGATIONS IN DEFAULT BY THE TRUSTEE. COL. A COL. B COL. C COL. D AMOUNT OWNED WHETHER THE BENEFICIALLY OR PERCENT OF SECURITIES HELD AS COLLATERAL CLASS ARE VOTING SECURITY FOR REPRESENTED BY OR NONVOTING OBLIGATIONS IN AMOUNT GIVEN TITLE OF CLASS SECURITIES DEFAULT IN COL. C - ---------------------- ------------ ------------------ -------------- Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. 3 ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE. IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR OBLIGATIONS IN DEFAULT ANY SECURITIES OF AN UNDERWRITER FOR THE OBLIGOR, FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH UNDERWRITER ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE. COL. A COL. B COL. C COL. D AMOUNT OWNED BENEFICIALLY OR PERCENT OF HELD AS COLLATERAL CLASS TITLE OF ISSUER SECURITY FOR REPRESENTED BY AND AMOUNT OBLIGATIONS IN AMOUNT GIVEN TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE IN COL. C --------------- ----------- ------------------- ----------------- Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR. IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR OBLIGATIONS IN DEFAULT VOTING SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF THE TRUSTEE (1) OWNS 10% OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR OR (2) IS AN AFFILIATE, OTHER THAN A SUBSIDIARY, OF THE OBLIGOR, FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF SUCH PERSON. COL. A COL. B COL. C COL. D AMOUNT OWNED BENEFICIALLY OR PERCENT OF HELD AS COLLATERAL CLASS TITLE OF ISSUER SECURITY FOR REPRESENTED BY AND AMOUNT OBLIGATIONS IN AMOUNT GIVEN TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE IN COL. C --------------- ----------- ------------------- ----------------- Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. 4 ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING 50% OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR. IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR OBLIGATIONS IN DEFAULT ANY SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF THE TRUSTEE, OWNS 50% OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR, FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OR SUCH PERSON ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE. COL. A COL. B COL. C COL. D AMOUNT OWNED BENEFICIALLY OR PERCENT OF HELD AS COLLATERAL CLASS TITLE OF ISSUER SECURITY FOR REPRESENTED BY AND AMOUNT OBLIGATIONS IN AMOUNT GIVEN TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE IN COL. C --------------- ----------- ------------------- ----------------- Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE. EXCEPT AS NOTED IN THE INSTRUCTIONS, IF THE OBLIGOR IS INDEBTED TO THE TRUSTEE, FURNISH THE FOLLOWING INFORMATION: COL. A COL. B COL. C NATURE OF AMOUNT INDEBTEDNESS OUTSTANDING DATE DUE ------------ ----------- -------- Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. ITEM 13. DEFAULTS BY THE OBLIGOR. (A) STATE WHETHER THERE IS OR HAS BEEN A DEFAULT WITH RESPECT TO THE SECURITIES UNDER THIS INDENTURE. EXPLAIN THE NATURE OF ANY SUCH DEFAULT. There is not, nor has there been, a default with respect to the securities under this indenture. (See Note on Page 7.) 5 ITEM 13. (CONTINUED) (B) IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, OR IS TRUSTEE FOR MORE THAN ONE OUTSTANDING SERIES OF SECURITIES UNDER THE INDENTURE, STATE WHETHER THERE HAS BEEN A DEFAULT UNDER ANY SUCH INDENTURE OR SERIES, IDENTIFY THE INDENTURE OR SERIES AFFECTED, AND EXPLAIN THE NATURE OF ANY SUCH DEFAULT. There has not been a default under any such indenture or series. (See Note on Page 7.) ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS. IF ANY UNDERWRITER IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. Not applicable by virtue of Form T-1 General Instruction B and response to Item 13. ITEM 15. FOREIGN TRUSTEE. IDENTIFY THE ORDER OR RULE PURSUANT TO WHICH THE FOREIGN TRUSTEE IS AUTHORIZED TO ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO BE QUALIFIED UNDER THE ACT. Not applicable. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY. . 1. A copy of the articles of association of the trustee now in effect. # 2. A copy of the certificate of authority of the trustee to commence business. * 3. A copy of the certificate of authorization of the trustee to exercise corporate trust powers issued by the Board of Governors of the Federal Reserve System under date of January 21, 1948. + 4. A copy of the existing bylaws of the trustee. 5. Not applicable. 6. The consent of United States institutional trustees required by Section 321(b) of the Act. 6 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. _______________________ . Incorporated by reference to exhibit bearing the same designation and previously filed with the Securities and Exchange Commission as exhibits to the Form S-3 File No. 33-56195. # Incorporated by reference to exhibit bearing the same designation and previously filed with the Securities and Exchange Commission as exhibits to the Form S-3 File No. 33-42814. * Incorporated by reference to exhibit bearing the same designation and previously filed with the Securities and Exchange Commission as exhibits to the Form S-11 File No. 33-25132. + Incorporated by reference to exhibit bearing the same designation and previously filed with the Securities and Exchange Commission as exhibits to the Form S-3 File No. 33-65055. ____________________ NOTE Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base responsive answers to Items 2 and 13, the answers to said Items are based on incomplete information. Such Items may, however, be considered as correct unless amended by an amendment to this Form T-1. 7 SIGNATURE PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939 THE TRUSTEE, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, A NATIONAL BANKING ASSOCIATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE UNITED STATES OF AMERICA, HAS DULY CAUSED THIS STATEMENT OF ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ALL IN THE CITY OF HOUSTON, AND STATE OF TEXAS, ON THE 15TH DAY OF SEPTEMBER, 1997. TEXAS COMMERCE BANK NATIONAL ASSOCIATION (Trustee) By: /S/ Mauri J. Cowen _______________________ Mauri J. Cowen Vice President and Trust Officer 8 EXHIBIT 6 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: The undersigned is trustee under an indenture dated as of September __, 1997, between Kent Electronics Corporation, a Texas corporation, and Texas Commerce Bank National Association, as Trustee, entered into in connection with the issuance of its __ % Convertible Subordinated Notes Due 2004. In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned hereby consents that reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /S/ Mauri J. Cowen _________________________ Mauri J. Cowen Vice President and Trust Officer EXHIBIT 7
Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 Expires March 31, 2000 FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL - ------------------------------------------------------------------------------------------------------------------------------------ Please refer to page i, [1] Table of Contents, for the required disclosure of estimated burden. - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031 (970630) __________ REPORT AT THE CLOSE OF BUSINESS JUNE 30, 1997 (RCRI 9999) This report is required by law: 12 U.S.C. (S)324 (State This report form is to be filed by banks with branches and member banks); 12 U.S.C. (S)1817 (State nonmember banks); consolidated subsidiaries in U.S. territories and possessions, and 12 U.S.C. (S)161 (National banks). Edge or Agreement subsidiaries, foreign branches, consoli- dated foreign subsidiaries, or International Banking Facilities. - ------------------------------------------------------------------------------------------------------------------------------------ NOTE: The Reports of Condition and Income must be signed The Reports of Condition and Income are to be prepared in by an authorized officer and the Report of Condition must be accordance with Federal regulatory authority instructions. attested to by not less than two directors (trustees) for NOTE: These instructions may in some cases differ from generally State nonmember banks and three directors for State member accepted accounting principles. and National banks. We, the undersigned directors (trustees), attest to the I, C. Richards Summers, FVP & Controller correctness of this Report of Condition (including the ____________________________________________________________ supporting schedules) and declare that it has been examined Name and Title of Officer Authorized to Sign Report by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the of the named bank to hereby declare that these Reports of appropriate Federal regulatory authority and is true and correct. Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions Marc J. Shapiro issued by the appropriate Federal regulatory authority and ___________________________________________________________ are true to the best of my knowledge and belief. Director (Trustee) Alan R. Buckwalter, III ____________________________________________________________ ___________________________________________________________ Signature of Officer Authorized to Sign Report Director (Trustee) Robert C. Hunter ____________________________________________________________ ___________________________________________________________ Date of Signature Director (Trustee) - ------------------------------------------------------------------------------------------------------------------------------------ FOR BANKS Submitting Hard Copy Report Forms: STATE MEMBER BANKS: Return the original and one copy to the NATIONAL BANKS: Return the original only in the special return appropriate Federal Reserve District Bank. address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to STATE NONMEMBER BANKS: Return the original only in the the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, special return address envelope provided. If express mail Crofton, MD 21114. is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. - ------------------------------------------------------------------------------------------------------------------------------------ FDIC Certificate Number |0|3|2|6|3| (RCRI 9050) Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RI-1 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| CONSOLIDATED REPORT OF INCOME FOR THE PERIOD JANUARY 1, 1997 - JUNE 30, 1997 All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars. SCHEDULE RI--INCOME STATEMENT __________ I480 (- Dollar Amounts in Thousands | RIAD Bil Mil Thou | _____________________________________________________________________________________________________________________ 1. Interest income: | ////////////////// | a. Interest and fee income on loans: | ////////////////// | (1) In domestic offices: | ////////////////// | (a) Loans secured by real estate..................................................... | 4011 110,191 | 1.a.(1)(a) (b) Loans to depository institutions................................................. | 4019 415 | 1.a.(1)(b) (c) Loans to finance agricultural production and other loans to farmers.............. | 4024 1,546 | 1.a.(1)(c) (d) Commercial and industrial loans.................................................. | 4012 220,523 | 1.a.(1)(d) (e) Acceptances of other banks....................................................... | 4026 0 | 1.a.(1)(e) (f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// | (1) Credit cards and related plans............................................... | 4054 8,735 | 1.a.(1)(f)(1) (2) Other........................................................................ | 4055 103,139 | 1.a.(1)(f)(2) (g) Loans to foreign governments and official institutions........................... | 4056 5,325 | 1.a.(1)(g) (h) Obligations (other than securities and leases) of states and political | ////////////////// | subdivisions in the U.S.: | ////////////////// | (1) Taxable obligations.......................................................... | 4503 0 | 1.a.(1)(h)(1) (2) Tax-exempt obligations....................................................... | 4504 240 | 1.a.(1)(h)(2) (i) All other loans in domestic offices.............................................. | 4058 39,780 | 1.a.(1)(i) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs........................ | 4059 5,411 | 1.a.(2) b. Income from lease financing receivables: | ////////////////// | (1) Taxable leases....................................................................... | 4505 5,002 | 1.b.(1) (2) Tax-exempt leases.................................................................... | 4307 0 | 1.b.(2) c. Interest income on balances due from depository institutions:(1) | ////////////////// | (1) In domestic offices.................................................................. | 4105 0 | 1.c.(1) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs........................ | 4106 0 | 1.c.(2) d. Interest and dividend income on securities: | ////////////////// | (1) U.S. Treasury securities and U.S. Government agency obligations...................... | 4027 134,859 | 1.d.(1) (2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// | (a) Taxable securities............................................................... | 4506 2 | 1.d.(2)(a) (b) Tax-exempt securities............................................................ | 4507 24 | 1.d.(2)(b) (3) Other domestic debt securities....................................................... | 3657 89 | 1.d.(3) (4) Foreign debt securities.............................................................. | 3658 0 | 1.d.(4) (5) Equity securities (including investments in mutual funds)............................ | 3659 1,384 | 1.d.(5) e. Interest income from trading assets...................................................... | 4069 0 | 1.e. |____________________| ________________ (1) Includes interest income on time certificates of deposit not held for trading.
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Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RI-2 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RI--CONTINUED ______________ Dollar Amounts in Thousands | Year-to-date | ________________________________________________________________________________________________________| 1. Interest income (continued) | RIAD Bil Mil Thou | f. Interest income on federal funds sold and securities purchased under | ////////////////// | agreements to resell ....................................................... | 4020 28,702 | 1.f. g. Total interest income (sum of items 1.a through 1.f) ....................... | 4107 665,367 | 1.g. 2. Interest expense: | ////////////////// | a. Interest on deposits: | ////////////////// | (1) Interest on deposits in domestic offices: | ////////////////// | (a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// | telephone and preauthorized transfer accounts) ..................... | 4508 2,761 | 2.a.(1)(a) (b) Nontransaction accounts: | ////////////////// | (1) Money market deposit accounts (MMDAs) .......................... | 4509 20,518 | 2.a.(1)(b)(1) (2) Other savings deposits ......................................... | 4511 54,741 | 2.a.(1)(b)(2) (3) Time deposits of $100,000 or more .............................. | A517 21,874 | 2.a.(1)(b)(3) (4) Time deposits of less than $100,000 ............................ | A518 62,314 | 2.a.(1)(b)(4) (2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// | subsidiaries, and IBFs ................................................. | 4172 8,749 | 2.a.(2) b. Expense of federal funds purchased and securities sold under | ////////////////// | agreements to repurchase ................................................... | 4180 47,630 | 2.b. c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// | liabilities, and other borrowed money ..................................... | 4185 22,356 | 2.c. d. Not applicable | ////////////////// | e. Interest on subordinated notes and debentures .............................. | 4200 14,195 | 2.e. f. Total interest expense (sum of items 2.a through 2.e) ...................... | 4073 255,138 | 2.f. |______________________ 3. Net interest income (item 1.g minus 2.f) ...................................... | ////////////////// | RIAD 4074 | 410,229 | 3. |_____________________ 4. Provisions: | ////////////////// |_____________________ a. Provision for loan and lease losses ........................................ | ////////////////// | RIAD 4230 | 0 | 4.a. b. Provision for allocated transfer risk ...................................... | ////////////////// | RIAD 4243 | 0 | 4.b. |_____________________| 5. Noninterest income: | ////////////////// | a. Income from fiduciary activities ........................................... | 4070 61,998 | 5.a. b. Service charges on deposit accounts in domestic offices .................... | 4080 78,768 | 5.b. c. Trading revenue (must equal Schedule RI, sum of Memorandum | ////////////////// | items 8.a through 8.d) ..................................................... | A220 8,229 | 5.c. d.-e. Not applicable | ////////////////// | f. Other noninterest income: | ////////////////// | (1) Other fee income ....................................................... | 5407 7,979 | 5.f.(1) (2) All other noninterest income* .......................................... | 5408 35,788 | 5.f.(2) |_____________________ g. Total noninterest income (sum of items 5.a through 5.f) .................... | ////////////////// | RIAD 4079 | 222,762 | 5.g. 6. a. Realized gains (losses) on held-to-maturity securities ..................... | ////////////////// | RIAD 3521 | 0 | 6.a. b. Realized gains (losses) on available-for-sale securities ................... | ////////////////// | RIAD 3196 | 1,370 | 6.b. |_____________________ 7. Noninterest expense: | ////////////////// | a. Salaries and employee benefits ............................................. | 4135 224,368 | 7.a. b. Expenses of premises and fixed assets (net of rental income) | ////////////////// | (excluding salaries and employee benefits and mortgage interest) ........... | 4217 85,904 | 7.b. c. Other noninterest expense* ................................................. | 4092 111,711 | 7.c. |_____________________ d. Total noninterest expense (sum of items 7.a through 7.c) ................... | ////////////////// | RIAD 4093 | 421,983 | 7.d. |_____________________ 8. Income (loss) before income taxes and extraordinary items and other | ////////////////// | |_____________________ adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)...... | ////////////////// | RIAD 4301 | 212,378 | 8. 9. Applicable income taxes (on item 8) ........................................... | ////////////////// | RIAD 4302 | 77,381 | 9. |_____________________ 10. Income (loss) before extraordinary items and other adjustments (item 8 | ////////////////// |_____________________ minus 9) ..................................................................... | ////////////////// | RIAD 4300 | 134,997 | 10. 11. Extraordinary items and other adjustments, net of income taxes* .............. | ////////////////// | RIAD 4320 | 0 | 11. 12. Net income (loss) (sum of items 10 and 11) ................................... | ////////////////// | RIAD 4340 | 134,997 | 12. |____________________|___________|_________| ____________ *Describe on Schedule RI-E--Explanations.
4
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RI-3 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RI--CONTINUED | I480 | (- | Year-to-date | Memoranda Dollar Amounts in Thousands | RIAD Bil Mil Thou | _________________________________________________________________________________________________________________________ 1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// | August 7, 1986, that is not deductible for federal income tax purposes.......................... | 4513 100 | M.1. 2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// | (included in Schedule RI, item 8)............................................................... | 8431 3,877 | M.2. 3.-4. Not applicable | ////////////////// | 5. Number of full-time equivalent employees at end of current period (round to | //// Number | nearest whole number)........................................................................... | 4150 8,921 | M.5. 6. Not applicable | ////////////////// | 7. If the reporting bank has restated its balance sheet as a result of applying push down | RIAD CC YY MM DD | accounting this calendar year, report the date of the bank's acquisition(1)............... | 9106 00 00 00 00 | M.7. 8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// | (sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): | //// Bil Mil Thou | a. Interest rate exposures...................................................................... | 8757 679 | M.8.a. b. Foreign exchange exposures................................................................... | 8758 7,550 | M.8.b. c. Equity security and index exposures.......................................................... | 8759 0 | M.8.c. d. Commodity and other exposures................................................................. | 8760 0 | M.8.d. 9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// | a. Net increase (decrease) to interest income................................................... | 8761 302 | M.9.a. b. Net (increase) decrease to interest expense.................................................. | 8762 481 | M.9.b. c. Other (noninterest) allocations.............................................................. | 8763 0 | M.9.c. 10. Credit losses on off-balance sheet derivatives (see instructions).............................. | A251 0 | M.10. ____________________ 11. Does the reporting bank have a Subchapter S election in effect for federal income tax YES NO ____________________ purposes for the current tax year?............................................................. | A530 | | /// | X | M.11. ____________________ 12. Deferred portion of total applicable income taxes included in Schedule RI, | //// Bil Mil Thou | ____________________ items 9 and 11 (to be reported with the December Report of Income)............................. | 4772 N/A | M.12. ____________________ ____________ (1) For example, a bank acquired on June 1, 1997, would report 19970601.
5
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RI-4 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RI--A--CHANGES IN EQUITY CAPITAL Indicate decreases and losses in parentheses. ________ | I483 | (- |____________________| Dollar Amounts in Thousands | RIAD Bil Mil Thou | _____________________________________________________________________________________________________|___________________ | 1. Total equity capital originally reported in the December 31, 1996, Reports of Condition | ////////////////// | and Income....................................................................................... | 3215 1,746,010 | 1. 2. Equity capital adjustments from amended Reports of Income, net*.................................. | 3216 0 | 2. 3. Amended balance end of previous calendar year (sum of items 1 and 2)............................. | 3217 1,746,010 | 3. 4. Net income (loss) (must equal Schedule RI, item 12).............................................. | 4340 134,997 | 4. 5. Sale, conversion, acquisition, or retirement of capital stock, net............................... | 4346 0 | 5. 6. Changes incident to business combinations, net................................................... | 4356 0 | 6. 7. LESS: Cash dividends declared on preferred stock................................................. | 4470 0 | 7. 8. LESS: Cash dividends declared on common stock.................................................... | 4460 100,000 | 8. 9. Cumulative effect of changes in accounting principles from prior years* (see instructions for | ////////////////// | this schedule)................................................................................... | 4411 0 | 9. 10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10. 11. Change in net unrealized holding gains (losses) on available-for-sale securities ............... | 8433 96 | 11. 12. Foreign currency translation adjustments........................................................ | 4414 0 | 12. 13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ....... | 4415 0 | 13. 14. Total equity capital end of current period (sum of items 3 through 13) (must equal | ////////////////// | Schedule RC, item 28)........................................................................... | 3210 1,781,103 | 14. |____________________| ____________ *Describe on Schedule RI-E--Explanations. SCHEDULE RI-B--CHARGE-OFFS AND RECOVERIES AND CHANGES in Allowance for Loan and Lease Losses PART I. CHARGE-OFFS AND RECOVERIES ON LOANS AND LEASES Part I excludes charge-offs and recoveries through the allocated transfer risk reserve. __________ | I486 | (- _________________________________________| | (Column A) | (Column B) | | Charge-offs | Recoveries | |____________________|____________________| | Calendar year-to-date | |_________________________________________| Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou | ________________________________________________________________________________|_________________________________________| 1. Loans secured by real estate: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ........................................... | 4651 2,238 | 4661 10,038 | 1.a. b. To non-U.S. addressees (domicile) ....................................... | 4652 0 | 4662 0 | 1.b. 2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// | a. To U.S. banks and other U.S. depository institutions .................... | 4653 0 | 4663 4 | 2.a. b. To foreign banks ........................................................ | 4654 0 | 4664 0 | 2.b. 3. Loans to finance agricultural production and other loans to farmers ........ | 4655 72 | 4665 4 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ........................................... | 4645 1,845 | 4617 2,435 | 4.a. b. To non-U.S. addressees (domicile) ....................................... | 4646 0 | 4618 0 | 4.b. 5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// | expenditures: | ////////////////// | ////////////////// | a. Credit cards and related plans .......................................... | 4656 1,866 | 4666 126 | 5.a. b. Other (includes single payment, installment, and all student loans) ..... | 4657 22,133 | 4667 3,708 | 5.b. 6. Loans to foreign governments and official institutions ..................... | 4643 0 | 4627 19 | 6. 7. All other loans ............................................................ | 4644 8 | 4628 797 | 7. 8. Lease financing receivables: | ////////////////// | ////////////////// | a. Of U.S. addressees (domicile) ........................................... | 4658 0 | 4668 0 | 8.a. b. Of non-U.S. addressees (domicile) ....................................... | 4659 0 | 4669 0 | 8.b. 9. Total (sum of items 1 through 8) ........................................... | 4635 28,162 | 4605 17,131 | 9. |_________________________________________|
6
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RI-5 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RI--B--CONTINUED PART I. CONTINUED _________________________________________ | (Column A) | (Column B) | | Charge-offs | Recoveries | _________________________________________| | Calendar year-to-date | _________________________________________ Memoranda Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou | ________________________________________________________________________________________________________________________ 1-3. Not applicable | ////////////////// | ////////////////// | 4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// | development activities (not secured by real estate) included in | ////////////////// | ////////////////// | Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 0 | 5410 75 | M.4. 5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// | Schedule RI-B, part I, item 1, above): | ////////////////// | ////////////////// | a. Construction and land development ..................................... | 3582 0 | 3583 9,290 | M.5.a. b. Secured by farmland ................................................... | 3584 0 | 3585 0 | M.5.b. c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// | properties and extended under lines of credit ......................... | 5411 0 | 5412 0 | M.5.c. (1) (2) All other loans secured by 1-4 family residential properties ...... | 5413 1,613 | 5414 303 | M.5.c. (2) d. Secured by multifamily (5 or more) residential properties ............. | 3588 0 | 3589 4 | M.5.d. e. Secured by nonfarm nonresidential properties .......................... | 3590 625 | 3591 441 | M.5.e. |_________________________________________| PART II. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES Dollar Amounts in Thousands | RIAD Bil Mil Thou | _____________________________________________________________________________________________________________________ 1. Balance originally reported in the December 31, 1996, Reports of Condition and Income ......... | 3124 250,613 | 1. 2. Recoveries (must equal part I, item 9, column B above)......................................... | 4605 17,131 | 2. 3. LESS: Charge-offs (must equal part I, item 9, column A above).................................. | 4635 28,162 | 3. 4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 0 | 4. 5. Adjustments* (see instructions for this schedule).............................................. | 4815 (18)| 5. 6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// | item 4.b)...................................................................................... | 3123 239,564 | 6. |____________________| ____________ *Describe on Schedule RI-E--Explanations.
7
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RI-6 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RI--D--INCOME FROM INTERNATIONAL OPERATIONS FOR ALL BANKS WITH FOREIGN OFFICES, EDGE OR AGREEMENT SUBSIDIARIES, OR IBFs WHERE INTERNATIONAL OPERATIONS ACCOUNT FOR MORE THAN 10 PERCENT OF TOTAL REVENUES, TOTAL ASSETS, OR NET INCOME. PART I. ESTIMATED INCOME FROM INTERNATIONAL OPERATIONS _________ | I492 | (- _______________| | Year-to date | ____________________| Dollar Amounts in Thousands | RIAD Bil Mil Thou | _____________________________________________________________________________________________________________________| 1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// | and IBFs: | ////////////////// | a. Interest income booked................................................................... | 4837 N/A | 1.a. b. Interest expense booked.................................................................. | 4838 N/A | 1.b. c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and | ////////////////// | IBFs (item 1.a minus 1.b)................................................................ | 4839 N/A | 1.c. 2. Adjustments for booking location of international operations: | ////////////////// | a. Net interest income attributable to international operations booked at domestic offices.. | 4840 N/A | 2.a. b. Net interest income attributable to domestic business booked at foreign offices ......... | 4841 N/A | 2.b. c. Net booking location adjustment (item 2.a minus 2.b)..................................... | 4842 N/A | 2.c. 3. Noninterest income and expense attributable to international operations: | ////////////////// | a. Noninterest income attributable to international operations.............................. | 4097 N/A | 3.a. b. Provision for loan and lease losses attributable to international operations ............ | 4235 N/A | 3.b. c. Other noninterest expense attributable to international operations....................... | 4239 N/A | 3.c. d. Net noninterest income (expense) attributable to international operations (item 3.a minus | ////////////////// | 3.b and 3.c)............................................................................. | 4843 N/A | 3.d. 4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// | adjustment (sum of items 1.c, 2.c, and 3.d)................................................. | 4844 N/A | 4. 5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// | the effects of equity capital on overall bank funding costs................................. | 4845 N/A | 5. 6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// | adjustment (sum of items 4 and 5)........................................................... | 4846 N/A | 6. 7. Income taxes attributable to income from international operations as estimated in item 6 ... | 4797 N/A | 7. 8. Estimated net income attributable to international operations (item 6 minus 7) ............. | 4341 N/A | 8. |____________________| ____________________ Memoranda Dollar Amounts in Thousands | RIAD Bil Mil Thou | _____________________________________________________________________________________________________________________| 1. Intracompany interest income included in item 1.a above..................................... | 4847 N/A | M.1. 2. Intracompany interest expense included in item 1.b above.................................... | 4848 N/A | M.2. |____________________| PART II. SUPPLEMENTARY DETAILS ON INCOME FROM INTERNATIONAL OPERATIONS REQUIRED BY THE DEPARTMENTS OF COMMERCE AND TREASURY FOR PURPOSES OF U.S. INTERNATIONAL ACCOUNTS AND THE U.S. NATIONAL INCOME AND PRODUCT ACCOUNTS ______________ | Year-to date | ____________________| Dollar Amounts in Thousands | RIAD Bil Mil Thou | _____________________________________________________________________________________________________________________| 1. Interest income booked at IBFs.............................................................. | 4849 N/A | 1. 2. Interest expense booked at IBFs............................................................. | 4850 N/A | 2. 3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// | (excluding IBFs): | ////////////////// | a. Gains (losses) and extraordinary items................................................... | 5491 N/A | 3.a. b. Fees and other noninterest income........................................................ | 5492 N/A | 3.b. 4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// | domestic offices (excluding IBFs)........................................................... | 4852 N/A | 4. 5. Other noninterest expense attributable to international operations booked at domestic | ////////////////// | offices (excluding IBFs).................................................................... | 4853 N/A | 5. |____________________|
8
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RI-7 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RI-E--EXPLANATIONS Schedule RI-E is to be completed each quarter on a calendar year-to-date basis. Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.) _________ | I495 | (- _______________| | Year-to-date | |______________| Dollar Amounts in Thousands | RIAD Bil Mil Thou | _____________________________________________________________________________________________________________________| 1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// | Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// | a. Net gains (losses) on other real estate owned............................................ | 5415 0 | 1.a. b. Net gains (losses) on sales of loans..................................................... | 5416 0 | 1.b. c. Net gains (losses) on sales of premises and fixed assets................................. | 5417 0 | 1.c. Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, | ////////////////// | item 5.f.(2): | ////////////////// | ___________ | | d. | TEXT 4461 | Check Printing Income | 4461 4,946 | 1.d. |___________|_____________________________________________________________________________| | e. | TEXT 4462 | Interbank Contract Services | 4462 24,570 | 1.e. |___________|_____________________________________________________________________________| | f. | TEXT 4463 | Check Redesign Income | 4463 0 | 1.f. |___________|_____________________________________________________________________________| | 2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// | a. Amortization expense of intangible assets................................................ | 4531 21,277 | 2.a. Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// | b. Net (gains) losses on other real estate owned............................................ | 5418 0 | 2.b. c. Net (gains) losses on sales of loans..................................................... | 5419 0 | 2.c. d. Net (gains) losses on sales of premises and fixed assets................................. | 5420 0 | 2.d. Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, | ////////////////// | item 7.c: | ////////////////// | ___________ | | e. | TEXT 4464 | | 4464 | 2.e. |___________|_____________________________________________________________________________| | f. | TEXT 4467 | | 4467 | 2.f. |___________|_____________________________________________________________________________| | g. | TEXT 4468 | | 4468 | 2.g. |___________|_____________________________________________________________________________| | 3. Extraordinary items and other adjustments and applicable income tax effect | ////////////////// | (from Schedule RI, item 11) (itemize and describe all extraordinary items and | ////////////////// | other adjustments): | ////////////////// | ___________ | | a. (1) | TEXT 4469 | | 4469 | 3.a. (1) |___________|_________________________________________________________________________| | (2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a. (2) ___________ |___________|______________| | b. (1) | TEXT 4487 | | 4487 | 3.b. (1) _____________________________________________________________________________________| | (2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b. (2) ___________ |___________|______________| | c. (1) | TEXT 4489 | | 4489 | 3.c. (1) ______________________________________________________________________________________| | (2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c. (2) |___________|______________| | 4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, item 2) | ////////////////// | (itemize and describe all adjustments): | ////////////////// | ___________ | | a. | TEXT 4492 | | 4492 | 4.a. b. | TEXT 4493 | | 4493 | 4.b. ___________ | | 5. Cumulative effect of changes in accounting principles from prior years | ////////////////// | (from Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// | ___________ | | a. | TEXT A546 | Effect of change to GAAP from previous non-GAAP instructions | A546 0 | 5.a. b. | TEXT 4495 | | 4495 | 5.b. ___________ | | 6. Corrections of material accounting errors from prior years (from Schedule RI-A, item 10) | ////////////////// | (itemize and describe all corrections): | ////////////////// | ___________ | | a. | TEXT 4496 | | 4496 | 6.a. b. | TEXT 4497 | | 4497 | 6.b. _________________________________________________________________________________________|____________________|
9
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RI-8 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RI-E--CONTINUED ______________ | Year-to-date | ____________________| Dollar Amounts in Thousands | RIAD Bil Mil Thou | _____________________________________________________________________________________________________________________| 7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// | (itemize and describe all such transactions): | ////////////////// | ___________ | | a. | TEXT 4498 | | 4498 | 7.a. |___________|_____________________________________________________________________________| | b. | TEXT 4499 | | 4499 | 7.b. |___________|_____________________________________________________________________________| | 8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, item 5) | ////////////////// | (itemize and describe all adjustments): | ////////////////// | ___________ | | a. | TEXT 4521 | Sale of Business Unit | 4521 (18)| 8.a. _________________________________________________________________________________________| | b. | TEXT 4522 | | 4522 | 8.b. _________________________________________________________________________________________|____________________| 9. Other explanations (the space below is provided for the bank to briefly describe, at its | I498 | I499 | (- option, any other significant items affecting the Report of Income): |____________________| No comment [ ] (RIAD 4769) Other explanations (please type or print clearly): (TEXT 4769)
10
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-1 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1997 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET ______ | C400 | (- |____________________| Dollar Amounts in Thousands | RCFD Bil Mil Thou | _____________________________________________________________________________________________________________________ ASSETS | ////////////////// | 1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// | a. Noninterest-bearing balances and currency and coin(1)................................... | 0081 2,741,298 | 1.a. b. Interest-bearing balances(2)............................................................ | 0071 101 | 1.b. 2. Securities: | ////////////////// | a. Held-to-maturity securities (from Schedule RC-B, column A).............................. | 1754 489,645 | 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)............................. | 1773 3,466,917 | 2.b. 3. Federal funds sold and securities purchased under agreements to resell..................... | 1350 2,105,790 | 3. 4. Loans and lease financing receivables: ________________________| ////////////////// | a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 13,151,891 | ////////////////// | 4.a. b. LESS: Allowance for loan and lease losses ..................... | RCFD 3123 | 239,564 | ////////////////// | 4.b. c. LESS: Allocated transfer risk reserve ......................... | RCFD 3128 | 0 | ////////////////// | 4.c. d. Loans and leases, net of unearned income, ________________________| ////////////////// | allowance, and reserve (item 4.a minus 4.b and 4.c)..................................... | 2125 12,912,327 | 4.d. 5. Trading assets (from Schedule RC-D)........................................................ | 3545 28,907 | 5. 6. Premises and fixed assets (including capitalized leases)................................... | 2145 570,425 | 6. 7. Other real estate owned (from Schedule RC-M)............................................... | 2150 471 | 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) .. | 2130 13,870 | 8. 9. Customers' liability to this bank on acceptances outstanding............................... | 2155 8,906 | 9. 10. Intangible assets (from Schedule RC-M)..................................................... | 2143 400,914 | 10. 11. Other assets (from Schedule RC-F).......................................................... | 2160 324,428 | 11. 12. Total assets (sum of items 1 through 11)................................................... | 2170 23,063,999 | 12. |____________________| ____________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading.
11
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-2 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC--CONTINUED _________________________ Dollar Amounts in Thousands | ///////// Bil Mil Thou | ___________________________________________________________________________________________|_________________________| LIABILITIES | /////////////////////// | 13. Deposits: | /////////////////////// | a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, | /////////////////////// | part I)........................................................................... | RCON 2200 17,097,137 | 13.a. ______________________| | (1) Noninterest-bearing(1) ................................. | RCON 6631 7,972,040 | /////////////////////// | 13.a.(1) (2) Interest-bearing ....................................... | RCON 6636 9,125,097 | /////////////////////// | 13.a.(2) ______________________| | b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// | part II)........................................................................... | RCFN 2200 400,748 | 13.b. _______________________| | (1) Noninterest-bearing ....................................| RCFN 6631 0 | /////////////////////// | 13.b.(1) (2) Interest-bearing ...................................... | RCFN 6636 400,748 | /////////////////////// | 13.b.(2) _______________________| | 14. Federal funds purchased and securities sold under agreements to repurchase............ | RCFD 2800 1,643,245 | 14. 15. a. Demand notes issued to the U.S. Treasury........................................... | RCON 2840 1,449,182 | 15.a. b. Trading liabilities (from Schedule RC-D)........................................... | RCFD 3548 23,146 | 15.b. 16. Other borrowed money (includes mortgage indebtedness and obligations under | /////////////////////// | capitalized leases): | /////////////////////// | a. With a remaining maturity of one year or less...................................... | RCFD 2332 69,209 | 16.a. b. With a remaining maturity of more than one year through three years................ | RCFD A547 217 | 16.b. c. With a remaining maturity of more than three years................................. | RCFD A548 26,196 | 16.c. 17. Not applicable | /////////////////////// | 18. Bank's liability on acceptances executed and outstanding.............................. | RCFD 2920 8,906 | 18. 19. Subordinated notes and debentures(2).................................................. | RCFD 3200 345,000 | 19. 20. Other liabilities (from Schedule RC-G)................................................ | RCFD 2930 219,910 | 20. 21. Total liabilities (sum of items 13 through 20)........................................ | RCFD 2948 21,282,896 | 21. 22. Not applicable | /////////////////////// | EQUITY CAPITAL | /////////////////////// | 23. Perpetual preferred stock and related surplus......................................... | RCFD 3838 0 | 23. 24. Common stock.......................................................................... | RCFD 3230 612,893 | 24. 25. Surplus (exclude all surplus related to preferred stock).............................. | RCFD 3839 924,675 | 25. 26. a. Undivided profits and capital reserves............................................. | RCFD 3632 266,312 | 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities............. | RCFD 8434 (22,777)| 26.b. 27. Cumulative foreign currency translation adjustments................................... | RCFD 3284 0 | 27. 28. Total equity capital (sum of items 23 through 27)..................................... | RCFD 3210 1,781,103 | 28. 29. Total liabilities and equity capital (sum of items 21 and 28)......................... | RCFD 3300 23,063,999 | 29. |_________________________| Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best Number describes the most comprehensive level of auditing work performed for the bank ________________ by independent external auditors as of any date during 1996................................... | RCFD 6724 N/A | M.1. ________________ 1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external submits a report on the consolidated holding company auditors (but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in 8 = No external audit work accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) ____________ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. (2) Includes limited-life preferred stock and related surplus.
12
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-3 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-A--CASH AND BALANCE DUE FROM DEPOSITORY INSTITUTIONS Exclude assets held for trading. _____ | C405 | (- _________________________________________| | (Column A) | (Column B) | | Consolidated | Domestic | | Bank Offices | _________________________________________| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | ___________________________________________________________________________________________________________________________| 1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// | coin ........................................................................ | 0022 2,443,756 | ////////////////// | 1. a. Cash items in process of collection and unposted debits .................. | ////////////////// | 0020 2,125,612 | 1.a. b. Currency and coin ........................................................ | ////////////////// | 0080 318,144 | 1.b. 2. Balances due from depository institutions in the U.S. ....................... | ////////////////// | 0082 78,811 | 2. a. U.S. branches and agencies of foreign banks (including their IBFs) ....... | 0083 1 | ////////////////// | 2.a. b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// | in the U.S. (including their IBFs) ....................................... | 0085 78,810 | ////////////////// | 2.b. 3. Balances due from banks in foreign countries and foreign central banks ...... | ////////////////// | 0070 25,256 | 3. a. Foreign branches of other U.S. banks ..................................... | 0073 2,786 | ////////////////// | 3.a. b. Other banks in foreign countries and foreign central banks ............... | 0074 22,470 | ////////////////// | 3.b. 4. Balances due from Federal Reserve Banks ..................................... | 0090 193,576 | 0090 193,576 | 4. 5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// | Schedule RC, sum of items 1.a and 1.b) ...................................... | 0010 2,741,399 | 0010 2,741,399 | 5. |_________________________________________| Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | ___________________________________________________________________________________________________________________________ 1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// | column B above)................................................................................... | 0050 78,711 | M.1. ____________________ SCHEDULE RC-B--SECURITIES Exclude assets held for trading. ______ | C410 | __________________________________________________________________________________ | | Held-to-maturity | Available-for-sale | |___________________________________________________________________________________| | (Column A) | (Column B) | (Column C) | (Column D) | | Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) | |____________________|____________________|____________________|____________________| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | _______________________________________|____________________|____________________|____________________|____________________| 1. U.S. Treasury securities .......... | 0211 17,975 | 0213 17,957 | 1286 785,912 | 1287 775,806 | 1. 2. U.S. Government agency obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// | ment agencies(2) ............... | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a. b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// | Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// | agencies(3) .................... | 1294 36 | 1295 137 | 1297 0 | 1298 0 | 2.b. ___________________________________________________________________________________ _____________ (1) Includes equity securities without readily determinable fair values at historical cost in item 6.b, column D. (2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and Export-Import Bank participation certificates. (3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
13
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-3 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-A--CASH AND BALANCE DUE FROM DEPOSITORY INSTITUTIONS Exclude assets held for trading. ________________________________________ _________________________________________ | Held-to-maturity | Available-for-sale | |___________________________________________________________________________________| | (Column A) | (Column B) | (Column C) | (Column D) | | Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) | |____________________|____________________|____________________|____________________| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ______________________________________|____________________|____________________|____________________|____________________| 3. Securities issued by states | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and political subdivisions | ////////////////// | ////////////////// | ////////////////// | ////////////////// | in the U.S.: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. General obligations ........... | 1676 230 | 1677 230 | 1678 0 | 1679 0 | 3.a. b. Revenue obligations ........... | 1681 30 | 1686 30 | 1690 0 | 1691 0 | 3.b. c. Industrial development | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and similar obligations ....... | 1694 0 | 1695 0 | 1696 0 | 1697 0 | 3.c. 4. Mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities (MBS): | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Pass-through securities: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Guaranteed by | ////////////////// | ////////////////// | ////////////////// | ////////////////// | GNMA .......................... | 1698 0 | 1699 0 | 1701 1,155,677 | 1702 1,166,465 | 4.a. (1) (2) Issued by FNMA | ////////////////// | ////////////////// | ////////////////// | ////////////////// | and FHLMC ................. | 1703 471,374 | 1705 468,355 | 1706 1,202,607 | 1707 1,196,885 | 4.a. (2) (3) Other pass-through | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities ................ | 1709 0 | 1710 0 | 1711 0 | 1713 0 | 4.a. (3) b. Other mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities (include CMOs, | ////////////////// | ////////////////// | ////////////////// | ////////////////// | REMICs, and stripped | ////////////////// | ////////////////// | ////////////////// | ////////////////// | MBS): | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Issued or guaranteed | ////////////////// | ////////////////// | ////////////////// | ////////////////// | by FNMA, FHLMC, | ////////////////// | ////////////////// | ////////////////// | ////////////////// | or GNMA ................... | 1714 0 | 1715 0 | 1716 280,118 | 1717 278,992 | 4.b. (1) (2) Collateralized | ////////////////// | ////////////////// | ////////////////// | ////////////////// | by MBS issued or | ////////////////// | ////////////////// | ////////////////// | ////////////////// | guaranteed by FNMA, | ////////////////// | ////////////////// | ////////////////// | ////////////////// | FHLMC, or GNMA ............ | 1718 0 | 1719 0 | 1731 2,604 | 1732 2,642 | 4.b. (2) (3) All other mortgage- | ////////////////// | ////////////////// | ////////////////// | ////////////////// | backed securities ......... | 1733 0 | 1734 0 | 1735 0 | 1736 0 | 4.b. (3) 5. Other debt securities: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Other domestic debt | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities .................... | 1737 0 | 1738 0 | 1739 0 | 1741 0 | 5.a. b. Foreign debt | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities .................... | 1742 0 | 1743 0 | 1744 0 | 1746 0 | 5.b. 6. Equity securities: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Investments in mutual | ////////////////// | ////////////////// | ////////////////// | ////////////////// | funds and other equity | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities with readily | ////////////////// | ////////////////// | ////////////////// | ////////////////// | determinable fair values ...... | ////////////////// | ////////////////// | A510 0 | A511 0 | 6.a. b. All other equity | ////////////////// | ////////////////// | ////////////////// | ////////////////// | securities(1) ................. | ////////////////// | ////////////////// | 1752 46,127 | 1753 46,127 | 6.b. 7. Total (sum of items 1 | ////////////////// | ////////////////// | ////////////////// | ////////////////// | through 6) (total of | ////////////////// | ////////////////// | ////////////////// | ////////////////// | column A must equal | ////////////////// | ////////////////// | ////////////////// | ////////////////// | Schedule RC, item 2.a) | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (total of column D must | ////////////////// | ////////////////// | ////////////////// | ////////////////// | equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// | ////////////////// | item 2.b) ........................ | 1754 489,645 | 1771 486,709 | 1772 3,473,045 | 1773 3,466,917 | 7. |___________________________________________________________________________________| _____________ (1) Includes equity securities without readily determinable fair values at historical cost in item 6.b, column D.
14
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-5 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-B--CONTINUED _______ | C412 |(- _____________________ Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou | _______________________________________________________________________________________________________________________ 1. Pledged securities(1)......................................................................... | 0416 1,770,118 | M.1. 2. Maturity and repricing data for debt securities(1),(2) (excluding those in | ////////////////// | nonaccrual status): | ////////////////// | a. Securities issued by the U.S. Treasury, U.S. Government agencies, and states and political | ////////////////// | subdivisions in the U.S.; other non-mortgage debt securities; and mortgage pass-through | ////////////////// | securities other than those backed by closed-end first lien 1-4 family residential | ////////////////// | mortgages with a remaining maturity or repricing frequency of:(3)(4) | ////////////////// | (1) Three months or less................................................................... | A549 18,026 | M.2.a. (1) (2) Over three months through 12 months.................................................... | A550 15 | M.2.a. (2) (3) Over one year through three years...................................................... | A551 274,791 | M.2.a. (3) (4) Over three years through five years.................................................... | A552 346,037 | M.2.a. (4) (5) Over five years through 15 years....................................................... | A553 145,356 | M.2.a. (5) (6) Over 15 years.......................................................................... | A554 9,852 | M.2.a. (6) b. Mortgage pass-through securities backed by closed-end first lien 1-4 family residential | ////////////////// | mortgages with a remaining maturity or repricing frequency of:(3)(5) | ////////////////// | (1) Three months or less................................................................... | A555 12,045 | M.2.b. (1) (2) Over three months through 12 months.................................................... | A556 119,081 | M.2.b. (2) (3) Over one year through three years...................................................... | A557 106,413 | M.2.b. (3) (4) Over three years through five years.................................................... | A558 232,740 | M.2.b. (4) (5) Over five years through 15 years....................................................... | A559 408,831 | M.2.b. (5) (6) Over 15 years.......................................................................... | A560 1,955,614 | M.2.b. (6) c. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS; exclude mortgage | ////////////////// | pass-through securities) with an expected average life of:(6) | ////////////////// | (1) Three years or less.................................................................... | A561 0 | M.2.c. (1) (2) Over three years....................................................................... | A562 281,634 | M.2.c. (2) d. Fixed rate AND floating rate debt securities with a REMAINING MATURITY of one year or less | ////////////////// | (included in Memorandum items 2.a through 2.c above)....................................... | A248 147,489 | M.2.d. 3.-6. Not applicable | ////////////////// | 7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// | trading securities during the calendar year-to-date (report the amortized cost at date of sale | ////////////////// | or transfer).................................................................................. | 1778 0 | M.7. 8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// | accounts in Schedule RC-B, item 4.b): | ////////////////// | a. Amortized cost............................................................................. | 8780 0 | M.8.a. b. Fair value................................................................................. | 8781 0 | M.8.b. 9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// | Schedule RC-B, items 2, 3, and 5): | ////////////////// | a. Amortized cost............................................................................. | 8782 0 | M.9.a. b. Fair value................................................................................. | 8783 0 | M.9.b. -------------------- _____________ (1) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value. (2) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock. (3) Report fixed rate debt securities by remaining maturity and floating rate debt securities by repricing frequency. (4) Sum of Memorandum items 2.a.(1) through 2.a.(6) plus any nonaccrual debt securities in the categories of debt securities reported in Memorandum item 2.a that are included in Schedule RC-N, item 9, column C, must equal Schedule RC-B, sum of items 1, 2, 3, and 5, columns A and D, plus mortgage pass-through securities other than those backed by closed-end first lien 1-4 family residential mortgages included in Schedule RC-B, item 4.a, columns A and D. (5) Sum of Memorandum items 2.b.(1) through 2.b.(6) plus any nonaccrual mortgage pass-through securities backed by closed-end first lien 1-4 family residential mortgages included in Schedule RC-N, item 9, column C, must equal Schedule RC-B, item 4.a, sum of columns A and D, less the amount of mortgage pass-through securities other than those backed by closed-end first lien 1-4 family residential mortgages included in Schedule RC-B, item 4.a, columns A and D. (6) Sum of Memorandum items 2.c.(1) and 2.c.(2) plus any nonaccrual "Other mortgage-backed securities" included in Schedule RC-N, item 9, column C, must equal Schedule RC-B, item 4.b, sum of columns A and D.
15
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-6 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-C-LOANS AND LEASE FINANCING RECEIVABLES PART I. LOANS AND LEASES Do not deduct the allowance for loan and lease losses from amounts ______ reported in this schedule. Report total loans and leases, net of unearned | C415 | (- income. Exclude assets held for trading and commercial paper. _________________________________________ | (Column A) | (Column B) | | Consolidated | Domestic | | Bank Offices | _________________________________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou | _______________________________________________________________________________________________________________________| 1. Loans secured by real estate ........................................... | 1410 2,562,477 | ////////////////// | 1. a. Construction and land development ................................... | ////////////////// | 1415 562,279 | 1.a. b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// | improvements) ....................................................... | ////////////////// | 1420 16,858 | 1.b. c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// | properties and extended under lines of credit ................... | ////////////////// | 1797 0 | 1.c.(1) (2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// | (a) Secured by first liens ...................................... | ////////////////// | 5367 822,205 | 1.c.(2)(a) (b) Secured by junior liens ..................................... | ////////////////// | 5368 321,549 | 1.c.(2)(b) d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 138,112 | 1.d. e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 701,474 | 1.e. 2. Loans to depository institutions: | ////////////////// | ////////////////// | a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 4,274 | 2.a. (1) To U.S. branches and agencies of foreign banks .................. | 1506 2,700 | ////////////////// | 2.a.(1) (2) To other commercial banks in the U.S. ........................... | 1507 1,574 | ////////////////// | 2.a.(2) b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 0 | 2.b. c. To banks in foreign countries ....................................... | ////////////////// | 1510 19,326 | 2.c. (1) To foreign branches of other U.S. banks ......................... | 1513 0 | ////////////////// | 2.c.(1) (2) To other banks in foreign countries ............................. | 1516 19,609 | ////////////////// | 2.c.(2) 3. Loans to finance agricultural production and other loans to farmers .... | 1590 41,137 | 1590 41,137 | 3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ....................................... | 1763 6,349,713 | 1763 6,264,588 | 4.a. b. To non-U.S. addressees (domicile) ................................... | 1764 233,362 | 1764 146,351 | 4.b. 5. Acceptances of other banks: | ////////////////// | ////////////////// | a. Of U.S. banks ....................................................... | 1756 0 | 1756 0 | 5.a. b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b. 6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// | expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 2,393,932 | 6. a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// | revolving credit plans) ............................................. | 2008 133,917 | ////////////////// | 6.a. b. Other (includes single payment, installment, and all student loans) . | 2011 2,260,015 | ////////////////// | 6.b. 7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// | foreign central banks) ................................................. | 2081 123,936 | 2081 119,631 | 7. 8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// | subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// | obligations) ........................................................... | 2107 16,799 | 2107 16,799 | 8. 9. Other loans ............................................................ | 1563 1,265,174 | ////////////////// | 9. a. Loans for purchasing or carrying securities (secured and unsecured) . | ////////////////// | 1545 96,766 | 9.a. b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 1,168,408 | 9.b. 10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 141,478 | 10. a. Of U.S. addressees (domicile) ....................................... | 2182 129,440 | ////////////////// | 10.a. b. Of non-U.S. addressees (domicile) ................................... | 2183 12,038 | ////////////////// | 10.b. 11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 0 | 2123 0 | 11. 12. Total loans and leases, net of unearned income (sum of items 1 | ////////////////// | ////////////////// | through 10 minus item 11) (total of column A must equal | ////////////////// | ////////////////// | Schedule RC, item 4.a) ................................................. | 2122 13,151,891 | 2122 12,975,167 | 12. -----------------------------------------
16
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-7 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-C--CONTINUED PART I. CONTINUED __________________________ Memoranda Dollar Amounts in Thousands | ///////// Bil Mil Thou | ________________________________________________________________________________________________________________________ 1. Not applicable | /////////////////////// | 2. Loans and leases restructured and in compliance with modified terms (included in Schedule | /////////////////////// | RC-C, part I, above and not reported as past due or nonaccrual in Schedule RC-N, | /////////////////////// | Memorandum item 1): | /////////////////////// | a. Loans secured by real estate: | /////////////////////// | (1) To U.S. addressees (domicile) .................................................... | RCFD 1687 0 | M.2.a.(1) (2) To non-U.S. addressees (domicile) ................................................ | RCFD 1689 0 | M.2.a.(2) b. All other loans and all lease financing receivables (exclude loans to individuals for | /////////////////////// | household, family, and other personal expenditures) .................................. | RCFD 8691 147,859 | M.2.b. c. Commercial and industrial loans to and lease financing receivables of non-U.S. | /////////////////////// | addresses (domicile) included in Memorandum item 2.b above ........................... | RCFD 8692 0 | M.2.c. 3. Maturity and repricing data for loans and leases (excluding those in | /////////////////////// | nonaccrual status): | /////////////////////// | a. Closed-end loans secured by first liens on 1-4 family residential properties | /////////////////////// | in domestic offices with a remaining maturity or repricing frequency of:(1)(2) | /////////////////////// | (1) Three months or less ............................................................. | RCON A564 15,684 | M.3.a.(1) (2) Over three months through 12 months .............................................. | RCON A565 140,017 | M.3.a.(2) (3) Over one year through three years ................................................ | RCON A566 43,402 | M.3.a.(3) (4) Over three years through five years .............................................. | RCON A567 29,896 | M.3.a.(4) (5) Over five years through 15 years ................................................. | RCON A568 64,821 | M.3.a.(5) (6) Over 15 years .................................................................... | RCON A569 516,429 | M.3.a.(6) b. All loans and leases other than closed-end loans secured by first liens on 1-4 family | /////////////////////// | residential properties in domestic offices with a remaining maturity or repricing | /////////////////////// | frequency of:(1)(3) | /////////////////////// | (1) Three months or less ............................................................. | RCFD A570 7,350,018 | M.3.b.(1) (2) Over three months through 12 months .............................................. | RCFD A571 1,534,829 | M.3.b.(2) (3) Over one year through three years ................................................ | RCFD A572 804,147 | M.3.b.(3) (4) Over three years through five years .............................................. | RCFD A573 1,730,237 | M.3.b.(4) (5) Over five years through 15 years ................................................. | RCFD A574 639,605 | M.3.b.(5) (6) Over 15 years .................................................................... | RCFD A575 193,748 | M.3.b.(6) c. Fixed rate AND floating rate loans and leases with a REMAINING MATURITY of one year | /////////////////////// | or less (included in Memorandum items 3.a and 3.b above) ............................. | RCFD A247 4,747,551 | M.3.c. d. Fixed rate AND floating rate loans secured by nonfarm nonresidential properties | /////////////////////// | in domestic offices(4) with a REMAINING MATURITY of over five years (included in | /////////////////////// | Memorandum item 3.b above) ........................................................... | RCON A577 117,290 | M.3.d. e. Fixed rate AND floating rate commercial and industrial loans(5) with a REMAINING | /////////////////////// | MATURITY of over three years (included in Memorandum item 3.b above) ................. | RCFD A578 2,510,350 | M.3.e. --------------------------- _____________ (1) Report fixed rate loans and leases by remaining maturity and floating rate loans by repricing frequency. (2) Sum of Memorandum items 3.a.(1) through 3.a.(6) plus total nonaccrual closed-end loans secured by first liens on 1-4 family residential properties in domestic offices included in Schedule RC-N, Memorandum item 3.c.(2), column C, must equal total closed-end loans secured by first liens on 1-4 family residential properties from Schedule RC-C, part I, item 1.c.(2)(a), column B. (3) Sum of Memorandum items 3.b.(1) through 3.b.(6), plus total nonaccrual loans and leases from Schedule RC-N, sum of items 1 through 8, column C, minus nonaccrual closed-end loans secured by first liens on 1-4 family residential properties in domestic offices included in Schedule RC-N, Memorandum item 3.c.(2), column C, must equal total loans and leases from Schedule RC-C, part I, sum of items 1 through 10, column A, minus total closed-end loans secured by first liens on 1-4 family residential properties in domestic offices from Schedule RC-C, part I, item 1.c.(2)(a), column B. (4) As defined for Schedule RC-C, part I, item 1.e, column B. (5) As defined for Schedule RC-C, part I, item 4, column A.
17
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-8 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-C--CONTINUED PART I. CONTINUED __________________________ Memoranda (Continued) Dollar Amounts in Thousands | ///////// Bil Mil Thou | ________________________________________________________________________________________________________________________ 4. Loans to finance commercial real estate, construction, and land development activities | /////////////////////// | (not secured by real estate) included in Schedule RC-C, part I, items 4 and 9, column A, | /////////////////////// | page RC-6(1) ................................................................................. | RCFD 2746 488,192 | M.4. 5. Loans and leases held for sale (included in Schedule RC-C, part I, page RC-6) ................ | RCFD 5369 263,962 | M.5. 6. Adjustable rate closed-end loans secured by first liens on 1-4 family residential properties | /////////////////////// | in domestic offices (included in Schedule RC-C, part I, item 1.c.(2)(a), column B, page RC-6) | RCON 5370 176,758 | M.6. |_________________________| _____________ (1) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A. SCHEDULE RC-D--TRADING ASSETS AND LIABILITIES Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D). _______ | C420 |(- __________________________| Dollar Amounts in Thousands | ///////// Bil Mil Thou | ____________________________________________________________________________________________________________________________| ASSETS | /////////////////////// | 1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1. 2. U.S. Government agency obligations in domestic offices (exclude mortgage-backed securities) . | RCON 3532 0 | 2. 3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3. 4. Mortgage-backed securities (MBS) in domestic offices: | /////////////////////// | a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a. b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// | (include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b. c. All other mortgage-backed securities ..................................................... | RCON 3536 0 | 4.c. 5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5. 6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6. 7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7. 8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8. 9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9. 10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10. 11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// | contracts: | /////////////////////// | a. In domestic offices ...................................................................... | RCON 3543 28,620 | 11.a. b. In foreign offices ....................................................................... | RCFN 3543 287 | 11.b. 12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 28,907 | 12. |_________________________| |_________________________| | ///////// Bil Mil Thou | LIABILITIES |_________________________| 13. Liability for short positions ............................................................... | RCFD 3546 0 | 13. 14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// | contracts ................................................................................... | RCFD 3547 23,146 | 14. 15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 23,146 | 15. |_________________________|
18
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-8a City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-C--CONTINUED PART II. LOANS TO SMALL BUSINESSES AND SMALL FARMS Schedule RC-C, Part II is to be reported only with the June Report of Condition. Report the number and amount currently outstanding as of June 30 of business loans with "original amounts" of $1,000,000 or less and farm loans with "original amounts" of $500,000 or less. The following guidelines should be used to determine the "original amount" of a loan: (1) For loans drawn down under lines of credit or loan commitments, the "original amount" of the loan is the size of the line of credit or loan commitment when the line of credit or loan commitment was most recently approved, extended, or renewed prior to the report date. However, if the amount currently outstanding as of the report date exceeds this size, the "original amount" is the amount currently outstanding on the report date. (2) For loan participations and syndications, the "original amount" of the loan participation or syndication is the entire amount of the credit originated by the lead lender. (3) For all other loans, the "original amount" is the total amount of the loan at origination or the amount currently outstanding as of the report date, whichever is larger. Loans to Small Businesses 1. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your bank's "Loans secured by nonfarm nonresidential properties" in domestic offices reported in Schedule RC-C, part I, item 1.e, column B, and all or substantially all of the dollar volume of your bank's _________ "Commercial and industrial loans to U.S. addressees" in domestic offices reported in Schedule RC-C, | C418 | (- _____________________ | RCON YES NO | part I, item 4.a, column B, have original amounts of $100,000 or less (If your bank has no loans |____________________| outstanding in both of these two loan categories, place an "X" in the box marked "NO".) .......... | 6999| |///| X | 1. |____________________| If YES, complete items 2.a and 2.b below, skip items 3 and 4, and go to item 5. If NO and your bank has loans outstanding in either loan category, skip items 2.a and 2.b, complete items 3 and 4 below, and go to item 5. If NO and your bank has no loans outstanding in both loan categories, skip items 2 through 4, and go to item 5. ______________________ 2. Report the total number of loans currently outstanding for each of the | Number of Loans | following Schedule RC-C, part I, loan categories: | RCON |//////////// | a. "Loans secured by nonfarm nonresidential properties" in domestic offices | ////////////////// | reported in Schedule RC-C, part I, item 1.e, column B. (Note: Item 1.e, | ////////////////// | column B, divided by the number of loans should NOT exceed $100,000.) ... | 5562 N/A | 2.a. b. "Commercial and industrial loans to U.S. addressees" in domestic offices | ////////////////// | reported in Schedule RC-C, part I, item 4.a, column B. (Note: Item 4.a, | ////////////////// | column B, divided by the number of loans should NOT exceed $100,000.) ... | 5563 N/A | 2.b. ______________________ ___________________________________________ | (Column A) | (Column B) | | | Amount | | | Currently | | Number of Loans | Outstanding | ___________________________________________ Dollar Amounts in Thousands | RCON |/////////////| RCON Bil Mil Thou | ___________________________________________________________________________________________________________________________ 3. Number and amount currently outstanding of "Loans secured by nonfarm | /////////////////////////////////////// | nonresidential properties" in domestic offices reported in Schedule RC-C, | /////////////////////////////////////// | part I, item 1.e, column B (sum of items 3.a through 3.c must be less than | /////////////////////////////////////// | or equal to Schedule RC-C, part I, item 1.e, column B): | /////////////////////////////////////// | a. With original amounts of $100,000 or less ................................ | 5564 582 | 5565 21,103 | 3.a. b. With original amounts of more than $100,000 through $250,000 ............. | 5566 506 | 5567 56,876 | 3.b. c. With original amounts of more than $250,000 through $1,000,000 ........... | 5568 537 | 5569 175,259 | 3.c. 4. Number and amount currently outstanding of "Commercial and industrial | /////////////////////////////////////// | loans to U.S. addressees" in domestic offices reported in Schedule RC-C, | /////////////////////////////////////// | part I, item 4.a, column B (sum of items 4.a through 4.c must be less than | /////////////////////////////////////// | or equal to Schedule RC-C, part I, item 4.a, column B): | /////////////////////////////////////// | a. With original amounts of $100,000 or less ................................ | 5570 12,496 | 5571 237,529 | 4.a. b. With original amounts of more than $100,000 through $250,000 ............. | 5572 1,523 | 5573 165,339 | 4.b. c. With original amounts of more than $250,000 through $1,000,000 ........... | 5574 1,587 | 5575 448,175 | 4.c. ___________________________________________
18a
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-8b City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-C--CONTINUED PART II. CONTINUED Agricultural Loans to Small Farms 5. Indicate in the appropriate box at the right whether all or substantially all of the dollar volume of your bank's "Loans secured by farmland (including farm residential and other improvements)" in domestic offices reported in Schedule RC-C, part I, item 1.b, column B, and all or substantially all of the dollar volume of your bank's "Loans to finance agricultural production and other loans to farmers" in domestic offices reported in Schedule RC-C, part I, item 3, column B, have original amounts YES NO of $100,000 or less (If your bank has no loans outstanding in both of these two loan categories, ------------------------ place an "X" in the box marked "NO".) ............................................................ | 6860| |///| X | 5. ------------------------ If YES, complete items 6.a and 6.b below and do not complete items 7 and 8. If NO and your bank has loans outstanding in either loan category, skip items 6.a and 6.b and complete items 7 and 8 below. If NO and your bank has no loans outstanding in both loan categories, do not complete items 6 through 8. ______________________ 6. Report the total number of loans currently outstanding for each of the | Number of Loans | following Schedule RC-C, part I, loan categories: |_____________________| a. "Loans secured by farmland (including farm residential and other | RCON |//////////// | improvements)" in domestic offices reported in Schedule RC-C, part I, | ////////////////// | item 1.b, column B. (Note: Item 1.b, column B, divided by the number of | ////////////////// | loans should NOT exceed $100,000.) ....................................... | 5576 N/A | 6.a. b. "Loans to finance agricultural production and other loans to farmers" in | ////////////////// | domestic offices reported in Schedule RC-C, part I, item 3, column B. | ////////////////// | (Note: Item 3, column B, divided by the number of loans should NOT | ////////////////// | exceed $100,000.) ........................................................ | 5577 N/A | 6.b. ----------------------- __________________________________________ | (Column A) | (Column B) | | | Amount | | | Currently | | Number of Loans | Outstanding | |_________________________________________| Dollar Amounts in Thousands | RCON | /////////////| RCON Bil Mil Thou | _________________________________________________________________________________| ________________________________________| 7. Number and amount currently outstanding of "Loans secured by farmland | /////////////////////////////////////// | (including farm residential and other improvements)" in domestic offices | /////////////////////////////////////// | reported in Schedule RC-C, part I, item 1.b, column B (sum of items 7.a | /////////////////////////////////////// | through 7.c must be less than or equal to Schedule RC-C, part I, item 1.b, | /////////////////////////////////////// | column B): | /////////////////////////////////////// | a. With original amounts of $100,000 or less ................................ | 5578 17 | 5579 474 | 7.a. b. With original amounts of more than $100,000 through $250,000 ............. | 5580 12 | 5581 1,778 | 7.b. c. With original amounts of more than $250,000 through $500,000 ............. | 5582 9 | 5583 2,488 | 7.c. 8. Number and amount currently outstanding of "Loans to finance agricultural | /////////////////////////////////////// | production and other loans to farmers" in domestic offices reported in | /////////////////////////////////////// | Schedule RC-C, part I, item 3, column B (sum of items 8.a through 8.c | /////////////////////////////////////// | must be less than or equal to Schedule RC-C, part I, item 3, column B): | /////////////////////////////////////// | a. With original amounts of $100,000 or less ................................ | 5584 109 | 5585 2,847 | 8.a. b. With original amounts of more than $100,000 through $250,000 ............. | 5586 29 | 5587 2,925 | 8.b. c. With original amounts of more than $250,000 through $500,000 ............. | 5588 9 | 5589 1,675 | 8.c. |_________________________________________|
18b
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-9 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-E--DEPOSIT LIABILITIES PART I. DEPOSITS IN DOMESTIC OFFICES ________ | C425| (- _______________________________________________________________ | | Nontransaction | | Transaction Accounts | Accounts | _______________________________________________________________ | (Column A) | (Column B) | (Column C) | | Total transaction | Memo: Total | Total | |accounts (including | demand deposits | nontransaction | | total demand | (included in | accounts | | deposits) | column A) | (including MMDAs) | ________________________________________________________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou | _________________________________________________________________________________________________________________________ Deposits of: | ////////////////// | ////////////////// | ////////////////// | 1. Individuals, partnerships, and corporations .......... | 2201 5,633,008 | 2240 5,220,485 | 2346 10,412,587 | 1. 2. U.S. Government ...................................... | 2202 34,740 | 2280 33,208 | 2520 1,012 | 2. 3. States and political subdivisions in the U.S. ........ | 2203 138,852 | 2290 64,437 | 2530 119,867 | 3. 4. Commercial banks in the U.S. ......................... | 2206 620,603 | 2310 620,603 | 2550 0 | 4. 5. Other depository institutions in the U.S. ............ | 2207 19,898 | 2312 19,898 | 2349 0 | 5. 6. Banks in foreign countries ........................... | 2213 34,465 | 2320 34,465 | 2236 0 | 6. 7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// | (including foreign central banks) .................... | 2216 1,545 | 2300 1,545 | 2377 0 | 7. 8. Certified and official checks ........................ | 2330 80,560 | 2330 80,560 | ////////////////// | 8. 9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// | columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// | item 13.a) ........................................... | 2215 6,563,671 | 2210 6,075,201 | 2385 10,533,466 | 9. ---------------------------------------------------------------- _____________________ Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________________________________ 1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// | a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 727,929 | M.1.a. b. Total brokered deposits ..................................................................... | 2365 0 | M.1.b. c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// | (1) Issued in denominations of less than $100,000 ........................................... | 2343 0 | M.1.c.(1) (2) Issued either in denominations of $100,000 or in denominations greater than | ////////////////// | $100,000 and participated out by the broker in shares of $100,000 or less ............... | 2344 0 | M.1.c.(2) d. Maturity data for brokered deposits: | ////////////////// | (1) Brokered deposits issued in denominations of less than $100,000 with a remaining | ////////////////// | maturity of one year or less (included in Memorandum item 1.c.(1) above) ................ | A243 0 | M.1.d.(1) (2) Brokered deposits issued in denominations of $100,000 or more with a remaining | ////////////////// | maturity of one year or less (included in Memorandum item 1.b above) .................... | A244 0 | M.1.d.(2) e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// | reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 229,076 | M.1.e. 2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d | ////////////////// | must equal item 9, column C above): | ////////////////// | a. Savings deposits: | ////////////////// | (1) Money market deposit accounts (MMDAs) ................................................... | 6810 4,125,484 | M.2.a.(1) (2) Other savings deposits (excludes MMDAs) ................................................. | 0352 2,967,900 | M.2.a.(2) b. Total time deposits of less than $100,000 ................................................... | 6648 2,548,730 | M.2.b. c. Total time deposits of $100,000 or more ..................................................... | 2604 891,352 | M.2.c. 3. All NOW accounts (included in column A above) .................................................. | 2398 488,470 | M.3. ---------------------- 4. Not applicable
19
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-10 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-E--CONTINUED PART I. CONTINUED Memoranda (continued) _____________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | _________________________________________________________________________________________________________________________ 5. Maturity and repricing data for time deposits of less than $100,000: | ////////////////// | a. Time deposits of less than $100,000 with a remaining maturity or repricing frequency | ////////////////// | of:(1)(2) | ////////////////// | (1) Three months or less ................................................................... | A579 1,146,827 | M.5.a.(1) (2) Over three months through 12 months .................................................... | A580 972,681 | M.5.a.(2) (3) Over one year through three years ...................................................... | A581 344,979 | M.5.a.(3) (4) Over three years ....................................................................... | A582 84,243 | M.5.a.(4) b. Fixed rate AND floating rate time deposits of less than $100,000 with a REMAINING MATURITY | ////////////////// | of one year or less (included in Memorandum items 5.a.(1) through 5.a.(4) above) ........... | A241 2,119,519 | M.5.b. 6. Maturity and repricing data for time deposits of $100,000 or more: | ////////////////// | a. Time deposits of $100,000 or more with a remaining maturity or repricing frequency of:(1)(3) | ////////////////// | (1) Three months or less ................................................................... | A584 590,057 | M.6.a.(1) (2) Over three months through 12 months .................................................... | A585 231,862 | M.6.a.(2) (3) Over one year through three years ...................................................... | A586 55,616 | M.6.a.(3) (4) Over three years ....................................................................... | A587 13,817 | M.6.a.(4) b. Fixed rate AND floating rate time deposits of $100,000 or more with a REMAINING MATURITY of | ////////////////// | one year or less (included in Memorandum items 6.a.(1) through 6.a.(4) above) .............. | A242 821,918 | M.6.b. ---------------------- _____________ (1) Report fixed rate time deposits by remaining maturity and floating rate time deposits by repricing frequency. (2) Sum of Memorandum items 5.a.(1) through 5.a.(4) must equal Schedule RC-E, Memorandum item 2.b above. (3) Sum of Memorandum items 6.a.(1) through 6.a.(4) must equal Schedule RC-E, Memorandum item 2.c above.
20
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-11 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-E--CONTINUED PART II. DEPOSITS IN FOREIGN OFFICES (INCLUDING EDGE AND AGREEMENT SUBDIARIES AND IBFs) _____________________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | _________________________________________________________________________________________________________________________ Deposits of: | ////////////////// | 1. Individuals, partnerships, and corporations ................................................... | 2621 371,724 | 1. 2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 28,940 | 2. 3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs) ... | 2625 84 | 3. 4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4. 5. Certified and official checks ................................................................. | 2330 0 | 5. 6. All other deposits ............................................................................ | 2668 0 | 6. 7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 400,748 | 7. |____________________| Memorandum _____________________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | _________________________________________________________________________________________________________________________ 1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) | A245 400,748 | M.1. ____________________ Schedule RC-F--Other Assets __________ | C430 | (- __________________________ Dollar Amounts in Thousands | //////// Bil Mil Thou | ____________________________________________________________________________________________________________________________ 1. Income earned, not collected on loans ........................................................ | RCFD 2164 91,268 | 1. 2. Net deferred tax assets(1) ................................................................... | RCFD 2148 58,300 | 2. 3. Interest-only strips receivable (not in the form of a security)(2) on: | /////////////////////// | a. Mortgage loans ............................................................................ | RCFD A519 0 | 3.a. b. Other financial assets .................................................................... | RCFD A520 0 | 3.b. 4. Other (itemize and describe amounts that exceed 25% of this item) ............................ | RCFD 2168 174,860 | 4. _____________ | | a. | TEXT 3549 | ____________________________| | _________________________________________________________________| RCFD 3549 | /////////////////////// | 4.a. b. | TEXT 3550 | ____________________________| | _________________________________________________________________| RCFD 3550 | /////////////////////// | 4.b. c. | TEXT 3551 | ____________________________| | _________________________________________________________________| RCFD 3551 | /////////////////////// | 4.c. ____________________________| | 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 324,428 | 5. |_________________________| _________________________ Memorandum Dollar Amounts in Thousands | ///////// Bil Mil Thou | ____________________________________________________________________________________________________________________________ 1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1. _________________________ Schedule RC-G--Other Liabilities __________ | C435 | (- __________________________| Dollar Amounts in Thousands | //////// Bil Mil Thou | ____________________________________________________________________________________________________________________________| 1. a. Interest accrued and unpaid on deposits in domestic offices(3) ............................ | RCON 3645 23,235 | 1.a. b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 183,704 | 1.b. 2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 0 | 2. 3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3. 4. Other (itemize and describe amounts that exceed 25% of this item) ............................ | RCFD 2938 12,971 | 4. _____________ INTERCOMPANY RECEIVALBE ___________________________| | a. | TEXT 3552 |____________________________________________________| RCFD 3552 | 3,876 | /////////////////////// | 4.a. ------------- | | b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b. ------------- | | c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c. _____________________________________________________________________________________________| | 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 219,910 | 5. _________________________ ____________ (1) See discussion of deferred income taxes in Glossary entry on "income taxes." (2) Report interest-only strips receivable in the form of a security as available-for-sale securities in Schedule RC, item 2.b, or as trading assets in Schedule RC, item 5, as appropriate. (3) For savings banks, include "dividends" accrued and unpaid on deposits.
21
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-12 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-H--SELECTED BALANCE SHEET ITEMS FOR DOMESTIC OFFICES _________ | C440 | (- _____________________| | Domestic Offices | _____________________| Dollar Amounts in Thousands | RCON Bil Mil Thou | __________________________________________________________________________________________________________________________| 1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 8,906 | 1. 2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 8,906 | 2. 3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 2,105,790 | 3. 4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 1,643,245 | 4. 5. Other borrowed money ............................................................................ | 3190 95,622 | 5. EITHER | ////////////////// | 6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6. OR | ////////////////// | 7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 224,290 | 7. 8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and | ////////////////// | IBFs) ........................................................................................... | 2192 22,885,568 | 8. 9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and | ////////////////// | IBFs) ........................................................................................... | 3129 20,880,175 | 9. ---------------------- ______________________ Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. | RCON Bil Mil Thou | |____________________| 10. U.S. Treasury securities ....................................................................... | 1779 793,781 | 10. 11. U.S. Government agency obligations (exclude mortgage-backed securities) ........................ | 1785 36 | 11. 12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 260 | 12. 13. Mortgage-backed securities (MBS): | ////////////////// | a. Pass-through securities: | ////////////////// | (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 2,834,724 | 13.a.(1) (2) Other pass-through securities ........................................................... | 1869 0 | 13.a.(2) b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// | (1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 278,992 | 13.b.(1) (2) All other mortgage-backed securities .................................................... | 2253 2,642 | 13.b.(2) 14. Other domestic debt securities ................................................................. | 3159 0 | 14. 15. Foreign debt securities ........................................................................ | 3160 0 | 15. 16. Equity securities: | ////////////////// | a. Investments in mutual funds and other equity securities with readily | ////////////////// | determinable fair values .................................................................... | A513 0 | 16.a. b. All other equity securities ................................................................. | 3169 46,127 | 16.b. 17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 3,956,562 | 17. |____________________| Memorandum (to be completed only by banks with IBFs and other "foreign" offices) ______________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | ___________________________________________________________________________________________________________________________ EITHER | ////////////////// | 1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 N/A | M.1. OR | ////////////////// | 2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2. |____________________|
22
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-13 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-I--SELECTED ASSETS AND LIABILITIES OF IBFs To be completed only by banks with IBFs and other "foreign" offices. _________ | C445 | (- _____________________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | ________________________________________________________________________________________________________________________ 1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) ................. | 2133 N/A | 1. 2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, | ////////////////// | item 12, column A) ............................................................................ | 2076 N/A | 2. 3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, | ////////////////// | column A) ..................................................................................... | 2077 N/A | 3. 4. Total IBF liabilities (component of Schedule RC, item 21) ..................................... | 2898 N/A | 4. 5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// | part II, items 2 and 3) ....................................................................... | 2379 N/A | 5. 6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ..... | 2381 N/A | 6. SCHEDULE RC-K--QUARTERLY AVERAGES(1) _________ | C445 | (- _____________________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | __________________________________________________________________________________________________________________________ ASSETS | /////////////////////// | 1. Interest-bearing balances due from depository institutions ............................... | RCFD 3381 101 | 1. 2. U.S. Treasury securities and U.S. Government agency obligations(2) ....................... | RCFD 3382 3,976,135 | 2. 3. Securities issued by states and political subdivisions in the U.S.(2) .................... | RCFD 3383 259 | 3. 4. a. Other debt securities(2) .............................................................. | RCFD 3647 2,644 | 4.a. b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . | RCFD 3648 46,127 | 4.b. 5. Federal funds sold and securities purchased under agreements to resell ................... | RCFD 3365 960,810 | 5. 6. Loans: | /////////////////////// | a. Loans in domestic offices: | /////////////////////// | (1) Total loans ....................................................................... | RCON 3360 12,687,803 | 6.a.(1) (2) Loans secured by real estate ...................................................... | RCON 3385 2,638,407 | 6.a.(2) (3) Loans to finance agricultural production and other loans to farmers ............... | RCON 3386 45,235 | 6.a.(3) (4) Commercial and industrial loans ................................................... | RCON 3387 6,443,252 | 6.a.(4) (5) Loans to individuals for household, family, and other personal expenditures ....... | RCON 3388 2,435,508 | 6.a.(5) b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. | RCFN 3360 188,595 | 6.b. 7. Trading assets ........................................................................... | RCFD 3401 27,613 | 7. 8. Lease financing receivables (net of unearned income) ..................................... | RCFD 3484 141,037 | 8. 9. Total assets(4) .......................................................................... | RCFD 3368 21,148,930 | 9. LIABILITIES | /////////////////////// | 10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// | and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. | RCON 3485 412,814 | 10. 11. Nontransaction accounts in domestic offices: | /////////////////////// | a. Money market deposit accounts (MMDAs) ................................................. | RCON 3486 3,501,315 | 11.a. b. Other savings deposits ................................................................ | RCON 3487 2,998,374 | 11.b. c. Time deposits of $100,000 or more ..................................................... | RCON A514 894,126 | 11.c. d. Time deposits of less than $100,000 ................................................... | RCON A529 2,529,094 | 11.d. 12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. | RCFN 3404 316,515 | 12. 13. Federal funds purchased and securities sold under agreements to repurchase ............... | RCFD 3353 1,862,772 | 13. 14. Other borrowed money (includes mortgage indebtedness and obligations under capitalized | /////////////////////// | leases) .................................................................................. | RCFD 3355 59,276 | 14. --------------------------- _____________ (1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or (2) an average of weekly figures (i.e., the Wednesday of each week of the quarter). (2) Quarterly averages for all debt securities should be based on amortized cost. (3) Quarterly averages for all equity securities should be based on historical cost. (4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity securities without readily determinable fair values at historical cost.
23
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-14 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-L--OFF-BALANCE SHEET ITEMS Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. _________ | C460 | (- _____________________ Dollar Amounts in Thousands | RCFN Bil Mil Thou | __________________________________________________________________________________________________________________________ 1. Unused commitments: | ////////////////// | a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home equity | ////////////////// | lines ...................................................................................... | 3814 0 | 1.a. b. Credit card lines .......................................................................... | 3815 0 | 1.b. c. Commercial real estate, construction, and land development: | ////////////////// | (1) Commitments to fund loans secured by real estate ....................................... | 3816 470,023 | 1.c.(1) (2) Commitments to fund loans not secured by real estate ................................... | 6550 333,210 | 1.c.(2) d. Securities underwriting .................................................................... | 3817 0 | 1.d. e. Other unused commitments ................................................................... | 3818 8,258,180 | 1.e. 2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 1,100,399 | 2. ___________________________ a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 105,495 | ////////////////// | 2.a. --------------------------- 3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 154,346 | 3. ___________________________ a. Amount of performance standby letters of credit conveyed to others| RCFD 3822 | 2,713| ////////////////// | 3.a. ___________________________ 4. Commercial and similar letters of credit ...................................................... | 3411 183,189 | 4. 5. Participations in acceptances (as described in the instructions) conveyed to others by the | ////////////////// | reporting bank ................................................................................ | 3428 0 | 5. 6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// | (nonaccepting) bank ........................................................................... | 3429 0 | 6. 7. Securities borrowed ........................................................................... | 3432 38,932 | 7. 8. Securities lent (including customers' securities lent where the customer is indemnified against | ////////////////// | loss by the reporting bank) ................................................................... | 3433 17,975 | 8. 9. Financial assets transferred with recourse that have been treated as sold for | ////////////////// | Call Report purposes: | ////////////////// | a. First lien 1-to-4 family residential mortgage loans: | ////////////////// | (1) Outstanding principal balance of mortgages transferred as of the report date ........... | A521 0 | 9.a.(1) (2) Amount of recourse exposure on these mortgages as of the report date ................... | A522 0 | 9.a.(2) b. Other financial assets (excluding small business obligations reported in item 9.c): | ////////////////// | (1) Outstanding principal balance of assets transferred as of the report date .............. | A523 0 | 9.b.(1) (2) Amount of recourse exposure on these assets as of the report date ...................... | A524 0 | 9.b.(2) c. Small business obligations transferred with recourse under Section 208 of the | ////////////////// | Riegle Community Development and Regulatory Improvement Act of 1994: | ////////////////// | (1) Outstanding principal balance of small business obligations transferred | ////////////////// | as of the report date ...................................................................... | A249 0 | 9.c.(1) (2) Amount of retained recourse on these obligations as of the report date ................. | A250 0 | 9.c.(2) 10. Notional amount of credit derivatives: | ////////////////// | a. Credit derivatives on which the reporting bank is the guarantor ............................ | A534 0 | 10.a. b. Credit derivatives on which the reporting bank is the beneficiary .......................... | A535 0 | 10.b. 11. Spot foreign exchange contracts ............................................................... | 8765 597,550 | 11. 12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and | ////////////////// | describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12. | ////////////////// | ____________ _____________________________ a. | TEXT 3555 |_____________________________________________________| RCFD 3555 | | ////////////////// | 12.a. ____________ _____________________________ b. | TEXT 3556 |_____________________________________________________| RCFD 3556 | | ////////////////// | 12.b. ____________ _____________________________ c. | TEXT 3557 |_____________________________________________________| RCFD 3557 | | ////////////////// | 12.c. ____________ _____________________________ d. | TEXT 3558 |_____________________________________________________| RCFD 3558 | | ////////////////// | 12.d. ---------------------------------------------------------------------------------------------------------------------
24
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-15 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-L--CONTINUED _____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________________________________ 13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// | describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 5591 0 | 13. _____________ ___________________________ | ////////////////// | a. | TEXT 5592 |_____________________________________________________| RCFD 5592 | | ////////////////// | 13.a. _____________ ___________________________ b. | TEXT 5593 |_____________________________________________________| RCFD 5593 | | ////////////////// | 13.b. _____________ ___________________________ c. | TEXT 5594 |_____________________________________________________| RCFD 5594 | | ////////////////// | 13.c. _____________ ___________________________ d. | TEXT 5595 |_____________________________________________________| RCFD 5595 | | ////////////////// | 13.d. -------------------------------------------------------------------------------------------------------------------- ____________ | C461 | _________________________________________ ___________________________________ | (Column A) | (Column B) | (Column C) | (Column D) | Dollar Amounts in Thousands | Interest Rate | Foreign Exchange | Equity Derivative| Commodity and | _____________________________________________| Contracts | Contracts | Contracts | Other Contracts | | Off-balance Sheet Derivatives |__________________|___________________|__________________|__________________| | Position Indicators |Tril Bil Mil Thou | Tril Bil Mil Thou |Tril Bil Mil Thou |Tril Bil Mil Thou | |____________________________________________|__________________| __________________|__________________|__________________| 14. Gross amounts (e.g., notional | //////////////// | //////////////// | //////////////// | //////////////// | amounts) (for each column, sum of | //////////////// | //////////////// | //////////////// | //////////////// | items 14.a through 14.e must equal | //////////////// | //////////////// | //////////////// | //////////////// | sum of items 15, 16.a, and 16.b): | //////////////// | //////////////// | //////////////// | //////////////// | __________________ ___________________ __________________ __________________ a. Futures contracts ................... | 700,000 | 0 | 0 | 0 | 14.a. __________________ ___________________ __________________ __________________ | RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 | __________________ ___________________ __________________ __________________ b. Forward contracts ................... | 0 | 965,494 | 0 | 0 | 14.b. __________________ ___________________ __________________ __________________ | RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 | __________________ ___________________ __________________ __________________ c. Exchange-traded option contracts: | //////////////// | //////////////// | //////////////// | //////////////// | __________________ ___________________ __________________ __________________ (1) Written options ................. | 0 | 0 | 0 | 0 | 14.c.(1) __________________ ___________________ __________________ __________________ | RCFD 8701 | RCFD 8702 | RCFD 8703 | RCFD 8704 | __________________ ___________________ __________________ __________________ (2) Purchased options ............... | 0 | 0 | 0 | 0 | 14.c.(2) __________________ ___________________ __________________ __________________ | RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 | __________________ ___________________ __________________ __________________ d. Over-the-counter option contracts: | //////////////// | //////////////// | //////////////// | //////////////// | __________________ ___________________ __________________ __________________ (1) Written options ................. | 1,040,478 | 26,752 | 0 | 0 | 14.d.(1) __________________ ___________________ __________________ __________________ | RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 | __________________ ___________________ __________________ __________________ (2) Purchased options ............... | 1,440,478 | 26,752 | 0 | 0 | 14.d.(2) __________________ ___________________ __________________ __________________ | RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 | __________________ ___________________ __________________ __________________ e. Swaps ............................... | 5,607,564 | 17,633 | 19,893 | 0 | 14.e. __________________ ___________________ __________________ __________________ | RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 | __________________ ___________________ __________________ __________________ 15. Total gross notional amount of | //////////////// | //////////////// | //////////////// | //////////////// | derivative contracts held for trading .. | 4,805,214 | 1,036,631 | 19,893 | 0 | 15. __________________ ___________________ __________________ __________________ | RCFD A126 | RCFD A127 | RCFD 8723 | RCFD 8724 | __________________ ___________________ __________________ __________________ 16. Total gross notional amount of | //////////////// | //////////////// | //////////////// | //////////////// | derivative contracts held for | //////////////// | //////////////// | //////////////// | //////////////// | purposes other than trading: | //////////////// | //////////////// | //////////////// | //////////////// | __________________ ___________________ __________________ __________________ a. Contracts marked to market .......... | 1,600,000 | 0 | 0 | 0 | 16.a. __________________ ___________________ __________________ __________________ | RCFD 8725 | RCFD 8726 | RCFD 8727 | RCFD 8728 | __________________ ___________________ __________________ __________________ b. Contracts not marked to market ...... | 2,383,306 | 0 | 0 | 0 | 16.b. __________________ ___________________ __________________ __________________ | RCFD 8729 | RCFD 8730 | RCFD 8731 | RCFD 8732 | __________________ ___________________ __________________ __________________ c. Interest rate swaps where the bank | //////////////// | //////////////// | //////////////// | //////////////// | has agreed to pay a fixed rate ...... | 8,306 | //////////////// | //////////////// | //////////////// | 16.c. __________________ ___________________ __________________ __________________ | RCFD A589 | //////////////// | //////////////// | //////////////// | __________________ ___________________ __________________ __________________
25
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-16 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-L--CONTINUED _________________________________________ __________________________________________ | (Column A) | (Column B) | (Column C) | (Column D) | Dollar Amounts in Thousands | Interest Rate | Foreign Exchange | Equity Derivative | Commodity and | _____________________________________| Contracts | Contracts | Contracts | Other Contracts | | Off-balance Sheet Derivatives |__________________ |___________________ |____________________|____________________| | Position Indicators |Tril Bil Mil Thou | Tril Bil Mil Thou |Tril Bil Mil Thou |Tril Bil Mil Thou | |____________________________________|__________________ | __________________ |____________________|__________________ | 17. Gross fair values of | ////////////////// | ////////////////// | ////////////////// | ////////////////// | derivative contracts: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | a. Contracts held for | ////////////////// | ////////////////// | ////////////////// | ////////////////// | trading: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ////////////////// | ////////////////// | ////////////////// | ////////////////// | fair value .............. | 8733 23,530 | 8734 11,022 | 8735 104 | 8736 0 | 17.a.(1) (2) Gross negative | ////////////////// | ////////////////// | ////////////////// | ////////////////// | fair value .............. | 8737 18,458 | 8738 11,212 | 8739 104 | 8740 0 | 17.a.(2) b. Contracts held for | ////////////////// | ////////////////// | ////////////////// | ////////////////// | purposes other than | ////////////////// | ////////////////// | ////////////////// | ////////////////// | trading that are marked | ////////////////// | ////////////////// | ////////////////// | ////////////////// | to market: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ////////////////// | ////////////////// | ////////////////// | ////////////////// | fair value .............. | 8741 1,086 | 8742 0 | 8743 0 | 8744 0 | 17.b.(1) (2) Gross negative | ////////////////// | ////////////////// | ////////////////// | ////////////////// | fair value .............. | 8745 1,050 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2) c. Contracts held for | ////////////////// | ////////////////// | ////////////////// | ////////////////// | purposes other than | ////////////////// | ////////////////// | ////////////////// | ////////////////// | trading that are not | ////////////////// | ////////////////// | ////////////////// | ////////////////// | marked to market: | ////////////////// | ////////////////// | ////////////////// | ////////////////// | (1) Gross positive | ////////////////// | ////////////////// | ////////////////// | ////////////////// | fair value .............. | 8749 29,420 | 8750 0 | 8751 0 | 8752 0 | 17.c.(1) (2) Gross negative | ////////////////// | ////////////////// | ////////////////// | ////////////////// | fair value .............. | 8753 1,751 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2) |___________________________________________________________________________________| _____________________ Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou | ________________________________________________________________________________________________________________________| 1.-2. Not applicable | ////////////////// | 3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// | Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// | that are fee paid or otherwise legally binding) ............................................... | 3833 5,347,696 | M.3. a. Participations in commitments with an original maturity | ////////////////// | __________________________ exceeding one year conveyed to others ........................... | RCFD 3834 | 97,749 | ////////////////// | M.3.a. __________________________ 4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// | to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above ............. | 3377 54,777 | M.4. 5. Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// | have been securitized and sold (with servicing retained), amounts outstanding by type of loan: | ////////////////// | a. Loans to purchase private passenger automobiles (to be completed for the | ////////////////// | September report only) ..................................................................... | 2741 N/A | M.5.a. b. Credit cards and related plans (TO BE COMPLETED QUARTERLY) ................................. | 2742 0 | M.5.b. c. All other consumer installment credit (including mobile home loans) (to be completed for the | ////////////////// | September report only) ..................................................................... | 2743 N/A | M.5.c. |____________________|
26
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-17 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-M--MEMORANDA __________ | C465 | (- _____________________ Dollar Amounts in Thousands | RCFD Bil Mil Thou | __________________________________________________________________________________________________________________________ 1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// | shareholders, and their related interests as of the report date: | ////////////////// | a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// | shareholders, and their related interests ..................................................... | 6164 18,965 | 1.a. b. Number of executive officers, directors, and principal shareholders to whom the amount of | ////////////////// | all extensions of credit by the reporting bank (including extensions of credit to | ////////////////// | related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// | ___________________________ of total capital as defined for this purpose in agency regulations . | RCFD 6165 | 3 | ////////////////// | 1.b. ___________________________ 2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// | and agencies of foreign banks(1) (included in Schedule RC, item 3) ............................... | 3405 0 | 2. 3. Not applicable. | ////////////////// | 4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// | (include both retained servicing and purchased servicing): | ////////////////// | a. Mortgages serviced under a GNMA contract ...................................................... | 5500 0 | 4.a. b. Mortgages serviced under a FHLMC contract: | ////////////////// | (1) Serviced with recourse to servicer ........................................................ | 5501 0 | 4.b.(1) (2) Serviced without recourse to servicer ..................................................... | 5502 0 | 4.b.(2) c. Mortgages serviced under a FNMA contract: | ////////////////// | (1) Serviced under a regular option contract .................................................. | 5503 0 | 4.c.(1) (2) Serviced under a special option contract .................................................. | 5504 0 | 4.c.(2) d. Mortgages serviced under other servicing contracts ............................................ | 5505 0 | 4.d. 5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// | Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// | equal Schedule RC, item 9): | ////////////////// | a. U.S. addressees (domicile) .................................................................... | 2103 4,455 | 5.a. b. Non-U.S. addressees (domicile) ................................................................ | 2104 4,451 | 5.b. 6. Intangible assets: | ////////////////// | a. Mortgage servicing assets ..................................................................... | 3164 0 | 6.a. __________________________ (1) Estimated fair value of mortgage servicing assets .............. | RCFD A590 | 0 | ////////////////// | 6.a.(1) __________________________ b. Other identifiable intangible assets: | ////////////////// | (1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1) (2) All other identifiable intangible assets .................................................. | 5507 85,395 | 6.b.(2) c. Goodwill ...................................................................................... | 3163 315,519 | 6.c. d. Total (sum of items 6.a, 6.b.(1), 6.b.(2), and 6.c) (must equal Schedule RC, item 10) ......... | 2143 400,914 | 6.d. e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// | are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e. 7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// | redeem the debt .................................................................................. | 3295 0 | 7. ---------------------- _____________ (1) Do not report federal funds sold and securities purchased under agreements to resell with other commercial banks in the U.S. in this item.
27
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-18 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-M--CONTINUED __________________________ Dollar Amounts in Thousands | Bil Mil Thou | _______________________________________________________________________________________________________________________ 8. a. Other real estate owned: | /////////////////////// | (1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1) (2) All other real estate owned: | /////////////////////// | (a) Construction and land development in domestic offices ....................... | RCON 5508 0 | 8.a.(2)(a) (b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b) (c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 303 | 8.a.(2)(c) (d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 0 | 8.a.(2)(d) (e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 168 | 8.a.(2)(e) (f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f) (3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 471 | 8.a.(3) b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// | (1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1) (2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 13,870 | 8.b.(2) (3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 13,870 | 8.b.(3) 9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// | item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 0 | 9. 10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// | proprietary, private label, and third party products): | /////////////////////// | a. Money market funds .................................................................. | RCON 6441 9,018,432 | 10.a. b. Equity securities funds ............................................................. | RCON 8427 28,866 | 10.b. c. Debt securities funds ............................................................... | RCON 8428 10,745 | 10.c. d. Other mutual funds .................................................................. | RCON 8429 122,477 | 10.d. e. Annuities ........................................................................... | RCON 8430 14,174 | 10.e. f. Sales of proprietary mutual funds and annuities (included in items 10.a through | /////////////////////// | 10.e above) ......................................................................... | RCON 8784 4,223,346 | 10.f. 11. Net unamortized realized deferred gains (losses) on off-balance sheet derivative | /////////////////////// | contracts included in assets and liabilities reported in Schedule RC ................... | RCFD A525 415 | 11. 12. Amount of assets netted against nondeposit liabilities and deposits in foreign offices | /////////////////////// | (other than insured branches in Puerto Rico and U.S. territories and possessions) on | /////////////////////// | the balance sheet (Schedule RC) in accordance with generally accepted accounting | /////////////////////// | principles(1) .......................................................................... | RCFD A526 0 | 12. 13. Outstanding principal balance of loans other than 1-4 family residential mortgage | /////////////////////// | loans that are serviced for others (to be completed if this balance is more than | /////////////////////// | $10 million and exceeds ten percent of total assets) ................................... | RCFD A591 0 | 13. --------------------------- _________________________________________________________________________________________________________________________| | ___________________________| |Memeorandum Dollar Amounts in Thousands | Bil Mil Thou | | _______________________________________________________________________________________________________________________| |1. Reciprocal holdings of banking organizations' capital instruments | ////////////////// | | | (to be completed for the December report only) ............................................| 3836 N/A |M.1.| - ------------------------------------------------------------------------------------------------------------------------- _____________ (1) Exclude netted on-balance sheet amounts associated with off-balance sheet derivative contracts, deferred tax assets netted against deferred tax liabilities, and assets netted in accounting for pensions.
28
Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-19 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-N--PAST DUE AND NONACCRUAL LOANS, LEASES, AND OTHER ASSETS ______ The FFIEC regards the information reported in |C470 | (- all of Memorandum item 1, in items 1 through 10, _______________________________________________________________| column A, and in Memorandum items 2 through 4, | (Column A) | (Column B) | (Column C) | column A, as confidential. | Past due | Past due 90 | Nonaccural | | 30 through 89 | days or more | | | days and still | and still | | | accruing | accruing | | |____________________|____________________|____________________| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | _____________________________________________________________|____________________|____________________|____________________| 1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ........................ | 1245 37,800 | 1246 3,140 | 1247 27,865 |1.a. b. To non-U.S. addressees (domicile) .................... | 1248 0 | 1249 0 | 1250 0 |1.b. 2. Loans to depository institutions and acceptances | ////////////////// | ////////////////// | ////////////////// | of other banks: | ////////////////// | ////////////////// | ////////////////// | a. To U.S. banks and other U.S. depository | ////////////////// | ////////////////// | ////////////////// | institutions ............................................ | 5377 0 | 5378 0 | 5379 0 |2.a. b. To foreign banks ..................................... | 5380 283 | 5381 0 | 5382 0 |2.b. 3. Loans to finance agricultural production and | ////////////////// | ////////////////// | ////////////////// | other loans to farmers .................................. | 1594 137 | 1597 0 | 1583 2,346 |3. 4. Commercial and industrial loans: | ////////////////// | ////////////////// | ////////////////// | a. To U.S. addressees (domicile) ........................ | 1251 113,901 | 1252 17,087 | 1253 55,002 |4.a. b. To non-U.S. addressees (domicile) .................... | 1254 440 | 1255 0 | 1256 161 |4.b. 5. Loans to individuals for household, family, and | ////////////////// | ////////////////// | ////////////////// | other personal expenditures: | ////////////////// | ////////////////// | ////////////////// | a. Credit cards and related plans ....................... | 5383 1,060 | 5384 1,059 | 5385 0 |5.a. b. Other (includes single payment, installment, | ////////////////// | ////////////////// | ////////////////// | and all student loans) .................................. | 5386 42,677 | 5387 6,394 | 5388 2,037 |5.b. 6. Loans to foreign governments and official | ////////////////// | ////////////////// | ////////////////// | institutions ............................................ | 5389 0 | 5390 0 | 5391 0 |6. 7. All other loans ......................................... | 5459 3,206 | 5460 3,966 | 5461 1,647 |7. 8. Lease financing receivables: | ////////////////// | ////////////////// | ////////////////// | a. Of U.S. addressees (domicile) ........................ | 1257 0 | 1258 0 | 1259 0 |8.a. b. Of non-U.S. addressees (domicile) .................... | 1271 0 | 1272 0 | 1791 0 |8.b. 9. Debt securities and other assets (exclude other | ////////////////// | ////////////////// | ////////////////// | real estate owned and other repossessed assets).......... | 3505 0 | 3506 0 | 3507 0 |9. |____________________|____________________|____________________| ============================================================================================================================= Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in items 1 through 8. _____________________________________________________________ | RCFD Bil Mil Thou |RCFD Bil Mil Thou | RCFD Bil Mil Thou | 10. Loans and leases reported in items 1 _____________________________________________________________ through 8 above which are wholly or partially | ////////////////// | ///////////////// | ////////////////// | guaranteed by the U.S. Government ...................... | 5612 1,354 | 5613 657 | 5614 4,015 |10. a. Guaranteed portion of loans and leases | ////////////////// | ////////////////// | ////////////////// | included in item 10 above ........................... | 5615 1,136 | 5616 584 | 5617 3,212 |10.a. |____________________|____________________|____________________|
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Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-20 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-N--CONTINUED ______ |C473 | (- _______________________________________________________________| | (Column A) | (Column B) | (Column C) | | Past due | Past due 90 | Nonaccural | | 30 through 89 | days or more | | | days and still | and still | | | accruing | accruing | | Memoranda |____________________|____________________|____________________| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | _____________________________________________________________|____________________|____________________|____________________| 1. Restructured loans and leases included in | ////////////////// | ////////////////// | ////////////////// | Schedule RC-N, items 1 through 8, above (and not | ////////////////// | ////////////////// | ////////////////// | reported in Schedule RC-C, part I, Memorandum | ////////////////// | ////////////////// | ////////////////// | item 2) ................................................. | 1658 0 | 1659 0 | 1661 2,255 |M.1. 2. Loans to finance commercial real estate, | ////////////////// | ////////////////// | ////////////////// | construction, and land development activities | ////////////////// | ////////////////// | ////////////////// | (not secured by real estate) included in | ////////////////// | ////////////////// | ////////////////// | Schedule RC-N, items 4 and 7, above ......................| 6558 2,622 | 6559 0 | 6560 3,322 |M.2. |____________________|____________________|____________________| | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | 3. Loans secured by real estate in domestic offices |____________________|____________________|____________________| (included in Schedule RC-N, item 1, above): | ////////////////// | ////////////////// | ////////////////// | a. Construction and land development .................... | 2759 7,909 | 2769 0 | 3492 1,993 |M.3.a. b. Secured by farmland .................................. | 3493 0 | 3494 0 | 3495 409 |M.3.b. c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | ////////////////// | (1) Revolving, open-end loans secured by | ////////////////// | ////////////////// | ////////////////// | 1-4 family residential properties and | ////////////////// | ////////////////// | ////////////////// | extended under lines of credit ...................... | 5398 0 | 5399 0 | 5400 0 |M.3.c. (2) All other loans secured by 1-4 family | ////////////////// | ////////////////// | ////////////////// | residential properties .............................. | 5401 21,658 | 5402 2,410 | 5403 11,956 |M.3.c. d. Secured by multifamily (5 or more) residential | ////////////////// | ////////////////// | ////////////////// | properties ........................................... | 3499 2,011 | 3500 0 | 3501 2,003 |M.3.d. e. Secured by nonfarm nonresidential properties.......... | 3502 6,222 | 3503 730 | 3504 11,504 |M.3.e. |____________________|____________________|____________________| ___________________________________________ | (Column A) | (Column B) | | Past due 30 | Past due 90 | | through 89 days | days or more | _________________________________________ | RCFD Bil Mil Thou | RCFD Bil Mil Thou | _________________________________________ 4. Interest rate, foreign exchange rate, and other | ////////////////// | ////////////////// | commodity and equity contracts: | ////////////////// | ////////////////// | a. Book value of amounts carried as assets ............... | 3522 0 | 3528 0 |M.4.a. b. Replacement cost of contracts with a | ////////////////// | ////////////////// | positive replacement cost ............................. | 3529 0 | 3530 0 |M.4.b. |____________________|____________________| _______________________________________________________________________________________________________________________________ Person to whom questions about the Reports of Condition and Income should be directed: |C477| (- Karen Gatenby, Vice President (713) 216-5263 _______________________________________________________________________________________________________________________________ Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)
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Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-21 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-O--OTHER DATA FOR DEPOSIT INSURANCE AND FICO ASSESSMENTS | C475 | (- _____________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | __________________________________________________________________________________________________|____________________ 1. Unposted debits (see instructions): | ////////////////// | a. Actual amount of all unposted debits....................................................... | 0030 N/A |1.a. OR | ////////////////// | b. Separate amount of unposted debits: | ////////////////// | (1) Actual amount of unposted debits to demand deposits..................................... | 0031 0 |1.b.(1) (2) Actual amount of unposted debits to time and savings deposits(1)........................ | 0032 0 |1.b.(2) 2. Unposted credits (see instructions): | ////////////////// | a. Actual amount of all unposted credits...................................................... | 3510 N/A |2.a. OR | ////////////////// | b. Separate amount of unposted credits: | ////////////////// | (1) Actual amount of unposted credits to demand deposits................................... | 3512 0 |2.b.(1) (2) Actual amount of unposted credits to time and savings deposits(1)...................... | 3514 0 |2.b.(2) 3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// | deposits in domestic offices)................................................................. | 3520 23,873 |3. 4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in Puerto | ////////////////// | Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// | a. Demand deposits of consolidated subsidiaries............................................... | 2211 2,580 |4.a. b. Time and savings deposits(1) of consolidated subsidiaries.................................. | 2351 17 |4.b. c. Interest accrued and unpaid on deposits of consolidated subsidiaries....................... | 5514 0 |4.c. 5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// | a. Demand deposits in insured branches (included in Schedule RC-E, Part II).................... | 2229 0 |5.a. b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ...... | 2383 0 |5.b. c. Interest accrued and unpaid on deposits in insured branches | ////////////////// | (included in Schedule RC-G, item 1.b)....................................................... | 5515 0 |5.c. 6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// | behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// | of the reporting bank: | ////////////////// | a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, item 4 or 5, | ////////////////// | column B).................................................................................. | 2314 1,173 |6.a. b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, | ////////////////// | item 4 or 5, column A or C, but not column B).............................................. | 2315 0 |6.b. 7. Unamortized premiums and discounts on time and savings deposits:(1),(2) | ////////////////// | a. Unamortized premiums....................................................................... | 5516 483 |7.a. b. Unamortized discounts...................................................................... | 5517 0 |7.b. 8. To be completed by banks with "Oakar deposits." | ////////////////// | a. Deposits purchased or acquired from other FDIC-insured institutions during the quarter | ////////////////// | (exclude deposits purchased or acquired from foreign offices other than insured branches | ////////////////// | in Puerto Rico and U.S. territories and possessions): | ////////////////// | (1) Total deposits purchased or acquired from other FDIC-insured institutions during | ////////////////// | the quarter............................................................................ | A531 N/A |8.a.(1) (2) Amount of purchased or acquired deposits reported in item 8.a.(1) above attributable | ////////////////// | to a secondary fund (i.e., BIF members report deposits attributable to SAIF; SAIF | ////////////////// | members report deposits attributable to BIF)........................................... | A532 N/A |8.a.(2) b. Total deposits sold or transferred to other FIDC-insured institutions during the quarter | ////////////////// | (exclude sales or transfers by the reporting bank of deposits in foreign offices other than | ////////////////// | insured branches in Puerto Rico and U.S. territories and possessions) ..................... | A533 N/A |8.b. _____________________ (1) For FDIC insurance and FICO assessment purposes, "time and savings deposits" consists of nontransaction accounts and all transaction accounts other than demand deposits. (2) Exclude core deposit intangibles.
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Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-22 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-O--CONTINUED _____________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | __________________________________________________________________________________________________|____________________ 9. Deposits in lifeline accounts................................................................ | 5596 ///////////// |9. 10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// | deposits in domestic offices)................................................................ | 8432 0 |10. 11. Adjustments to demand deposits in domestic offices and in insured branches in Puerto Rico | ////////////////// | and U.S. territories and possessions reported in Schedule RC-E forcertain reciprocal | ////////////////// | demand balances: | ////////////////// | a. Amount by which demand deposits would be reduced if the reporting bank's reciprocal | ////////////////// | demand balances with the domestic offices of U.S. banks and savings associations | ////////////////// | and insured branches in Puerto Rico and U.S. territories and possessions that were | ////////////////// | reported on a gross basis in Schedule RC-E had been reported on a net basis .............. | 8785 0 |11.a. b. Amount by which demand deposits would be increased if the reporting bank's reciprocal | ////////////////// | demand balances with foreign banks and foreign offices of other U.S. banks (other than | ////////////////// | insured branches in Puerto Rico and U.S. territories and possessions) that were reported | ////////////////// | on a net basis in Schedule RC-E had been reported on a gross basis ....................... | A181 0 |11.b. c. Amount by which demand deposits would be reduced if cash items in process of collection | ////////////////// | were included in the calculation of the reporting bank's net reciprocal demand balances | ////////////////// | with the domestic offices of U.S. banks and savings associations and insured branches | ////////////////// | in Puerto Rico and U.S. territories and possessions in Schedule RC-E ..................... | A182 0 |11.c. 12. Amount of assets netted against deposit liabilities in domestic offices and in insured | ////////////////// | branches in Puerto Rico and U.S. territories and possessions on the balance sheet | ////////////////// | (Schedule RC) in accordance with generally accepted accounting principles (exclude amounts | ////////////////// | related to reciprocal demand balances): | ////////////////// | a. Amount of assets netted against demand deposits........................................... | A527 0 |12.a. b. Amount of assets netted against time and savings deposits................................. | A528 0 |12.b. |____________________| Memoranda (to be completed each quarter except as noted) _____________________ Dollar Amounts in Thousands | RCON Bil Mil Thou | __________________________________________________________________________________________________|____________________| 1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and | ////////////////// | 1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// | a. Deposit accounts of $100,000 or less: | ////////////////// | (1) Amount of deposit accounts of $100,000 or less.......................................... | 2702 8,398,509 |M.1.a.(1) (2) Number of deposit accounts of $100,000 or less to be Number | ////////////////// | completed for the June report only)................................|RCON 3779 |1,211,416 | ////////////////// |M.1.a.(2) b. Deposit accounts of more than $100,000: | ////////////////// | (1) Amount of deposit accounts of more than $100,000....................................... | 2710 8,698,628 |M.1.b.(1) Number | ////////////////// | (2) Number of deposit accounts of more than $100,000 ................| RCON 2722 | 18,680 | ////////////////// |M.1.b.(2) 2. Estimated amount of uninsured deposits in domestic offices of the bank: a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000 and subtracting the result from the amount of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(1) above. Indicate in the appropriate box at the right whether your bank has a method or YES NO procedure for determining a better estimate of uninsured deposits than the |____________________| estimate described above.................................................................. | 6861 | |///| |M.2.a. b. If the box marked YES has been checked, report the estimate of uninsured deposits | RCON Bil Mil Thou | determined by using your bank's method or procedure....................................... | 5597 N/A |M.2.b. 3. Has the reporting institution been consolidated with a parent bank or savings association in that parent bank's or parent savings association's Call Report or Thrift Financial Report? If so, report the legal title and FDIC Certificate Number of the parent bank or parent savings association: FDIC Cert No. ____________________ | TEXT A545 |N/A | RCON A545| N/A |M.3. _________________________________________________________________________________________________________________________________
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Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-23 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-R--REGULATORY CAPITAL This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1996, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than $1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below. 1. Test for determining the extent to which Schedule RC-R must be completed. To be | C480B | (- completed only by banks with total assets of less than $1 billion. Indicate in the | YES NO | appropriate box at the right whether the bank has total capital greater than or ____________________________| equal to eight percent of adjusted total assets..............................................| RCFD 6056 | |////| |1. |___________________________| For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions). If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked NO has been checked, the bank must complete the remainder of this schedule. A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight percent or that the bank is not in compliance with the risk-based capital guidelines. ____________________________________________________________________ | NOTE: All banks are required to complete items 2 and 3 below. | | See optional worksheet for items 3.a through 3.f. | |___________________________________________________________________| Dollar Amounts in Thousands | RCFD Bil Mil Thou | ___________________________________________________________________________________________________|____________________| 2. Portion of qualifying limited-life capital instruments (original weighted | ////////////////// | average maturity of at least five years) that is includible in Tier 2 capital: | ////////////////// | a. Subordinated debt(1) and intermediate term preferred stock.................................. | A515 329,000 |2.a. b. Other limited-life capital instruments...................................................... | A516 0 |2.b. 3. Amounts used in calculating regulatory capital ratios (report amounts | ////////////////// | determined by the bank for its own internal regulatory capital analyses | ////////////////// | consistent with applicable capital standards): | ////////////////// | a. Tier 1 capital.............................................................................. | 8274 1,402,967 |3.a. b. Tier 2 capital.............................................................................. | 8275 556,332 |3.b. c. Total risk-based capital.................................................................... | 3792 1,959,299 |3.c. d. Excess allowance for loan and lease losses (amount that exceeds 1.25% of gross | ////////////////// | risk-weighted assets)....................................................................... | A222 12,232 |3.d. e. Net risk-weighted assets (gross risk-weighted assets less excess allowance reported | ////////////////// | in item 3.d above and all other deductions)................................................. | A223 18,174,339 |3.e. f. "Average total assets" (quarterly average reported in Schedule RC-K, item 9, less all | ////////////////// | assets deducted from Tier 1 capital)(2).................................................... | A224 20,748,016 |3.f. |____________________| _________________________________________ | (Column A) | (Column B) | Items 4-9 and Memoranda items 1 and 2 are to be completed | Assets | Credit Equiv- | by banks that answered NO to item 1 above and | Recorded | alent Amount | by banks with total assets of $1 billion or more. | on the | of Off-Balance | | Balance Sheet | Sheet Items(3) | |--------------------| ------------------| | RCFD Bil Mil Thou | RCFD Bil Mil Thou | 4. Assets and credit equivalent amounts of off-balance sheet items | ------------------ | ------------------| assigned to the Zero percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet .................................. | 5163 2,737,025 | ////////////////// |4.a. b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 36,833 |4.b. |____________________|____________________| ___________________________ (1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7. (2) Do not deduct excess allowance for loan and lease losses. (3) Do not report in column B the risk-weighted amount of assets reported in column A.
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Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-24 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| SCHEDULE RC-R--CONTINUED | (Column A) | (Column B) | | Assets | Credit Equiv- | | Recorded | alent Amount | | on the | of Off-Balance | | Balance Sheet | Sheet Items(1) | |--------------------|--------------------| Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | ___________________________________________________________________________________|____________________|____________________| 5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 20 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet .................................... | 5165 6,554,314 | ////////////////// |5.a b. Credit equivalent amount of off-balance sheet items ..................... | ////////////////// | 3801 245,041 |5.b. 6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 50 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet .................................... | 3802 815,349 | ////////////////// |6.a. b. Credit equivalent amount of off-balance sheet items ..................... | ////////////////// | 3803 95,136 |6.b. 7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// | assigned to the 100 percent risk category: | ////////////////// | ////////////////// | a. Assets recorded on the balance sheet .................................... | 3804 12,757,398 | ////////////////// |7.a. b. Credit equivalent amount of off-balance sheet items ..................... | ////////////////// | 3805 3,614,059 |7.b. 8. On-balance sheet asset values excluded from and deducted in | ////////////////// | ////////////////// | the calculation of the risk-based capital ratio(2) ......................... | 3806 439,477 | ////////////////// |8. 9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// | items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// | item 12 plus items 4.b and 4.c) ............................................ | 3807 23,303,563 | ////////////////// |9. |____________________|____________________| Memoranda Dollar Amounts in Thousands| RCFD Bil Mil Thou | _______________________________________________________________________________________________________|____________________ | 1. Current credit exposure across all off-balance sheet derivative contracts covered by the | ////////////////// | risk-based capital standards........................................................................| 8764 51,418 |M.1. |____________________ | __________________________________________________________________________ | With a remaining maturity of | __________________________________________________________________________ | (Column A) | (Column B) | (Column C) | | One year or less | Over one year | Over five years | | | through five years | | 2. Notional principal amounts of __________________________________________________________________________ off-balance sheet derivative contracts(3): |RCFD Tril Bil Mil Thou |RCFD Tril Bil Mil Thou |RCFD Tril Bil Mil Thou | __________________________________________________________________________ a. Interest rate contracts ................... | 3809 3,428,801 | 8766 3,270,430 | 8767 348,812 |M.2.a. b. Foreign exchange contracts ................ | 3812 44,393 | 8769 5,553 | 8770 59,932 |M.2.b. c. Gold contracts ............................ | 8771 0 | 8772 0 | 8773 0 |M.2.c. d. Other precious metals contracts ........... | 8774 0 | 8775 0 | 8776 0 |M.2.d. e. Other commodity contracts ................. | 8777 0 | 8778 0 | 8779 0 |M.2.e. f. Equity derivative contracts ............... | A000 19,892 | A001 0 | A002 0 |M.2.f. |________________________|_______________________|________________________| ______________________________ (1) Do not report in column B the risk-weighted amount of assets reported in column A. (2) Include the difference between the fair value and the amortized cost of available-for-sale debt securities in item 8 and report the amortized cost of these debt securities in items 4 through 7 above. For available-for-sale equity securities, if fair value exceeds cost, include the difference between the fair value and the cost in item 8 and report the cost of these equity securities in items 5 through 7 above; if cost exceeds fair value, report the fair value of these equity securities in items 5 through 7 above and include no amount in item 8. Item 8 also includes on-balance sheet asset values (or portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g., futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables not included in the calculation of credit equivalent amounts of off-balance sheet derivatives as well as any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital. (3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts.
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Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-25 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| OPTIONAL NARRATIVE STATEMENT CONCERNING THE AMOUNTS REPORTED IN THE REPORTS OF CONDITION AND INCOME at close of business on June 30, 1997 TEXAS COMMERCE BANK NATIONAL ASSOCIATION HOUSTON , TEXAS __________________________________________________________________ ___________________________________ ____________________ Legal Title of Bank City State The management of the reporting bank may, if it wishes, both on agency computerized records and in computer-file submit a brief narrative statement on the amounts reported in releases to the public. the Reports of Condition and Income. This optional statement will be made available to the public, along with the publicly All information furnished by the bank in the narrative available data in the Reports of Condition and Income, in statement must be accurate and not misleading. Appropriate response to any request for individual bank report data. efforts shall be taken by the submitting bank to ensure the However, the information reported in column A and in all of statement's accuracy. The statement must be signed, in the Memorandum item 1 of Schedule RC-N is regarded as space provided below, by a senior officer of the bank who confidential and will not be released to the public. BANKS thereby attests to its accuracy. CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT If, subsequent to the original submission, material changes are CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF submitted for the data reported in the Reports of Condition INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE and Income, the existing narrative statement will be deleted AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN from the files, and from disclosure; the bank, at its option, SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT may replace it with a statement, under signature, appropriate THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT to the amended data. WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOM- ERS. Banks choosing not to make a statement may check the The optional narrative statement will appear in agency records "No comment" box below and should make no entries of any and in release to the public exactly as submitted (or amended kind in the space provided for the narrative statement; i.e., as described in the preceding paragraph) by the management DO NOT enter in this space such phrases as "No statement," of the bank (except for the truncation of statements "Not applicable," "N/A," "No comment," and "None." exceeding the 750-character limit described above). THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY The optional statement must be entered on this sheet. The WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR statement should not exceed 100 words. Further, regardless RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT of the number of words, the statement must not exceed 750 SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS characters, including punctuation, indentation, and standard VERIFIED OR CONFIRMED THE ACCURACY OF THE spacing between words and sentences. If any submission INFORMATION CONTAINED THEREIN. A STATEMENT TO should exceed 750 characters, as defined, it will be truncated THIS EFFECT WILL APPEAR ON ANY PUBLIC RELEASE OF at 750 characters with no notice to the submitting bank and THE OPTIONAL STATEMENT SUBMITTED BY THE the truncated statement will appear as the bank's statement MANAGEMENT OF THE REPORTING BANK. ___________________________________________________________________________________________________________________________________ No comment | | (RCON 6979) | C471 | C472 | (- BANK MANAGEMENT STATEMENT (please type or print clearly): (TEXT 6980) _______________________________________ ________________________________ Signature of Executive Officer of Bank Date of Signature
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Legal Title of Bank: Texas Commerce Bank National Association Call Date: 6/30/97 ST-BK: 48-3926 FFIEC 031 Address: P.O. Box 2558 Page RC-26 City, State Zip: Houston, TX 77252-2558 FDIC Certificate No.: |0|3|2|6|3| THIS PAGE IS TO BE COMPLETED BY ALL BANKS - ----------------------------------------------------------------------------------------------------------------------------------- NAME AND ADDRESS OF BANK | OMB No. For OCC: 1557-0081 | OMB No. For FDIC: 3064-0052 | OMB No. For Federal Reserve: 7100-0036 PLACE LABEL HERE | Expiration Date: 3/31/2000 | | SPECIAL REPORT | (Dollar Amounts in Thousands) ___________________________________________________________________________________________________________________________________ | CLOSE OF BUSINESS | FDIC Certificate Number | | DATE | | C-700 (- | 6/30/97 | 0 |3|2|6|3| | ___________________________________________________________________________________________________________________________________ LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date) - ----------------------------------------------------------------------------------------------------------------------------------- The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of Condition. With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of credit to their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or other extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert "none" against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation O) for the definitions of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to directors and principal shareholders who are not executive officers. - ----------------------------------------------------------------------------------------------------------------------------------- a. Number of loans made to executive officers since the previous Call Report date .............. | RCFD 3561 | 1 a. b. Total dollar amount of above loans (in thousands of dollars)................................. | RCFD 3562 | 320 b. c. Range of interest charged on above loans ___________________________________________________________ (example: 9 3/4% = 9.75) ............................................ | RCFD 7701 | 8.10 | % to | RCFD 7702 | 8.10 % c. ___________________________________________________________ ___________________________________________________________________________________________________________________________________ ___________________________________________________________________________________________________________________________________ SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT | DATE (Month, Day, Year) | | ___________________________________________________________________________________________________________________________________ NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) | AREA CODE/PHONE NUMBER/EXTENSION | (TEXT 8904) Karen Gatenby, Vice President | (713) 216-5263 ___________________________________________________________________________________________________________________________________ FDIC 8040/53 (6-95)
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