As filed with the Securities and Exchange Commission on May 28, 2004
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
Securities Act of 1933
BEACON ROOFING SUPPLY, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 5033 | 36-4173371 | ||
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(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial Classification
Code Number) |
(I.R.S. Employer Identification No.) |
1 Lakeland Park Drive
Peabody, MA 01960
(877) 645-7663
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Robert R. Buck
President and Chief Executive Officer
Beacon Roofing Supply, Inc.
1 Lakeland Park Drive
Peabody, MA 01960
(877) 645-7663
(Name, address, including zip code, and telephone number
including area code, of agent for service)
Copies of all communications, including communications sent to agent for service, should be sent to:
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Robert Minkus
David McCarthy Schiff Hardin LLP 6600 Sears Tower Chicago, Illinois 60606 |
Leland Hutchinson
Winston & Strawn LLP 35 W. Wacker Drive Chicago, IL 60601 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
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, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
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. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Proposed Maximum Aggregate Offering Price(1)
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Amount of Registration Fee
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| Common Stock, par value $.01 per share | $175,000,000(2) | $22,173 | ||
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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 this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Subject to completion, dated May 28, 2004
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell, and we are not soliciting an offer to buy, these securities in any state where the offer or sale is not permitted.
Prospectus
shares
Beacon Roofing Supply, Inc. [logo]
Common stock
This is the initial public offering of common stock of Beacon Roofing Supply, Inc. We are selling shares of common stock, and the selling stockholders identified in this prospectus are selling an additional shares. We will not receive any of the proceeds from the sale of the shares by the selling stockholders. The estimated initial public offering price is between $ and $ per share.
Prior to this offering, there has been no public market for our common stock. We intend to apply to have our common stock listed on The Nasdaq National Market under the symbol "BECN."
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| Initial public offering price | $ | $ | ||||
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Underwriting discounts |
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$ |
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$ |
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Proceeds to Beacon, before expenses |
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$ |
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$ |
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Proceeds to selling stockholders, before expenses |
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$ |
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$ |
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Certain stockholders have granted the underwriters an option for a period of 30 days to purchase up to additional shares of our common stock on the same terms and conditions set forth above to cover over-allotments, if any.
Investing in our common stock involves a high degree of risk. See "Risk factors" beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock to investors on , 2004.
| Sole book-running manager | ||
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JPMorgan |
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William Blair & Company |
, 2004
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Page
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| Prospectus summary | 1 | |
| Risk factors | 8 | |
| Forward-looking statements | 14 | |
| Use of proceeds | 15 | |
| Dividend policy | 15 | |
| Capitalization | 16 | |
| Dilution | 17 | |
| Selected consolidated financial data | 18 | |
| Management's discussion and analysis of financial condition and results of operations | 20 | |
| Business | 36 | |
| Management | 49 | |
| Principal and selling stockholders | 60 | |
| Relationships and transactions with related parties | 62 | |
| Description of capital stock, certificate of incorporation and by-laws | 63 | |
| Description of indebtedness | 67 | |
| Shares eligible for future sale | 71 | |
| Underwriting | 74 | |
| Legal matters | 77 | |
| Experts | 77 | |
| Where you can find more information | 77 | |
| Index to consolidated financial statements | F-Index |
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. Offers to sell, and solicitations of offers to buy, shares of our common stock are being made only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to permit a public offering of common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restriction as to this offering and the distribution of this prospectus applicable to those jurisdictions.
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This summary highlights selected information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that may be important to you. You should read the entire prospectus carefully, especially "Risk factors" beginning on page 8 and our consolidated financial statements and related notes, before deciding to invest in our common stock. In this prospectus, unless the context requires otherwise, the words "Beacon," "we," "us" and "our company" refer to Beacon Roofing Supply, Inc. and its subsidiaries.
Our business
We are one of the largest distributors of residential and non-residential roofing materials in the United States and Canada. We also distribute other complementary building materials, including siding, windows, specialty lumber products and waterproofing systems, for residential and non-residential building exteriors. We operate 66 branches in 12 states and three Canadian provinces, carrying up to 7,500 stock keeping units, or SKUs, per location and serving more than 18,000 customers. We are a leading distributor of roofing materials in key metropolitan markets in the Northeast, Mid-Atlantic, Southeast and Southwest regions of the United States and in Eastern Canada. We believe we are the first or second largest distributor in each of the regions we serve.
We also provide our customers with a comprehensive array of value-added services related to the products we sell. We believe that our ability to provide these additional services efficiently and reliably strengthens our relationships with our customers, improves our gross profit margins and distinguishes us from our competition. We have earned a reputation for excellent employees, professionalism and high quality service.
Our diverse customer base represents a significant majority of the residential and non-residential roofing contractors in our markets. Our branch-based operating model allows us to capitalize on our extensive knowledge of the local and regional markets that we serve, tailoring our product offerings and services to customer needs while benefiting from the purchasing, information technology, credit and other resources and efficiencies of a national distribution organization.
We have achieved our growth through a combination of integrating seven strategic and complementary acquisitions between 1998 and 2001, opening new branch locations and broadening our product offering. We have grown from $76.7 million in sales in fiscal year 1998 to $559.5 million in sales in fiscal year 2003, which represents a compound annual growth rate of 48.8%. Income from operations has increased from $5.3 million in fiscal year 1998 to $31.3 million in fiscal year 2003, which represents a compound annual growth rate of 42.6%. From 2001 to 2003, our revenue grew at a compound annual growth rate of 16.1% and our income from operations grew at a compound annual growth rate of 29.3%. In the six months ended March 31, 2004, we had sales of $292.7 million and income from operations of $18.1 million, representing growth of 22.3% and 139.9%, respectively, in sales and income from operations over the comparable 2003 period. We believe that our proven business model will continue to deliver industry-leading growth and operating profit margins.
U.S. industry overview
In 2003, the U.S. roofing market was estimated to be an approximately $10 billion industry, which is projected to grow by over 3% annually through the end of the decade. Roughly 70% of expenditures in this market is for re-roofing projects, with the balance being new
construction. Re-roofing projects are generally considered maintenance expenditures and are less likely than new construction projects to be postponed during periods of recession or slow economic growth. As a result, demand for roofing products is less volatile than overall demand for construction products.
The U.S. roofing market can be separated into the residential roofing market, representing approximately 60% of volume, and the non-residential roofing market. Through the end of the decade, non-residential roofing construction is expected to grow faster than residential roofing construction.
Regional variations in economic activity influence the level of demand for roofing products across the United States. Demographic trends, including population growth and migration, contribute to regional variations in residential demand for roofing products through their influence on regional housing starts and existing home sales.
Despite recent consolidation, the roofing and related building materials distribution industry remains highly fragmented. According to IBISWorld Pty Ltd., the industry in the United States consists of more than 1,800 distributors. The industry is characterized by a large number of small and local regional participants. As a result of their small size, many of these distributors lack the corporate, operating and IT infrastructure required to compete effectively.
The market for other exterior building products for residential and non-residential construction is also growing. As in the roofing industry, demand for these products is driven by the repair and remodeling market as well as the new construction market.
Our strengths
We believe that our sales and earnings growth has been and will continue to be driven by our primary competitive strengths, which include the following:
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logistical support and marketing assistance. We believe that the services provided by our employees improve our customers' efficiency and profitability which, in turn, strengthens our customer relationships.
Growth strategies
Our objective is to become the preferred supplier of roofing and other exterior building product materials in the U.S. and Canadian market while continuing to increase our revenue base and maximize our profitability. We plan to attain these goals by executing the following strategies:
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well-capitalized competitors in the industry, we believe that we can continue to build on our distribution platform by successfully acquiring additional roofing materials distributors. We have successfully integrated seven new businesses during the past six years.
Our corporate information
Our company was incorporated in Delaware in 1997 as the successor to a company founded in 1928. Our principal executive office is located at 1 Lakeland Park Drive, Peabody, Massachusetts 01960, and our telephone number at that address is (877) 645-7663. We maintain a website on the Internet at www.beaconroofingsupply.com. The information contained in our website is not a part of, and should not be considered as being incorporated by reference into, this prospectus.
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| Common stock offered by Beacon | shares | |
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Common stock offered by the selling stockholders |
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shares |
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Common stock to be outstanding after this offering |
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shares |
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Use of proceeds |
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We intend to use the net proceeds from this offering to repay debt and redeem warrants. We will not receive any of the proceeds from the sale of common stock by the selling stockholders. See "Use of Proceeds." |
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Proposed Nasdaq National Market symbol |
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"BECN" |
The number of shares of common stock to be outstanding after this offering excludes:
Unless otherwise indicated, all information contained in this prospectus:
Risk factors
See "Risk factors" and the other information included in this prospectus for a discussion of the factors you should consider carefully before deciding to invest in shares of our common stock.
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Summary consolidated financial data
The following table presents a summary of our historical financial information. When you read this summary historical financial data, it is important that you read along with it the historical financial statements and related notes, as well as the section titled "Management's discussion and analysis of financial condition and results of operations", included elsewhere in this prospectus.
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Investing in our common stock involves a high degree of risk. You should carefully consider the following factors, as well as other information contained in this prospectus, before deciding to invest in shares of our common stock. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. These risks could have a material and negative effect on our business, financial condition or results of operations. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment in our common stock.
Risks relating to our business and industry
We may not be able to successfully identify acquisition candidates, effectively integrate newly acquired businesses into our operations or achieve expected profitability from our acquisitions.
Our growth strategy includes acquiring other roofing materials distributors. We continually seek acquisition candidates in selected markets and from time to time engage in exploratory discussions with potential candidates. There can be no assurance, however, that we will be able to identify and acquire appropriate businesses. If we are not successful in finding attractive acquisition candidates that we can acquire on satisfactory terms, or if we cannot complete those acquisitions that we identify, it is unlikely that we will sustain the historical growth rates of our business.
Acquisitions involve numerous risks, including:
In addition, if we finance acquisitions by issuing equity securities or securities convertible into equity securities, our existing stockholders would be diluted, which, in turn, could adversely affect the market price of our stock. Moreover, we could finance an acquisition with debt, resulting in higher leverage and interest costs. As a result, if we fail to evaluate and execute acquisitions properly, we might not achieve the anticipated benefits of these acquisitions, and we may incur costs in excess of what we anticipate.
An inability to obtain the products that we distribute could have a material adverse effect on our financial condition and results of operations.
We distribute roofing and other exterior building materials that are manufactured by a number of major suppliers. Although we believe that our relationships with our suppliers are strong and that we would have access to similar products from competing suppliers should products be unavailable from current sources, any disruption in our sources of supply,
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particularly of the most commonly sold items, could have a material adverse effect on our financial condition and results of operations. Supply shortages may occur as a result of unanticipated demand or production or delivery difficulties. When shortages occur, roofing material suppliers often allocate products among distributors.
Loss of key personnel or our inability to attract and retain new qualified personnel could hurt our ability to operate and grow successfully.
Our success is highly dependent upon the services of Robert Buck, our President and Chief Executive Officer, David Grace, our Chief Financial Officer, and historically Andrew Logie, our Chairman of the Board and Executive Vice President. Our success will continue to depend to a significant extent on our executive officers and key management personnel, including our regional vice presidents. We do not have key man life insurance covering any of our executive officers. We may not be able to retain our executive officers and key personnel or attract additional qualified management. The loss of any of our executive officers or our other key management personnel or our inability to recruit and retain qualified personnel could have a material adverse effect on our operating results.
A change in vendor rebates could adversely affect our income and gross margins.
The terms on which we purchase product from many of our vendors entitle us to receive a rebate based on the volume of our purchases. These rebates effectively reduce our costs for products. If market conditions change, vendors may adversely change the terms of some or all of these programs. Although these changes would not affect the amounts at which we have recorded product already purchased, it may lower our gross margins on products we sell or income we realize in future periods.
Cyclicality in our business could have a material adverse effect on our financial condition and results of operations.
We sell a portion of our products for new residential and non-residential construction. The strength of these markets depends on new housing starts and business investment, which are a function of many factors beyond our control, including interest rates, employment levels, availability of credit and consumer confidence. Future downturns in the regions and markets that we serve could have a material adverse effect on our operating results or financial condition.
Seasonality in the construction and re-roofing industry could have a material adverse effect on our financial condition and results of operations.
Our second quarter is typically adversely affected by winter construction cycles and weather patterns in colder climates as the level of activity in the new construction and re-roofing markets decreases. Because much of our overhead and expense remains relatively fixed throughout the year, we generally record a loss during our second quarter. We expect that these seasonal variations will continue in the future.
If we encounter difficulties with our management information systems, our business may be adversely affected.
We believe our management information systems are a competitive advantage in maintaining our leadership positions in the roofing distribution industry. If we experience problems with
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our management information systems, we could experience product shortages or an increase in accounts receivable. Any failure by us to maintain our management information systems could adversely impact our ability to attract and serve customers and would cause us to incur higher operating costs and experience delays in the execution of our business plan.
Our failure to compete successfully could cause our revenue or market share to decline.
We currently compete in the distribution of roofing materials primarily with smaller distributors, but we also face competition from a number of multi-regional distributors of roofing materials and national distributors of building products that are larger and have greater financial resources than us. Our competitors' greater financial resources may enable them to offer higher levels of service or a broader selection of inventory than we can. As a result, there can be no assurance that we will be able to continue to compete effectively with our competition.
An impairment of goodwill could have a material adverse effect on our results of operations.
Acquisitions frequently result in the recording of goodwill and other intangible assets. At March 31, 2004, goodwill represented approximately 35% of our total assets. Goodwill is no longer amortized and is subject to impairment testing at least annually using a fair value based approach. The identification and measurement of goodwill impairment involves the estimation of the fair value of our single reporting unit. Our accounting for impairment contains uncertainty because management must use judgment in determining appropriate assumptions to be used in the measurement of fair value. We determine fair value using a market approach to value our business, which we believe consists of one reporting unit, distribution of building materials. The market approach involves applying an appropriate market multiple to operating performance for the trailing twelve-month period.
We evaluate the recoverability of goodwill for impairment in between our annual tests when events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. Although we have not recorded any goodwill impairment to date, we cannot assure you that future impairments of goodwill will not occur. Any impairment of goodwill would adversely affect our operating results.
Being a public company will increase our administrative costs and divert management time and attention, particularly to comply with new regulatory requirements implemented by the Securities and Exchange Commission and The Nasdaq National Market.
As a public company, we will incur significant legal, accounting, and other costs that we did not incur as a private company. We will incur all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws. In addition to the Sarbanes-Oxley Act of 2002, we will be subject to a series of new rules and regulations that the Securities and Exchange Commission, or the SEC, and The Nasdaq National Market, or Nasdaq, have adopted. In addition to increasing costs, we expect our compliance efforts will make some activities more time-consuming and divert management time and attention away from our core business. We will need to expand our operational and financial systems and controls as part of our compliance efforts.
We intend to take advantage of certain "grace periods" for newly public companies under certain of the new SEC and Nasdaq rules and regulations, which grace periods will provide us a short period of time after we become a public company before we are required to be in full
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compliance with these rules and regulations. For example, upon the consummation of this offering, we will not be in full compliance with the SEC and Nasdaq requirements that a majority of our board members and all of our audit committee members be "independent". Our ability to satisfy the various requirements before the expiration of the applicable grace periods will depend largely on our ability to attract and retain qualified independent members of our board of directors, particularly to serve on our audit committee, which may be more difficult in light of these new rules and regulations. If we fail to satisfy the various requirements before the expiration of the applicable grace periods, our common stock may be delisted from Nasdaq, which would adversely affect the trading price of our common stock and the ability of the holders of our common stock to sell and buy our common stock in a public market.
We also expect these new rules and regulations will make it more difficult and more expensive for us to obtain director and officer liability insurance and may require us to accept reduced coverage or incur substantially higher costs to obtain coverage.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm the trading price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Risks relating to this offering
Our common stock has no prior public market, and our stock price may decline after this offering.
Prior to this offering, there has been no public market for our common stock. We cannot assure you that an active trading market for our common stock will develop or be sustained after this offering. The initial public offering price for our common stock will be determined by negotiations between the representatives of the underwriters and us. The initial public offering price may not correspond to the price at which our common stock will trade in the public market subsequent to this offering, and the price of our common stock available in the public market may not reflect our actual financial performance.
The market price of our common stock could be subject to significant fluctuations after this offering. Among the factors that could affect our stock price are:
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The stock markets in general have recently experienced volatility that has sometimes been unrelated to the operating performance of particular companies. These broad market fluctuations may cause the trading price of our common stock to decline. In particular, you may not be able to resell your shares at or above the initial public offering price.
If securities or industry analysts do not publish research or reports about our business or publish negative research, or our results are below analysts' estimates, our stock price and trading volume could decline.
The trading market for our common stock may depend on the research and reports that industry or securities analysts may publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or our results are below analysts' estimates, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Our current principal stockholders will continue to have significant influence over us after this offering, and they could delay, deter or prevent a change of control or other business combination or otherwise cause us to take action with which you may disagree.
Upon the closing of this offering, Code, Hennessy & Simmons III, L.P. will beneficially own approximately % of our outstanding common stock. In addition, three members of our board may be considered affiliates of Code Hennessy. As a result, Code Hennessy and its affiliates will have significant influence over our decision to enter into any corporate transaction and may have the ability to prevent any transaction that requires the approval of stockholders regardless of whether or not other stockholders believe that the transaction is in their own best interests. This concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders.
Shares eligible for public sale after this offering could adversely affect our stock price.
Sales of our common stock by existing investors may begin shortly after the closing of this offering. Sales of a substantial number of shares of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. The shares of our common stock outstanding prior to this offering will be eligible for sale in the public market at various times in the future. Up to shares of our common stock, including shares of common stock sold in the offering, will be available for resale immediately. Ninety days after the date of the prospectus, an additional shares of our common stock will be eligible for sale in the public market, subject to the restrictions under Rule 144. We, all of our officers and directors and certain of our stockholders have agreed, subject to limited exceptions, not to sell any shares of our common stock for a period of 180 days after the date of this prospectus without the prior written consent of J.P. Morgan Securities Inc. Upon expiration of the lock-up period described above,
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up to approximately additional shares of common stock will be eligible for sale in the public market without restriction, and up to approximately shares of common stock held by affiliates will become eligible for sale, subject to the restrictions under Rule 144.
Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote and be dilutive to earnings.
Following the closing of this offering, our board of directors has the authority, without action or vote of our stockholders, except as required by Nasdaq, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options. Issuances of common stock would reduce your influence over matters on which our stockholders vote and could be dilutive to earnings.
As a new investor, you will experience immediate and substantial dilution.
The initial public offering price of the common stock being sold in this offering is considerably more than the net tangible book value per share of our outstanding common stock. Accordingly, investors purchasing shares of common stock in this offering will pay a price per share that substantially exceeds, on a per share basis, the value of our assets after subtracting liabilities. Investors will suffer additional dilution to the extent outstanding stock options are exercised and to the extent we issue any stock or option to our employees under our stock plan.
We might need to raise capital, which might not be available.
We may require additional equity or debt financing in order to consummate an acquisition or for additional working capital for expansion or if we suffer losses. We cannot assure you that we will be able to obtain additional financing on terms acceptable to us or at all. In the event additional financing is unavailable to us, we may be materially adversely affected.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Provisions in our certificate of incorporation and by-laws, as amended and restated upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. In addition, as a Delaware corporation, we are subject to certain Delaware anti-takeover provisions, including restrictions on our ability to engage in a business combination with any holder of 15% or more of our capital stock. Our board of directors could rely on Delaware law to prevent or delay an acquisition of us.
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The matters discussed in this prospectus that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties, which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "aim," "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "project," "should," "will be," "will continue," "will likely result," "would" and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance. You should read statements that contain these words carefully, because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other "forward-looking" information.
We believe that it is important to communicate our future expectations to our investors. However, there are events in the future that we are not able to accurately predict or control. The factors listed under "Risk factors," as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially from those in the forward looking statements as a result of various factors, including, but not limited to, those described above under the heading "Risk factors" and elsewhere in this prospectus. Before you invest in our common stock, you should read this prospectus completely and with the understanding that our actual future results may be materially different from what we expect.
Forward-looking statements speak only as of the date of this prospectus. Except as required under federal securities laws and the rules and regulations of the SEC, we do not have any intention, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this prospectus, whether as a result of new information, future events or otherwise. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on the forward-looking statements included in this prospectus or that may be made elsewhere from time to time by, or on behalf of, us. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
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We estimate that our net proceeds from the sale of shares by us in this offering will be approximately $ , based on the assumed initial public offering price of $ per share, the mid-point of the range on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares by the selling stockholders.
We intend to use approximately $ million of the net proceeds to us from this offering to redeem:
We will use the remaining $ of net proceeds to pay down our revolving credit facility, which had amounts outstanding at annual interest rates of 3.10% and 4.75%, as of May 24, 2004. Amounts repaid under the revolving credit facility will be redrawn from time to time for general corporate purposes, including acquisitions.
We have not paid dividends on our common stock and do not anticipate paying dividends in the foreseeable future. Our board of directors currently intends to retain any future earnings for reinvestment in our business. In any event, any determination to pay dividends will be at the discretion of our board of directors and will be dependent upon our results of operations and cash flows, our financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends, including the restrictions contained in the agreements governing our outstanding indebtedness and any other factors our board of directors deems relevant.
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The following table sets forth our cash and our consolidated capitalization as of March 31, 2004:
You should read the data set forth below in conjunction with "Management's discussion and analysis of financial condition and results of operations" and the consolidated financial statements and accompanying notes included elsewhere in this prospectus.
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Our net tangible book value deficit as of March 31, 2004 was $58.0 million, or $(14,778) per share of common stock. Net tangible book value deficit per share is determined by dividing our net tangible book value deficit, which is total tangible assets less total liabilities, by the aggregate number of shares of common stock outstanding. Tangible assets represent total assets excluding goodwill and other intangible assets. Dilution in net tangible book value deficit per share represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the net tangible book value deficit per share of our common stock immediately afterwards. After giving effect to our sale of shares of common stock in this offering, our adjusted net tangible book value at March 31, 2004 would have been $ million, or $ per share. This represents an immediate improvement in net tangible book value deficit of $ per share to our existing stockholders and an immediate dilution of $ per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution per share:
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| Net tangible book value deficit per share as of March 31, 2004 | $ | (14,778 | ) | ||||
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Dilution per share to new investors |
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The following table summarizes, as of March 31, 2004, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering, before deducting the underwriting discount and estimated offering expenses payable by us.
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To the extent any outstanding options are exercised or any additional options are granted and exercised, there may be economic dilution to new investors.
In addition, we may choose to raise additional capital due to market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
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Selected consolidated financial data
You should read the following selected financial information together with our financial statements and the related notes appearing at the end of this prospectus and the "Management's discussion and analysis of financial condition and results of operations" section of this prospectus. We have derived the statement of operations data from the six months ended March 31, 2003 and 2004 and the balance sheet data at March 31, 2004 from our unaudited financial statements which are included in this prospectus. The unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information set forth therein. We have derived the statement of operations data for the years ended September 29, 2001, September 28, 2002 and September 27, 2003, and the balance sheet information at September 28, 2002 and September 27, 2003 from our audited financial statements which are included in this prospectus. We have derived the statements of operations data for the years ended September 25, 1999 and September 30, 2000, and the balance sheet data at September 25, 1999, September 30, 2000 and September 29, 2001 from our audited financial statements, which are not included in this prospectus.
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19
Management's discussion and analysis of financial condition and results of operations
The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under "Risk factors," "Forward-looking statements" and elsewhere in this prospectus. Certain tabular information will not foot due to rounding.
Overview
We are one of the largest distributors of residential and non-residential roofing materials in the United States and Canada. We are also a distributor of other building materials, including siding, windows, specialty lumber products and waterproofing systems for residential and non-residential building exteriors. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and, to a lesser extent, general contractors, retailers and building material suppliers.
We distribute up to 7,500 SKUs through 66 branches in the United States and Canada. In fiscal 2003, approximately 89% of our net sales were in the United States. We stock one of the most extensive assortments of high quality branded products in the industry, enabling us to deliver products to our customers on a timely basis.
Execution of the operating plan at each of our branches drives our financial results. Revenues are impacted by the relative strength of the residential and non-residential roofing markets we serve. We allow each of our 66 branches to develop its own mix of our products based upon its local market. We differentiate ourselves from the competition by providing customer services, including job site delivery, tapered insulation layouts and design and metal fabrication, and by providing credit, all of which benefit our operating income. We consider customer relations and our employees' knowledge of roofing and exterior building materials to be important to our ability to increase customer loyalty and maintain customer satisfaction. We invest significant resources in training our employees in sales techniques, management skills and product knowledge. While we consider these attributes important drivers of our business, we continually pay close attention to controlling operating costs to maintain our operating profit.
On June 5, 2001 we acquired The Roof Center, Inc. and West End Lumber Company, Inc. These businesses together operated 22 branches in the Mid-Atlantic states and Texas.
General
We sell all materials necessary to install, replace and repair residential and non-residential roofs, including:
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We also sell complementary building products such as:
We have over 18,000 customers, no one of which represents more than 1% of our net sales. Many of our customers are small to mid-size contractors with relatively limited capital resources. We maintain strict credit approval and review policies, which in the past has helped to keep losses from customer receivables within our expectations. For the past five years, write-offs for doubtful accounts have averaged less than 0.27% of net sales.
Our expenses consist primarily of the cost of products purchased for resale and labor, fleet, occupancy and selling and administrative expenses. We compete for business and may respond to competitive pressures by lowering prices in order to maintain our market share.
Since 1997, we have acquired and integrated seven regional roofing materials distributors with leading positions in their respective geographic markets. Over the same time period, we and our acquired distributors have opened a total of 20 new branches (11 of which were opened under our ownership). We have opened two branches in each of the past three fiscal years and one during the six months ended March 31, 2004. When we add a new branch, we transfer a certain level of existing business from an existing branch to the new branch. This allows the new branch to commence with a base business, and also allows the existing branch to target other growth opportunities.
In managing our business, we consider all growth, including branch expansion, to be internal growth unless it results from an acquisition. In our management's discussion and analysis of financial condition and results of operations, when we refer to growth in existing markets, we include growth from existing and newly-opened branches but exclude growth from acquired branches until they have been under our ownership for at least one year.
We use a 52/53 week fiscal year ending on the last Saturday of September. Our fiscal years ended September 27, 2003 ("fiscal 2003" or "2003") and September 28, 2002 ("fiscal 2002" or "2002") each contained 52 weeks. Our fiscal year ended September 29, 2001 ("fiscal 2001" or "2001") contained 53 weeks.
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Critical accounting policies
Critical accounting policies are those that both are important to the accurate portrayal of a company's financial condition and results, and require subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
In order to prepare financial statements that conform to accounting principles generally accepted in the United States, commonly referred to as GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.
We have identified the following accounting policies that require us to make the most subjective or complex judgments in order to fairly present our consolidated financial position and results of operations.
Stock-based compensation
We account for our stock compensation arrangements with employees under the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees . We have adopted the disclosure-only provisions of Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation , as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure .
Interest rate collars
We enter into interest rate collars to manage our interest rate exposure. These derivatives, which are not formal hedges, must be adjusted to fair value through income.
Warrant derivative liabilities
We have warrants outstanding that include a "put" feature, which allows the holder to require a cash settlement equivalent to the difference between fair market value of our common stock and the exercise price of the warrant. The put feature is available at any time from five years after the date of issuance of the warrant or upon the occurrence of certain events, including a change in control, a qualified initial public offering or repayment of over 50% of the related debt outstanding. We account for these warrant derivatives in accordance with Emerging Issue Task Force (EITF) Issue 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock .
We value the warrant derivatives using the fair value of our common stock adjusted for a lack of marketability.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts for estimated losses due to the failure of our customers to make required payments. We perform periodic credit evaluations of our customers and typically do not require collateral. Consistent with industry practices, we require payment from most customers within 30 days, except for sales to our commercial roofing contractors, which we typically require to pay in 60 days.
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As our business is seasonal in certain regions, our customers' businesses are also seasonal. Sales are lowest in the winter months, and our past due accounts receivable balance as a percentage of total receivables generally increases during this time. Throughout the year, we record estimated reserves based upon our historical write-offs of uncollectible accounts.
Periodically, we perform a specific analysis of all accounts past due and write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote based upon the following factors:
We charge these write-offs against our allowance for doubtful accounts. In the past five years, write-offs have averaged less than 0.27% of net sales.
Inventory valuation
Product inventories represent one of our largest assets and are recorded at net realizable value. Our goal is to manage our inventory so that we minimize out of stock positions. To do this, we maintain at each branch an adequate inventory of SKUs with the highest sales volume. At the same time, we continuously strive to better manage our slower moving classes of inventory, which are not as critical to our customers.
During the year, we monitor our inventory levels by branch and record provisions for excess inventories based on slower moving inventory. We define potential excess inventory as the amount of inventory on hand in excess of the historical usage, excluding items purchased in the last three months. We then apply our judgment as to forecasted demand and other factors, including liquidation value, to determine the required adjustments to net realizable value. In addition, at the end of each year, we evaluate our inventory at each branch and write off and dispose of obsolete products. Our inventories are generally not susceptible to technological obsolescence.
During the year, we perform periodic cycle counts and write off excess or damaged inventory as needed. At year-end we take a physical inventory and record any necessary additional write-offs.
Vendor rebates
We account for vendor rebates in accordance with EITF Issue 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. Many of our arrangements with our vendors provide for us to receive a rebate of a specified amount payable to us when we achieve any of a number of measures, generally related to the volume of purchases from our vendors. We account for these rebates as a reduction of the prices of the vendor's products, which reduces inventory until we sell the product, at which time these rebates reduce cost of sales in our income statement. Throughout the year, we estimate the amount of rebates based upon the expected level of purchases. We continually revise these estimates to reflect actual rebates earned based on actual purchase levels.
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If market conditions were to change, vendors may change the terms of some or all of these programs. Although these changes would not affect the amounts which we have recorded related to product already purchased, it may impact our gross margins on products we sell or revenues earned in future periods.
Revenue recognition
We recognize revenue in accordance with SEC Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements , as amended by Staff Accounting Bulletin 104. The SEC requires that the following four basic criteria must be met before we recognize revenue:
We generally recognize revenue at the point of sale or upon delivery to the customer's site. For goods shipped by third party carriers, we recognize revenue upon shipment since the terms are FOB shipping point.
We also ship certain products directly from the manufacturer to the customer. We recognize the gross revenue for these sales upon notification of delivery from the vendor in accordance with EITF Issue 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent .
All revenues recognized are net of allowances for discounts and estimated returns, which are also provided for at the time of pick up or delivery.
Income taxes
We account for income taxes using the liability method, which requires us to recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences between the financial statement and tax reporting bases of assets and liabilities to the extent that they are realizable. Deferred tax expense (benefit) results from the net change in deferred tax assets and liabilities during the year.
We have operations in 12 U.S. states and three provinces in Canada, and we are subject to tax audits in each of these jurisdictions and federally in both the United States and Canada. These audits may involve complex issues, which may require an extended period of time to resolve. We have provided an estimate of our taxes payable in the accompanying financial statements.
Goodwill
Goodwill represents the excess of the amount we paid to acquire businesses over the estimated fair value of tangible assets and identifiable intangible assets acquired, less liabilities assumed. At March 31, 2004, our net goodwill balance was approximately $93.9 million, representing approximately 35% of our total assets.
In fiscal 2002, we early adopted the provisions of SFAS 142, Goodwill and Other Intangible Assets . Under these rules, we test goodwill for impairment in the fourth quarter of each fiscal
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year or at any other time when impairment indicators exist. Examples of such indicators that would cause us to test goodwill for impairment between annual tests include a significant change in the business climate, unexpected competition, significant deterioration in market share or a loss of key personnel.
We determine fair value using a market approach to value our business, which we believe consists of one reporting unit, distribution of building materials. The market approach involves applying an appropriate market multiple to operating performance for the trailing twelve-month period.
New accounting pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin ARB No. 51 (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. However, in December 2003, the FASB deferred the effective date of FIN 46 to the end of the first interim or annual period ending after December 15, 2003 for those arrangements involving special purpose entities entered into prior to February 1, 2003. All other arrangements within the scope of FIN 46 are subject to its provisions beginning in 2004. We adopted FIN 46, as required, with no material impact to our consolidated financial position or results of operations.
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The following discussion compares our results of operations for the six months ended March 31, 2004 to our results of operations for the six months ended March 31, 2003, and the results of operations for the years ended September 27, 2003, September 28, 2002, and September 29, 2001.
The following table shows, for the periods indicated, information derived from our consolidated statements of operations, expressed as a percentage of net sales for the period presented.
Six months ended March 31, 2004 compared to six months ended March 31, 2003
Net sales increased $53.4 million, or 22.3%, to $292.7 million in the six months ended March 31, 2004 from $239.3 million in the comparable 2003 period. Specifically, product group sales increased as follows:
Our residential roofing product growth was driven by the continued strong new housing market, especially in our Mid-Atlantic region, and a strong remodeling market in all regions. Our continued introduction of complementary building products, such as fiber siding, vinyl
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siding and windows, also drove revenue growth by increasing market share primarily in the growing residential market. Our non-residential roofing products growth came primarily from gains in the Northeast from new construction and remodeling markets.
Gross profit increased $14.6 million, or 24.0%, to $75.4 million in the six months ended March 31, 2004 from $60.8 million for the comparable 2003 period, consistent with the sales growth above.
Gross profit as a percentage of net sales, commonly referred to as gross margin, increased to 25.8% in the six months ended March 31, 2004 compared to 25.4% for the comparable 2003 period. This increase was due mainly to improved gross margins resulting from a change in product mix in the non-residential market.
Selling, general and administrative expenses increased $4.0 million, or 7.5%, to $57.2 million for the six months ended March 31, 2004 from $53.2 million in the comparable 2003 period. This increase was due primarily to increased transportation costs, including higher fuel costs, and increased payroll associated with additional delivery personnel due primarily to the increased sales and deliveries. We expect high fuel costs to continue for the foreseeable future. These increases may adversely affect our future results of operations, although historically we have passed most of these increases on to our customers. Selling, general and administrative expenses as a percentage of net sales decreased to 19.6% for the six months ended March 31, 2004 from 22.2% for the comparable 2003 period, primarily due to leveraging our fixed costs over increased net sales. During the six months ended March 31, 2004, we also recorded a charge of approximately $0.2 million to reflect compensation from the issuance of stock and the grant of options to purchase stock options below fair market value. We will record the remaining charge of $0.4 million associated with these grants of options to purchase common stock over the next two years.
Interest expense increased $0.1 million to $7.0 million in the six months ended March 31, 2004 from $6.9 million for the comparable 2003 period. Although average debt outstanding was lower for the six months ended March 31, 2004, our effective interest rate increased to 11.3% for the six months ended March 31, 2004 from 9.8% in the comparable 2003 period, primarily due to the increase of our 18% junior subordinated notes payable as a percentage of our total debt outstanding.
In March 2004, we refinanced certain components of our indebtedness, paying off a portion of our junior subordinated notes payable, reducing our effective interest rate by 273 basis points. With this refinancing, we recognized a loss on early retirement of debt in the amount of $3.3 million. We expect that upon the closing of this offering and the use of proceeds to repay debt, our effective annual interest rate will be approximately 3.5%, based upon March 31, 2004 base rates.
The change in value of our warrant derivatives was $11.0 million for the six months ended March 31, 2004 compared to $1.3 million for the comparable 2003 period, due to the effects of the increase in the fair market value of our common stock.
Income taxes increased to $3.5 million for the six months ended March 31, 2004 from $0.3 million for the comparable 2003 period. Our effective income tax rate increased from 46.6% for the six months ended March 31, 2003 to 111.5% for the six months ended March 31, 2004 due to the increased impact of the non-deductible warrant derivatives charge from
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$1.3 million to $11.0 million on our pre-tax loss. Our effective tax rate, exclusive of the impact of the non-deductible warrant derivatives, was approximately 44% for the six months ended March 31, 2004 and the comparable 2003 period.
Fiscal 2003 compared to 2002
Net sales increased $9.7 million, or 1.8%, to $559.5 million in 2003 from approximately $549.9 million in 2002. The entire increase was from growth in our existing markets. We were able to increase sales in all of our product groups during a period in which the market for non-residential products was weak and residential markets were flat in the markets we serve. The following chart of our sales by product group illustrates this growth:
Since the end of the second quarter of 2003, our residential roofing products growth has been driven by a strong new housing market in our Northeast and Mid-Atlantic regions and continued growth in the remodeling market in all regions. Our introduction of complementary products, such as fiber siding and windows in Texas and vinyl siding in North and South Carolina, has increased our market share for these products. Our non-residential products also have seen an improvement since the second quarter of 2003. Although we had total growth of only 1.8%, we believe we increased our market share in a weak market, primarily through gains in the Northeast in both new and retrofit non-residential roofing markets.
Gross profit increased $4.9 million, or 3.6%, to $140.9 million in 2003 from $135.9 million in 2002, due primarily to increased sales noted above and increases in vendor rebate programs.
Gross margin increased to 25.2% in 2003 compared to 24.7% in 2002. The increase of 50 basis points resulted primarily from a shift in product mix from non-residential products to higher margin complementary building products. These products generally also provide higher vendor rebates as a percentage of their purchase prices.
Selling, general and administrative expenses increased $3.1 million, or 2.9%, to $109.6 million in 2003 from $106.5 million in 2002. Selling, general and administrative expenses as a percentage of net sales increased to 19.6% in 2003 from 19.4% in 2002. The increase in selling, general and administrative expenses was due primarily to the additional costs of our two new branches opened in 2003 and the full year effect of two other branches opened in 2002. Additionally we incurred increased transportation costs driven by increased fuel charges, partially offset by lower promotional spending.
Interest expense decreased $1.3 million to $14.1 million in 2003 from $15.3 million in 2002. Our average debt outstanding was lower in 2003 and our effective interest rate decreased to 10.3% in 2003 from 10.7% in 2002, primarily due to decreased base interest rates.
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The change in value of our warrant derivatives decreased slightly to $2.6 million for 2003 from $2.8 million in 2002 as the appreciation in the fair market value of our common stock was consistent period to period.
Our effective income tax rate decreased to 51.4% in 2003 from 54.1% in 2002. The effective tax rate difference was due to the decreased impact of the non-deductible warrant derivative on a higher base of pre-tax income. Our overall effective rate is in excess of the federal statutory rate due to state income taxes and our inability to use tax credits in the United States on income earned by our Canadian operations.
Fiscal 2002 compared to 2001 (53 weeks)
Net sales increased $134.8 million, or 32.5%, to $549.9 million in 2002 from $415.1 million in 2001, due primarily to the full year effect of the acquisition of The Roof Center, Inc. and West End Lumber Company, Inc. in June 2001, which contributed $146.2 million to our revenue growth for 2002. Sales in pre-acquisition markets decreased by $11.4 million, or 3.4%, due primarily to a weak non-residential roofing market caused by lower than expected demand from the industrial sector. In our pre-acquisition markets, we were able to partially offset the weak non-residential roofing market by maintaining market share in residential roofing products, while continuing our market penetration in complementary building products such as siding and windows. While sales of our non-residential products contracted in all regions, we believe we gained market share during the year.
This table shows our total 2001 and 2002 net sales by product line, broken down by acquired markets and pre-acquisition markets.
Gross profit increased $42.0 million, or 44.7%, to $135.9 million in 2002 from $93.9 million in 2001. The Roof Center/West End acquisition provided $41.5 million of the increase, while pre-acquisition markets increased marginally by $0.5 million, or 0.7%. We were able to maintain our gross profit goals in a weak non-residential roofing market by concentrating and shifting our attention to residential roofing and complementary building markets.
Gross margin increased to 24.7% in 2002 compared to 22.6% in 2001 due primarily to the acquisition in June 2001 of The Roof Center, Inc. and West End Lumber Company, Inc., which experienced higher gross margins of approximately 27.3% compared to our pre-acquisition markets gross margins of 22.7%. The higher gross margin for these acquired businesses was due primarily to a higher proportion of residential products, which in general have higher gross margins, than our pre-acquisition markets. Gross margins at the acquired businesses increased to 27.3% in 2002 from 25.2% in 2001, due mainly to increased vendor rebates which were realized as part of our larger organization. In our pre-acquisition markets, gross margins
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increased to 22.9% in 2002 from 22.0% in 2001, due mainly to increased vendor rebates and a greater concentration of sales of residential products.
Selling, general and administrative expenses increased $31.3 million, or 41.6%, to $106.5 million in 2002 from $75.2 million in 2001, due primarily to expenses attributable to the Roof Center/West End acquisition, with expenses in pre-acquisition markets remaining essentially unchanged. Selling, general and administrative expenses as a percentage of net sales increased to 19.4% in 2002 from 18.1% in 2001. The increase was due mainly to including the higher operating costs percentage at the acquired businesses, which were approximately 22.0% in 2002, with our pre-acquisition markets' selling, general and administrative expenses percentage of 17.6% in 2002. Operating costs were generally higher as a percentage of sales at these acquired businesses due to the higher product mix of residential products, which in general require higher operating costs as compared to non-residential products.
Interest expense decreased $0.4 million to $15.3 million in 2002 from $15.7 million in 2001. Even though our average debt outstanding was higher in 2002 than in 2001, our effective interest rate decreased to 10.7% in 2002 compared with 11.9% in 2001. This decline was primarily due to an increase in borrowings under our lower rate term debt and revolving lines of credit as a percentage of total borrowings.
The change in fair value of our warrant derivative increased to $2.8 million for 2002 from $0.1 million for 2001 due primarily to the effects of the increased growth in the fair value of our company's stock.
Our effective income tax rate decreased from 189.1% in 2001 to 54.1% in 2002. The 2001 effective tax rate reflected our inability to use tax credits in the United States on income earned by our Canadian operations, non-deductible goodwill amortization for income tax purposes and the losses incurred by certain subsidiaries at the state level. The impact of certain of these items was not as significant in 2002 due to the significantly increased level of pre-tax income in 2002.
Seasonality and quarterly fluctuations
In general, sales and net income are highest during our first, third and fourth fiscal quarters, which represent the peak months of construction, especially in our branches in the northeastern U.S. and in Canada. Our sales are substantially lower during the second quarter, when we usually incur net losses. These quarterly fluctuations have diminished as we have diversified into the southern regions of the United States.
We experience an increase of inventory, accounts receivable and accounts payable during the first, third and fourth quarters of the year as a result of this seasonality. Our peak borrowing occurs during the third quarter, primarily because dated accounts payable offered by our suppliers typically are payable in April, May and June, while our peak accounts receivable collections typically occur from June through November.
We also experience a slowing of collections of our accounts receivable during our second quarter, mainly due to the inability of our customers to conduct their businesses effectively in inclement weather. We continue to attempt to collect those receivables which require payment under our standard terms. We do not provide any concessions to our customers during this
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period of the year to incentivize sales. During this quarter, we experience our lowest availability under our senior secured credit facilities, which are asset based lending facilities.
Certain quarterly financial data
The following table sets forth certain unaudited quarterly data for 2003 and the first two quarters of 2004 which, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of this data. Results of any one or more quarters are not necessarily indicative of results for an entire fiscal year or of continuing trends.
Impact of inflation
We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and changing prices did not have a material impact on our operations in 2001, 2002 or 2003.
Liquidity and capital resources
At March 31, 2004, our cash amounted to $1.6 million compared to $0.1 million at September 27, 2003. Our working capital amounted to $10.9 million compared to $0.3 million at September 27, 2003.
Our operating activities generated $12.3 million for the six months ended March 31, 2004 compared to $7.1 million for the six months ended March 31, 2003. The increase in cash flow from operating activities was due primarily to our income from operations which improved from $7.6 million to $18.1 million.
Our net loss for the six months ended March 31, 2004 was $6.6 million. However, after the impact of the change in the value of the warrant derivatives, depreciation and amortization and deferred interest along with strong collections of accounts receivable, offset by increases in inventories, our operating activities resulted in $12.3 million of cash flows. The net loss of $0.9 million for the six months ended March 31, 2003 was offset by depreciation and amortization, deferred interest as well as collections of accounts receivable, offset by increases in inventories, resulting in $7.1 million of operating cash flows.
Net cash used in investing activities for the six months ended March 31, 2004 was $1.2 million compared to $1.7 million for the six months ended March 31, 2003. The decrease was due primarily to fewer purchases of warehouse and delivery equipment during the six months ended March 31, 2004. We, however, leased approximately $0.7 million of equipment during
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the six months ended March 31, 2004 under our master lease line, which we recorded as a capital lease obligation.
Net cash used in financing activities was $9.6 million for the six months ended March 31, 2004 compared to $2.2 million for the six months ended March 31, 2003. The cash used in financing activities for the six months ended March 31, 2004 reflects our refinancing of our senior secured borrowings and related repayment of a portion of our junior subordinated notes payable. The net cash used in financing activities for the six months ended March 31, 2003 reflects the repayment of amounts due under the senior notes payable offset by the net borrowings under the revolving lines of credit.
Our principal source of liquidity at March 31, 2004 was cash of $1.6 million and working capital of $10.9 million compared to $0.1 million and $0.3 million, respectively, at September 27, 2003. We also have available borrowings under its revolving lines of credit in the amount of $44 million at March 31, 2004, subject to borrowing base availability determined by trade accounts receivable and product inventory levels.
Borrowings under the revolving lines of credit outstanding at March 31, 2004 have been classified as current liabilities in the accompanying balance sheets in accordance with EITF Issue 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Arrangements that include both a Subjective Acceleration Clause and a Lock-Box Arrangement .
We also have warrants outstanding that include a "put" feature which allows the holder to receive a cash settlement equivalent to the difference between the fair market value of our common stock and the exercise price of the warrant. We account for this warrant derivative in accordance with EITF Issue 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock . The warrants are included as a liability and valued at fair value until the warrants are exercised or cash settled.
At March 31, 2004, the warrant derivative liability in the amount of $6.9 million is classified as a short-term liability since the related "put" feature is exercisable. Derivative liabilities aggregating $16.0 million are due between September 4, 2005 and June 5, 2006 and are included in long-term liabilities, although their payment may be accelerated upon the occurrence of certain events, including a change in control, qualified initial public offering or repayment of over 50% of the related debt outstanding.
We also have the right to repurchase certain shares of Class A common stock issued to employees and shares issuable upon exercise of certain stock options at the lower of cost or fair value upon termination of employment with cause or upon resignation. However, this repurchase right terminates upon an initial public offering or change in control. We have determined that these awards are performance based and therefore, will recognize a charge for the intrinsic value of the award once the contingency is resolved.
Liquidity is defined as the ability to generate adequate amounts of cash to meet the current need for cash. We assess our liquidity in terms of our ability to generate cash to fund our operating activities, taking into consideration the seasonal nature of our business. Significant factors which could affect liquidity include the following:
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Our primary capital needs are for working capital obligations and other general corporate purposes, including acquisitions and capital expenditures. Our primary sources of working capital are cash from operations supplemented by bank borrowings. In the past, we have financed acquisitions initially through increased bank borrowings, the issuance of common stock and other borrowings, repaying any borrowings with cash flows from operations. We have funded our capital expenditures through increased bank borrowings or through capital leases and then have reduced these obligations with cash flows from operations.
We believe we have adequate availability of capital to fund our present operations, meet our commitments on our existing debt, and fund anticipated growth, including expansion in existing and targeted market areas. We continually seek potential acquisitions and from time to time hold discussions with acquisition candidates. If suitable acquisition opportunities or working capital needs arise that would require additional financing, we believe that our financial position and earnings history provide a solid base for obtaining additional financing resources at competitive rates and terms. Additionally, we may issue additional shares of common or preferred stock to raise funds.
Indebtedness
We currently have the following credit facilities:
Upon completion of the proposed offering, we anticipate using the proceeds to pay off all of our debt other than our senior secured credit facilities and the capital lease facility. This debt consists of:
Senior secured credit facilities
Our senior secured credit facilities, which we amended and restated in March 2004, mature on December 31, 2006. The facilities consist of a $113 million United States revolving line of credit and a CDN $15 million Canadian revolving line of credit, commonly referred to as revolvers, and term loans totaling $30 million.
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At March 31, 2004, there was $52.4 million outstanding and $44 million available for borrowing under the revolvers, subject to borrowing base availability determined by trade accounts receivable and product inventories levels. The balance outstanding under the term loans was $30 million at March 31, 2004.
Interest on borrowings under the U.S. facilities is payable at our election at either of the following rates:
Interest under the Canadian facility is payable at our election at either of the following rates:
Substantially all of our assets, including the capital stock and assets of our wholly-owned subsidiaries, secure our obligations under these senior secured credit facilities. The senior secured credit facilities have numerous restrictive covenants, including required fixed charge coverage and an indebtedness to EBITDA ratio determined at the end of each quarter. As of March 31, 2004, we were in compliance with all covenants and financial ratio requirements. See "Description of indebtedness."
Borrowings under the revolving line of credit outstanding at March 31, 2004 have been classified as current liabilities in the accompanying balance sheets in accordance with the consensus of EITF Issue 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box Arrangement.
Capital lease facility
Our capital lease facility allows us to finance a portion of our transportation and warehouse equipment. The facility totals $2.1 million, of which $1.2 million was outstanding at March 31, 2004, with fixed interest rates averaging 5.5%.
Contractual obligations
At March 31, 2004, our contractual obligations were as follows:
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Capital expenditures
Excluding acquisitions, we have made capital expenditures of $1.2, $5.0, $4.5 and $4.5 million in the six months ended March 31, 2004, and the years ended September 27, 2003, September 28, 2002, and September 29, 2001, respectively. We also have acquired $0.7 million of equipment under capital leases in each of the six months ended March 31, 2004 and the year ended September 27, 2003. Approximately 80% of our capital expenditures are made for transportation and material handling equipment.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.
Financial derivatives
We enter into interest rate derivative agreements, commonly referred to as swaps or collars, with the objective of reducing volatility in our borrowing costs.
At March 31, 2004, we had one interest rate collar effectively converting the variable LIBOR component on a portion of our senior credit facility term debt to a fixed rate. The collar has a notional amount of $30 million, expires in September 2005, and has a floor rate of 1.69% and a cap rate of 3.0%. The fair market value of the agreement resulted in a liability of $0.1 million at March 31, 2004, which was determined based on current interest rates and expected trends. Since this instrument does not qualify as a hedge, changes in the unrealized gain or loss are recorded in interest expense in the accompanying statements of operations. The differentials to be paid or received under the terms of the agreement are accrued as interest rates change and are recognized as an adjustment to interest expense related to the debt.
We have warrants outstanding that include a put feature, which allows the holder to require a fair market value cash settlement at a fixed date. We account for this warrant derivative in accordance with EITF Issue 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock . The warrants are included as a liability and valued at fair value until the warrants are exercised or cash settled.
Interest rate risk
Our variable interest expense is sensitive to changes in the general level of interest rates. At March 31, 2004, the weighted average interest rate on our $82.4 million of variable interest debt was approximately 3.8%.
While our variable rate debt obligations expose us to the risk of rising interest rates, management does not believe that the potential exposure is material to our overall financial performance or results of operations. Based on March 31, 2004 borrowing levels, a 1.0% increase or decrease in current market interest rates would have the effect of causing a $0.8 million additional pre-tax change to our statements of operations.
Foreign currency exchange rate risk
We have exposure to foreign currency exchange rate fluctuations for revenues generated by our operations outside the United States, which can adversely impact our net income and cash flows. Approximately 11% of our revenues in fiscal 2003 were derived from sales to customers in Canada. This business is primarily conducted in the local currency. This exposes us to risks associated with changes in foreign currency that can adversely affect revenues, net income and cash flows. We do not enter into financial instruments to manage this foreign currency exchange risk.
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Overview
We are one of the largest distributors of residential and non-residential roofing materials in the United States and Canada. We also distribute other complementary building materials, including siding, windows, specialty lumber products and waterproofing systems for residential and non-residential building exteriors. We operate 66 branches in 12 states and three Canadian provinces, carrying up to 7,500 SKUs per location and serving more than 18,000 customers. We are a leading distributor of roofing materials in key metropolitan markets in the Northeast, Mid-Atlantic, Southeast and Southwest regions of the United States and in Eastern Canada. We believe we are the first or second largest distributor in each of the regions we serve.
For the fiscal year ended September 27, 2003, residential roofing products comprised 43% of our sales, non-residential roofing products accounted for 34% of our sales, and siding, waterproofing systems, windows, specialty lumber and other building exterior products provided the remaining 23% of our sales.
We also provide our customers with a comprehensive array of value-added services, including:
We believe the additional services we provide strengthen our relationships with our customers and distinguish us from our competition. The vast majority of orders requires at least some of these services. Our ability to provide these services efficiently and reliably can save contractors time and money. We also believe that our value-added services enable us to achieve attractive gross profit margins on our product sales. We have earned a reputation for excellent employees, professionalism and high quality service, including timely, accurate and safe delivery of products, and inventory availability.
Our diverse customer base represents a significant majority of the residential and non-residential roofing contractors in our markets. Reflecting the overall market for roofing products, we sell the majority of our products to roofing contractors that are involved on a local basis in the replacement, or re-roofing, component of the roofing industry. Our branch-based operating model allows us to provide customer service that capitalizes on our knowledge of the local and regional markets that we serve, while benefiting from the purchasing, information technology, accounting, financial reporting, credit and other efficiencies we enjoy as a national distributor of roofing and other building products.
We have achieved our growth through a combination of integrating seven strategic and complementary acquisitions between 1998 and 2001, opening new branch locations and
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broadening our product offering. We have grown from $76.7 million in sales in fiscal year 1998 to $559.5 million in sales in fiscal year 2003, which represents a compound annual growth rate of 48.8%. Income from operations has increased from $5.3 million in fiscal year 1998 to $31.3 million in fiscal year 2003, which represents a compound annual growth rate of 42.6%. From 2001 to 2003 our revenue grew at a compound annual growth rate of 16.1% and our income from operations grew at a compound annual growth rate of 29.3%. In the six months ended March 31, 2004, we had sales of $292.7 and income from operations of $18.1 million, representing growth of 22.3% and 139.9%, respectively, in sales and income from operations over the comparable 2003 period. We believe that our proven business model will continue to deliver industry-leading growth and operating profit margins.
History
Our predecessor, Beacon Sales Company, Inc. was founded in Somerville, Massachusetts (a suburb of Boston) in 1928. In 1984, when our current Chairman Andrew Logie acquired Beacon Sales Company with other investors, it operated three distribution facilities and generated approximately $16 million in annual revenue. In August 1997, Code, Hennessy & Simmons III, L.P., a Chicago-based private equity fund, and certain members of management, organized our company to purchase Beacon Sales Company, to use it as a platform to acquire leading regional roofing materials distributors throughout the United States and Canada. At the time that it was purchased by Code Hennessy and management, Beacon Sales Company operated seven branches in New England and generated approximately $72.0 million of revenue annually, primarily from the sale of non-residential roofing products. Since 1997, we have acquired and integrated seven additional regional roofing materials distributors with leading positions in their respective geographic markets. Over the same time period, we and our acquired distributors have opened a total of 20 new branches (11 of which were opened under our ownership). We have also expanded our product offerings to offer residential roofing products, complementary exterior building materials and related services. Our strategic acquisitions, branch expansions, and product line extensions have increased the diversity of both our customer base and local market focus and generated cost savings through increased purchasing power and reduced overhead expenses.
U.S. industry overview
The Freedonia Group Incorporated, a leading international industry study and database company, estimates that the U.S. roofing market was a $10 billion industry in 2003. Freedonia estimates that this number will grow by over 3% annually, reaching an estimated market size of $11.4 billion by 2007. We believe this rate of growth is consistent with stable long-term growth rates in the industry over the past 40 years. Unless otherwise indicated, all industry statistics, estimates and trends in this overview are derived from the 2003 Freedonia Roofing Focus Report.
The U.S. roofing market can be separated into two categories: the residential roofing market and the non-residential roofing market. The residential roofing market accounts for approximately 60% of the total U.S. market by volume. Through the end of the decade, non-residential roofing construction is expected to grow faster than residential roofing construction.
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Roughly 70% of expenditures in the roofing market is for re-roofing projects, with the balance being for new construction. Re-roofing projects are generally considered maintenance and repair expenditures and are less likely than new construction projects to be postponed during periods of recession or slow economic growth. As a result, demand for roofing products is less volatile than overall demand for construction products.
Regional variations in economic activity influence the level of demand for roofing products across the United States. Of particular importance are regional differences in the level of new home construction and renovation, since the residential market for roofing products accounts for approximately 60% of demand. Demographic trends, including population growth and migration, contribute to regional variations in residential demand for roofing products through their influence on regional housing starts and existing home sales.
Roofing distributors
Wholesale distribution is the dominant distribution channel for both residential and non-residential roofing products. Wholesale roofing product distributors serve the important role of facilitating the purchasing relationships between roofing materials manufacturers and hundreds of thousands of contractors. Wholesale distributors also maintain localized inventories, extend trade credit, give product advice and provide delivery and logistics services.
Despite recent consolidation, the roofing materials distribution industry remains highly fragmented. According to IBISWorld Pty Ltd., the roofing and related building materials industry in the United States consists of more than 1,800 distributors. The industry is characterized by a large number of small and local regional participants. As a result of their small size, many of these distributors lack the corporate, operating and IT infrastructure required to compete effectively.
Residential roofing market
Within the residential roofing market, the re-roofing market is more than twice the size of the new roofing market, accounting for over $3 billion of sales in 2003. Over the next several years, re-roofing demand is expected to continue to exceed new roofing demand, with growth rates nearly double those of new roofing.
Driving this demand for re-roofing is an aging U.S. housing stock. Approximately 70% of the U.S. housing stock is over 20 years old, with the median age of U.S. homes at 32 years. Asphalt shingles, which dominate the residential roofing market with a nearly 87% share, have an expected useful life of 15 to 20 years. While major replacements account for about 30% of residential re-roofing spending, repairs, additions and alterations represent the majority of this market.
A number of factors also generate re-roofing demand, including one-time weather damage, improvement expenditures and homeowners looking to upgrade their homes. Sales of existing homes can affect re-roofing demand, as some renovation decisions are made by sellers preparing their houses for sale and others made by new owners within the first year or two of occupancy.
Within the new construction portion of the residential roofing market, expected continued strong housing starts together with larger average roof sizes should support continued growth in new residential roofing demand. Although housing starts are not expected to continue at
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the rapid pace of the last few years, they are projected to remain high relative to historic levels. While new site-built housing units are expected to rise slightly, the strongest growth is expected to be in the manufactured housing area.
Non-residential roofing market
Demand for roofing products used on non-residential buildings is forecast to advance at a faster rate than roofing products used in residential construction, as a result of a continued rebound in construction activity in the office, commercial and industrial markets. New non-residential roofing is currently the fastest-growing portion of the U.S. roofing market. Improving economic conditions, including a better outlook for business and increased capital spending, are expected to drive expenditures for non-residential roofing. High-margin metal roofing will play an important role in the increased demand.
Re-roofing projects represent approximately 75% of the total non-residential demand. Re-roofing activity tends to be less cyclical than new construction and depends in part upon the types of materials on existing roofs, their expected lifespan and intervening factors such as wind or water damage.
The non-residential roofing market includes an office and commercial market, an industrial market and an institutional market. Office and commercial roofing projects, the single largest component of the non-residential roofing market at 47%, are expected to continue to show strong gains. Industrial roofing projects, representing 24% of non-residential roofing product sales, should also steadily grow. Following a large contraction in non-residential construction from 2000 to 2002, non-residential roofing sales are expected to rebound.
The institutional market is comprised primarily of healthcare and educational construction activities. This market will continue to benefit from an aging baby boom population that will drive increases in the nation's healthcare infrastructure, as well as increasing school enrollments that will require new and replacement facilities.
Other complementary building product offerings
Demand for other, complementary building products such as siding, windows and doors for both the residential and non-residential markets is also growing. As in the roofing industry, demand for these products is driven by the repair and remodeling market as well as the new construction market.
These complementary products also significantly contribute to the overall building products market. The U.S. siding market is roughly $8 billion in size and the U.S. window and door industry is approximately $24 billion in size. Both of these markets are expected to grow in line with that of the roofing industry over the next several years.
Our strengths
We believe that our sales and earnings growth has been and will continue to be driven by our primary competitive strengths, which include the following:
National scope combined with regional expertise. We believe we are one of the four largest roofing materials distributors in the United States and Canada and either the first or second largest in each of our core geographic markets: the Southeast, Northeast, Southwest and
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Mid-Atlantic regions of the United States as well as Eastern Canada. We believe that our leading market position provides us with significant name recognition, volume purchasing discounts, access to exclusive distribution rights and other operating efficiencies.
We utilize a branch-based operating model, in which branches maintain local customer relationships but benefit from centralized functions such as information technology, accounting, financial reporting, credit, purchasing, legal and tax services. This allows us to provide customers with specialized products and personalized local services tailored to a geographic region, while benefiting from the resources and scale efficiencies of a national distributor. We measure the performance of all our branches against a consistent set of benchmarks.
Diversified business model that reduces impact of economic downturns. We believe that our business is meaningfully protected in an economic downturn because of our high concentration in re-roofing, mix between residential and non-residential products, geographic and customer diversity, and the financial and operational ability to expand our business and obtain market share. Re-roofing is a basic repair and maintenance expense and is not typically deferred in a recessionary or slow growth economy. Our historical experience has been that the residential and non-residential markets have not undergone simultaneous contractions. We believe that our geographic diversity as well as the diversity of our customers moderate our exposure to a major regional recession on our overall growth. Lastly, even in a recession, we believe we can grow by entering new markets.
Superior customer service. We believe that our high level of customer service and support differentiates us from our competitors. We employ experienced salespeople who possess in-depth technical knowledge of roofing materials and applications, allowing them to provide advice and assistance in properly identifying products for various applications. We also support our customers with services such as safe and timely job site delivery, logistical support and marketing assistance. We provide additional services such as tapered insulation design and layout and metal fabrication. We believe that the services provided by our employees improve our customers' efficiency and profitability which, in turn, strengthens our customer relationships.
Strong platform for growth and acquisition. Since 1997, we have consistently increased revenue and operating income at rates well in excess of the growth in the overall roofing materials distribution industry. We have expanded our business through strategic acquisitions, new branch openings and the diversification of our product offering. We believe that our success in acquiring companies has been the result of maintaining strong regional identities to ensure customer and employee continuity, integrating a uniform information technology platform across all U.S. and Canadian operations, leveraging our purchasing power with manufacturers and consolidating back-office operations. We have both successfully acquired companies and significantly improved their financial and operating performance after acquisition. We believe that our experience in integrating acquired businesses provides a competitive advantage in the evaluation and integration of future acquisitions. We have expanded through internal growth as well. We and the companies we have acquired have opened 20 greenfield locations since 1997, with 11 of these locations opened under our ownership.
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Sophisticated IT platform. All of our locations operate on the same management information systems. We have made a significant investment in our information systems, which we believe are among the most advanced in the roofing distribution industry. These systems provide us with a consistent platform across all of our operations that helps us achieve additional cost reductions, greater operating efficiencies, improved purchasing, pricing and inventory management and a higher level of customer service. Our systems have substantial capacity to handle our future growth without requiring significant additional investment.
Industry-leading management team. We believe that our key personnel, including branch managers, are among the most experienced in the roofing industry. Our executive officers, regional vice presidents and branch managers have an average of over 18 years of roofing industry experience. The experience and tenure of our personnel and their long standing relationships with their customers have been instrumental to our growth.
Extensive product offering and strong supplier relationships. We have a product offering of up to 7,500 SKUs, representing an extensive assortment of high-quality branded products. Our product portfolio ranges from steep slope roofing (residential), flat roofing (non-residential), underlayments and custom metals to windows, siding and waterproofing systems. We constantly review our product lines, adding items to meet customer needs and eliminating SKUs that are not being purchased. We market our extensive product base to both residential and non-residential contractors through newsletters, direct mailings, trade shows and the internet. We believe that our extensive product offering has been a significant factor in attracting and retaining many of our customers.
Because of our significant scale, product expertise and reputation in the markets that we serve, we have established strong ties to the major residential roofing materials manufacturers, such as Certainteed, Elcor, EMCO, GAF, Owens Corning and Tamko, as well as the major non-residential roofing materials manufacturers, such as Carlisle, Firestone, Soprema and Versico. Because of the volume of products we sell, we are able to achieve substantial volume rebates from manufacturers that we believe are enjoyed by only a select few in the industry.
Growth strategies
Our objective is to become the preferred supplier of roofing and other exterior building product materials in the U.S. and Canadian market while continuing to increase our revenue base and maximize our profitability. We plan to attain these goals by executing the following strategies:
We currently have branches in nine of the 50 largest metropolitan markets in the United States.
Expand geographically through new branch openings. Significant opportunities exist to expand our geographic focus by opening additional branches in existing or contiguous regions. Since 1997, we and our acquired companies have successfully entered numerous markets through
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greenfield expansion. The investment required to open a new branch is modest. Capital investment consists primarily of trucks, forklifts and, to a lesser extent, certain office equipment.
Our strategy with respect to greenfield opportunities is to open branches within our existing markets, where existing customers have expanded into new regions and in areas that have no ideal acquisition candidates or where potential acquisitions are likely to be too costly. We believe that our existing corporate infrastructure is capable of supporting a much larger branch network and significantly higher sales volume. We and the companies we have acquired have opened 20 greenfield locations since 1997, with 11 of these locations opened under our ownership.
Pursue acquisitions of regional market-leading roofing materials distributors. Acquisitions have historically been an important component of our growth strategy. We believe that there are significant opportunities to grow our business through disciplined, strategic acquisitions. With only a few large, well-capitalized competitors in the industry, we believe that we can continue to build on our distribution platform by successfully acquiring additional roofing materials distributors at reasonable prices and subsequently realizing substantial purchasing and operating synergies by leveraging our existing corporate, operating and IT infrastructure. We have successfully integrated seven new businesses during the past six years.
Expand product offerings. We believe that continuing to increase the breadth of our product line and customer service are effective methods of increasing sales to current customers and attracting new customers. We work closely with customers and suppliers to identify new building products and services, including windows, siding, waterproofing systems, insulation and metal fabrication. In addition, we believe we can expand by introducing products that we currently offer in certain of our existing markets into some of our other markets. In particular, we believe that we can introduce non-residential roofing products into certain of our markets that are currently largely residential. We believe that we are well positioned to successfully introduce new products in additional markets. We have increased the number of SKUs we carry from 1,500 in 1997 to up to 7,500 currently. Over the same time period, we have moved from distributing primarily non-residential products to a full line of residential and non-residential roofing products, as well as other exterior building products.
Products and services
Products
The ability to provide a broad range of products is essential in roofing materials distribution. We carry one of the most extensive arrays of high-quality branded products in the industry, enabling us to deliver products to our customers on a timely basis. We are able to fulfill more than 95% of our orders through our in-stock inventory as a result of the breadth and depth of our inventory at our branches. Our product portfolio includes residential roofing products, non-residential roofing products, siding, windows and specialty lumber products. Our product lines are designed to meet the requirements of both residential and non-residential roofing contractors.
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|
Residential
roofing products |
Non-residential
roofing products |
Complementary building products
|
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|---|---|---|---|---|---|---|
|
|
|
Siding
|
Windows
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|
Asphalt shingles
Synthetic slate and tile Slate Nail base insulation Metal roofing Felt Wood shingles and shakes Nails and fasteners Prefabricated Flashings Ridges and soffit vents Gutters and downspouts Other accessories |
Single-ply roofing
Asphalt Metal Modified bitumen Built-up roofing Cements and coatings Insulation—flat stock and tapered Commercial fasteners Metal edges and flashings Other accessories Skylights, smoke vents and roof hatches Sheet metal including copper, aluminum and steel |
Vinyl siding
Red, white and yellow cedar siding Fiber cement siding Soffits House wraps and vapor barriers Other Waterproofing systems Air barrier systems |
Vinyl windows
Aluminum windows Wood windows Specialty Lumber Redwood Red cedar decking Mahogany decking Pressure treated lumber Fire treated plywood Synthetic decking PVC trim boards Millwork |
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The products that we distribute are supplied by the industry's leading manufacturers of high-quality roofing materials and related products, such as Carlisle, Certainteed, Elcor, EMCO, Firestone, GAF Materials, Johns Manville, Owens Corning and Tamko.
In the residential market, asphalt shingles comprise the largest share of the products we sell. We have also developed a specialty niche in the residential roofing market by distributing products such as high-end shingles, copper gutters and metal roofing products, as well as specialty lumber products for residential applications, including redwood, white and red cedar shingles, red cedar siding, and mahogany and red cedar decking. Additionally, we distribute gutters, downspouts, tools, nails, vinyl siding, windows, decking and related exterior shelter products to meet the needs of our residential roofing customers.
In the non-residential market, single-ply roofing systems comprise the largest share of our products. Our single-ply roofing systems consist primarily of Ethylene Propylene Diene Monomer (synthetic rubber), or EPDM, roofing materials and related components. In addition to the broad range of single-ply roofing components, we sell the insulation that is required as part of most non-residential roofing applications. Our insulation products include tapered insulation, which has been a high growth product line. Our remaining non-residential products include metal roofing and flashings, fasteners, fabrics, coatings, roof drains, modified bitumen, built-up roofing and asphalt.
Services
We emphasize service to our customers. We employ a knowledgeable staff of in-house salespeople. Our sales personnel possess in-depth technical knowledge of roofing materials and applications and are capable of providing advice and assistance to contractors throughout the
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construction process. In particular, we support our customers with the following value-added services:
Customers
Our diverse customer base consists of more than 18,000 contractors, home builders, building owners, and other resellers throughout the Southeast, Northeast, Southwest and Mid-Atlantic regions of the United States, as well as in Eastern Canada. Our typical customer varies by end market, with relatively small contractors in the residential market and small to large-sized contractors in the non-residential market. To a lesser extent, our customer base includes general contractors, retailers and building materials suppliers.
As evidenced by the fact that a significant number of our customers have relied on us or our predecessors as their vendor of choice for decades, we believe that we have strong customer relationships that our competitors cannot easily displace or replicate. No single customer accounts for more than 1% of our revenues.
Sales and marketing
Sales strategy
Our sales and marketing strategy is to provide a comprehensive array of high-quality products and superior value-added services to residential and non-residential roofing contractors reliably, accurately and on-time. We fulfill more than 95% of our orders through our in-stock inventory as a result of the breadth and depth of our inventory at our local branches. We believe that our focus on providing superior value-added services and our ability to fulfill orders accurately and rapidly enables us to attract and retain customers.
Sales organization
We have attracted and retained an experienced sales force of more than 300 salespeople who are responsible for generating revenue at the local branch level. The expertise of our salespeople helps us increase sales to existing customers and add new customers.
Each of our branches is headed by a branch manager, who also functions as the branch's sales manager. In addition, each branch generally employs up to four outside direct salespeople and up to five inside salespeople who report to their branch manager. Branches that focus on the residential market typically staff larger numbers of outside salespeople.
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The primary responsibilities of our outside salespeople are to prospect for new customers and increase sales to existing customers. Our outside salespeople accomplish these objectives by reviewing information from Dodge Reports and other industry news services in search of attractive construction projects in their local markets that are up for bids from contractors. Once a construction project is identified, our outside salespeople contact potential customers in an effort to solicit their interest in participating with us in the project. By seeking a contractor to "partner" with on a bid, we increase the likelihood that the contractor will purchase their roofing materials and related products from us in the event that the contractor is selected for the project.
To complement our outside sales force, we have built a strong and technically proficient inside sales staff. Our inside sales force is responsible for fielding incoming orders, providing pricing quotations and responding to customer inquiries. Our inside sales force provides vital product expertise to our customers.
In addition to our outside and inside sales forces, we are manufacturer representatives for particular manufacturers' products. Currently, we have developed relationships with Carlisle, Johns Manville, Owens Corning, Soprema and Firestone on this basis. We currently employ 14 representatives who act as liaisons (on behalf of property owners, architects, specifiers and consultants) between these roofing materials manufacturers and professional contractors.
Marketing
In order to capitalize on the local customer relationships that we have established and benefit from the brands developed by our regional branches, we have maintained the trade names of most of the businesses that we have acquired. These trade names—Beacon Sales Company, Best Distibuting, Quality Roofing Supply, The Roof Center and West End Lumber—are well-known in the local markets in which the branches compete and are associated with the provision of high-quality products and customer service.
As a supplement to the efforts of our sales force, each of our branches communicates with residential and non-residential contractors in their local markets through newsletters, direct mail and the Internet (www.beaconroofingsupply.net). In order to build and strengthen relationships with customers and vendors, we sponsor and promote our own regional trade shows, which feature general business and roofing seminars for our customers and product demonstrations by our vendors. In addition, we attend numerous industry trade shows throughout the regions in which we compete, and we are an active member of the NRCA, as well as regional contractors' associations.
Purchasing and suppliers
Our status as a leader in our core geographic markets, as well as our reputation in the industry, has allowed us to forge strong relationships with numerous manufacturers of roofing materials and related products, including Carlisle, Certainteed, Elcor, Firestone, GAF Materials, Johns Manville, Owens Corning and Tamko.
We are viewed by our suppliers as a key distributor due to our industry expertise, significant market share in our core geographic markets and the substantial volume of products that we distribute. We have significant relationships with more than 50 suppliers and maintain multiple supplier relationships for each product line.
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We have centralized the procurement of products through our headquarters for the vast majority of the products that we distribute. We believe this enables us to purchase products more economically than all but a few of our competitors. Product is shipped directly by the manufacturers to our branches.
Operations and facilities
Facilities
Our network of 66 branches serves metropolitan areas in 12 states and the Canadian provinces of Manitoba, Ontario and Quebec. This network has enabled us to effectively and efficiently serve a broad customer base and to achieve a leading market position in each of our core geographic markets.
Operations
Our branch-based model provides each location with a significant amount of autonomy to operate within the parameters of our overall business model. Operations at each branch are tailored to meet the local needs of their customers. Depending on market needs, branches carry from about 2,400 to 7,500 SKUs.
Branch managers are responsible for sales, pricing and staffing activities, and have full operational control of customer service and deliveries. We provide our branch managers with significant incentives that allow them to share in the profitability of their respective branches as well as the company as a whole. Personnel at our corporate operations assist the branches with purchasing, procurement, credit services, information systems support, contract management, legal services, benefits administration and sales and use tax services.
Distribution/fulfillment process
Our distribution/fulfillment process is initiated upon receiving a request for a contract job order or product order from a contractor. Under a contract job order, a contractor typically requests roofing or other construction materials and technical support services. The contractor discusses the project's requirements with a salesperson and the salesperson provides a price quotation for the package of products and services. Subsequently, the salesperson processes the order and we deliver the products to the customer's job site.
Fleet
Our distribution infrastructure supports more than 500,000 deliveries annually. To accomplish this, we maintain a dedicated fleet of 207 trucks, 108 tractors and 206 trailers that we own or lease. Nearly all of our delivery vehicles are equipped with specialized equipment, including 112 truck-mounted forklifts, cranes, telescoping booms or conveyors, which are necessary to deliver products to rooftop job sites in an efficient and safe manner.
Our branches focus on providing materials to customers who are located within a two-hour radius of their respective facilities. We make deliveries five days per week.
Management Information System
We have fully integrated management information systems. Our systems are consistently implemented across all our branches, and acquired businesses are promptly moved to our
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system upon acquisition. For example, our last acquisition included 21 branches; we converted five to our systems within five months and the remainder within nine months. This conversion included the training of over 300 employees and a complete conversion of the acquired company's essential data. Our systems support every major internal operational function, except payroll, providing complete integration of purchasing, receiving, order processing, shipping, inventory management, sales analysis and accounting. All of our domestic branches use the same data bases within the system, allowing branches to easily acquire products from other branches or schedule deliveries by other branches, greatly enhancing our customer service. Our system also has a sophisticated pricing matrix which allows us to refine pricing by region, branch, type of customer, customer, or even a specific customer project. In addition, our system allows us to monitor all branch and regional performance centrally. We have centralized many functions to leverage our size, including accounts payable, insurance, employee benefits, vendor relations, and banking.
Most of our branches are connected to our two IBM AS400 computer networks by frame relay. The remainder are connected via secure Internet connections. Within 18 months, we expect all branches will be converted to Internet connections. We maintain a third IBM AS400 as a disaster recovery system, and information is backed up to this system throughout each business day. We have the capability of switching our domestic operations to the disaster recovery system electronically.
We have created a financial reporting package that allows us to send branches information they can use to compare branch by branch financial performance, which we believe is essential to operating each branch efficiently and more profitably. We have also developed a benchmarking report which enables us to compare all of our 66 branches' performance in 12 critical areas.
We can place purchase orders electronically with some of our major vendors. The vendors then transmit their invoices electronically to us. Our system automatically matches these invoices with the related purchase orders and schedules payment. Approximately 40% of our inventory purchases are processed electronically. We have the capability to handle customer processing electronically, although most customers prefer ordering through our sales force.
Government regulations
We are subject to regulation by various federal, state, provincial and local agencies. These agencies include the Environmental Protection Agency, Department of Transportation, Interstate Commerce Commission, Occupational Safety and Health Administration and Department of Labor and Equal Employment Opportunity Commission. We believe we are in compliance in all material respects with existing applicable statutes and regulations affecting environmental issues and our employment, workplace health and workplace safety practices.
Litigation
From time to time, we are involved in lawsuits that are brought against us in the normal course of business. We are not currently a party to any legal proceedings that would be expected, either individually or in the aggregate, to have a material adverse effect on our business or financial condition.
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Competition
The U.S. roofing supply industry is highly competitive. The vast majority of our competition comes from local and regional roofing supply distributors, and, to a much lesser extent, other building supply distributors and "big box" retailers. Among distributors, we compete against a small number of large distributors and many small, local, privately-owned distributors. We are among the four largest roofing materials distributors in the United States and Canada. The principal competitive factors in our business include, but are not limited to, availability of materials and supplies; technical product knowledge and expertise; advisory or other service capabilities; pricing of products; and availability of credit. We generally compete on the basis of product quality and the quality of our services and, to a lesser extent, price. We compete within the roofing supply industry not only for customers but also for personnel.
Employees
As of April 30, 2004, we had approximately 1,170 employees, consisting of 330 in sales and marketing, 139 in branch management, including supervisors, 538 warehouse workers and drivers, and 162 general and administrative personnel.
Ten of our employees are represented by a labor union and covered by a collective bargaining agreement. We believe that our employee relations are good.
Properties
We lease 60 facilities, including our headquarters, throughout the Northeast, Mid-Atlantic, Southeast, and Southwest regions of the United States and in Eastern Canada. These leased facilities range in size from 5,000 square feet to 86,000 square feet. In addition, we own sales/warehouse facilities located in Manchester, New Hampshire; Reading, Pennsylvania; Montreal, Quebec; Sainte-Foy, Quebec; Delson, Quebec; Salisbury, Maryland; Hartford, Connecticut; Cranston, Rhode Island; and Lancaster, Pennsylvania. These owned facilities range in size from 11,500 square feet to 48,900 square feet. All of the owned facilities are mortgaged to our senior lenders. We believe that our properties are in good operating condition and adequately serve our current business operations.
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Executive officers and directors
The following table sets forth information about our executive officers and directors, including one individual who has agreed to serve as a director, and their ages as of May 26, 2004.
We expect to appoint additional directors who are not affiliated with us or any of our stockholders to our board of directors within twelve months of the closing of this offering, so that a majority of our board will be independent directors.
Robert R. Buck, President and Chief Executive Officer and Director. Mr. Buck joined us in October 2003. Prior to joining us, he served as President-Uniform Rental Division of Cintas Corporation from July 1997. From 1991 through 1997, he served as Senior Vice President—Midwest Region of Cintas. From 1982 through 1991, he served as Senior Vice President—Finance and Chief Financial Officer of Cintas. Mr. Buck presently serves as a director of Kendle International, Inc. and Multi-Color Corporation, both of which are Nasdaq-traded companies.
David R. Grace, Chief Financial Officer. Mr. Grace is responsible for financial management of our company and each of our regional subsidiaries. Mr. Grace began his career as a CPA in public accounting with Baril and Smith CPA. He joined Beacon Sales Company as an accountant in 1987. He served in positions of increasing responsibility until he was named CFO at the time that we acquired Beacon Sales Company. Mr. Grace has a degree in accounting from Bentley College in Waltham, Massachusetts.
Andrew R. Logie, Chairman and Executive Vice President and Director. Mr. Logie and a group of investors acquired Beacon Sales Company, Inc. in 1984. As its new CEO, he oversaw the growth of the business from three to seven branches, with sales increasing six-fold to $70 million in 1997, prior to its acquisition by Beacon Roofing Supply, Inc. From 1997 to July 2002, he was our Chairman, President and Chief Executive Officer. He became Executive Vice President and Chairman in July 2002. Prior to joining Beacon Sales Company, Mr. Logie spent 14 years in the roofing industry, working nine years with Bradco Supply and five years with GAF Corporation. Mr. Logie attended Nichols College in Dudley, Massachusetts.
James J. Gaffney, director nominee. Mr. Gaffney will become a director immediately prior to the effectiveness of the registration statement of which this prospectus is a part. From 1997 through 2003, Mr. Gaffney served as Vice Chairman of the Board of Viking Pacific Holdings, Ltd. and Chairman of the Board of Vermont Investments, Ltd., a New Zealand-based conglomerate, and provided consulting services to GS Capital Partners II, L.P. (a private investment fund affiliated with Water Street Corporate Recovery Fund I, L.P. and Goldman,
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Sachs & Co.), and other affiliated investment funds. Mr. Gaffney presently serves as Chairman of the Board of Directors of Imperial Sugar Company and as a director of Hexcel Incorporated and SCP Pool Corporation.
Peter Gotsch, director. Mr. Gotsch has served as director since 1997. Mr. Gotsch has been a member of Code Hennessy Simmons LLC since 1997 and employed by its affiliates since 1989. Mr. Gotsch holds a B.A. degree from St. Olaf College and an M.B.A. from Northwestern University.
Krista Hatcher, director. Ms. Hatcher has served as director since 2000. Ms. Hatcher has been a vice president of Code Hennessy & Simmons LLC since 2003. From 1999 until her promotion in 2003, Ms. Hatcher was an associate at CHS. Ms. Hatcher holds a B.B.A. degree from the University of Michigan and an M.B.A. from the University of Chicago.
Brian Simmons, director. Mr. Simmons has served as director since 1997. Mr. Simmons is a member of Code Hennessy & Simmons LLC and founded its predecessors in 1988. Mr. Simmons holds an A.B. degree from Cornell University.
Other key management
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|---|---|---|---|---|
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Name
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Age
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Position
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||
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|
||||
| Robert K. Greer, Jr. | 47 | Regional Vice President | ||
| William T. Logie | 41 | Regional Vice President | ||
| James I. MacKimm | 47 | Regional Vice President | ||
| Lloyd G. McCulley, Jr. | 54 | Regional Vice President | ||
| Patrick Murphy | 49 | Regional Vice President | ||
| Jean-Guy Plante | 48 | Regional Vice President | ||
Robert K. Greer, Jr. (Ken). Mr. Greer began his career with Railton Inc. as the branch manager of their Houston, Texas location. Shortly after joining West End Lumber, which now operates as our Southwest region, in 1990, he opened their Gulf Freeway location and remained there as branch manager until being appointed general manager in February 1996. Upon joining us in June 2001, with the acquisition of West End Lumber, Mr. Greer was named Vice President of West End Lumber. Mr. Greer attended Baylor University in Waco, Texas.
William T. Logie. Mr. Logie is responsible for the overall operations of Beacon Sales Company, which operates as our Northeast region. He has been with Beacon Sales Company for over 15 years, having held various positions of increasing responsibility including branch manager of the Brockton, Massachusetts location from March 1991 through October 2001. In October 2001, he was named Vice President of Beacon Sales Company. William Logie is the son of Andrew Logie.
James I. MacKimm. Mr. MacKimm has spent his entire career in the roofing industry. Upon joining Beacon Sales Company in 1990, he opened the Cranston, Rhode Island location and remained there as branch manager. In 1994, he was named branch manager of Beacon Sales Company's Somerville, Massachusetts location. He was appointed Vice President of Quality Roofing Supply Company, which operates as part of our Mid-Atlantic region, in May 2003. Mr. MacKimm has a degree in accounting from Boston College in Newton, MA.
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Lloyd G. McCulley, Jr. (Bud). Mr. McCulley joined The Roof Center, which now operates a part of our Mid-Atlantic region, in 1991 as a vinyl siding specialist, introducing this line of business. He was named product manager in 1995. He continued to build the vinyl siding business until recently being named Vice President of The Roof Center in February 2004. Mr. McCulley has a degree in business administration from Towson University in Baltimore, Maryland.
Patrick Murphy. Mr. Murphy is responsible for the overall operations of Best Distributing Company, which operates as part of our Mid-Atlantic region. Prior to joining Best, he worked for several roofing distributors, most recently as a branch manager for JR Morton at their Raleigh, North Carolina location. Shortly after joining Best in 1988, he was named Vice President. Mr. Murphy has a degree in business administration from Michigan State University.
Jean-Guy Plante. Mr. Plante is responsible for the overall operations of Beacon Roofing Supply Canada Company in Eastern Canada. Mr. Plante began his career as a chartered accountant in public accounting with Mallette Maheux and Samson Belair Deloitte & Touche, where he became a partner in charge of the business turnaround department. He joined Groupe Bédard as Executive Vice-President in 1990 and later became President and CEO. He joined us in 1999 when we acquired Groupe Bédard. Mr. Plante has an administrative Science Degree from Laval University and a Chartered Accountant Diploma.
All of the above individuals were elected regional vice presidents of Beacon in May 2004.
Board composition
Our board of directors consists of directors. Each director is elected for a term of one year and serves until a successor is duly elected and qualified or until his or her death. There are no family relationships between any of our directors or executive officers. Our executive officers are elected by and serve at the discretion of the board of directors.
Committees of board of directors
Prior to the closing of this offering, the board of directors will establish three committees, the audit committee, compensation committee and nominating and corporate governance committee. In the future, the board may also establish other committees to assist in the discharge of its responsibilities.
The audit committee will select the independent auditors to be nominated for election by the stockholders and review the independence of these auditors, approve the scope of the annual audit activities of the independent auditors, approve the audit fee payable to the independent auditors and review these audit results with the independent auditors. Following completion of this offering, the audit committee will be composed of James J. Gaffney, and Peter Gotsch. Within a year following this offering, subject to Nasdaq's applicable transition rules, the audit committee will be comprised solely of directors who meet the independence requirements established by Nasdaq and applicable law. Ernst & Young LLP currently serves as our independent registered public accounting firm.
The duties of the compensation committee will be to provide a general review of our compensation and benefit plans to ensure that they meet our objectives. In addition, the compensation committee will review the chief executive officer's recommendations on compensation of our executive officers and make recommendations for adopting and changing
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major compensation policies and practices. The compensation committee will report its recommendations to the full board of directors for approval and authorization. It will also fix, subject to approval by the full board, the annual compensation of the chief executive officer and administer our stock plans. The compensation committee is expected to be comprised of at least two non-employee directors (as defined in Rule 16b-3 under the Securities Exchange Act) who do not have "interlocking" or other relationships with us that would detract from their independence as committee members. Following completion of this offering, the members of the compensation committee will be James J. Gaffney, and Peter Gotsch.
The nominating and corporate governance committee will be responsible for identifying and recommending potential candidates qualified to become board members, recommending directors for appointment to board committees and developing and recommending to the board a set of corporate governance principles. Following the completion of this offering, the nominating and corporate governance committee will be comprised of James J. Gaffney, and Peter Gotsch.
Director compensation
Independent members of the board of directors receive an annual retainer of $35,000. All directors are also entitled to receive $1,500 for each board meeting attended and $1,000 for each committee meeting. The chairman of each of the audit committee and compensation committee is entitled to receive an additional $10,000 per year. All fees may be paid in cash or shares of stock, at the choice of the director.
In addition, upon election to the board, each director will receive a one-time grant of an option exercisable for 20,000 shares of our common stock. Upon reelection, directors will also receive an annual grant of an option exercisable for 7,500 shares. All options become exercisable one year after the date of grant. Exercise prices will be set at fair market value at the date of grant.
We reimburse members of our board of directors for any out-of-pocket expenses they incur in connection with services provided as directors.
Executive compensation
The following table sets forth information concerning the compensation for fiscal 2003 of our former Chief Executive Officer and our other most highly compensated executive officers who were serving at the end of our last fiscal year. For ease of reference, we collectively refer to these executive officers throughout this section as our "named executive officers." Our current CEO joined us after the end of fiscal 2003 and is not shown in the table, but information about his compensation is included under "—Employment arrangements," below.
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Annual compensation
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Long-term
compensation |
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Name and principal position
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Salary($)
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Bonus($)
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Securities
underlying options(#) |
All other
compensation($) |
||||
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Andrew R. Logie
Chairman and Executive Vice President |
193,092 | 0 | 0 | 22,782 (2) | ||||
|
David R. Grace
Chief Financial Officer |
221,040 | 90,000 | 11 | 22,782 (2) | ||||
|
John Meister
(1)
Chief Executive Officer |
337,115 | 0 | 0 | 400,000 (3) | ||||
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Option grants
The following table sets forth information regarding stock options we granted by us to our named executive officers during our last fiscal year. The options were granted at 100% of fair value of the underlying stock at the date of grant, expire on September 30, 2012 and generally vest on September 30, 2004.
For information regarding option grants to Robert Buck, see "—Robert Buck option."
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Option exercises and fiscal year-end option values
The following table sets forth information for the named executive officers concerning stock option exercises during our last fiscal year and options outstanding at the end of our last fiscal year. None of the named executive officers acquired any shares upon the exercise of outstanding options in fiscal 2003.
Aggregate option exercises in fiscal 2003 and
fiscal year-end option values
Employment arrangements
We entered into an employment agreement with Robert Buck, our CEO, with a term that extends through November 19, 2006. It provides for a base salary of $430,000 for fiscal year 2004 and $445,000 for fiscal year 2005. After fiscal year 2005, our board will review his base salary annually and may increase (but not decrease) it. Mr. Buck's employment agreement also entitles him to an annual bonus of up to 100% of base salary, depending on whether we reach the performance target that the board sets near the beginning of each fiscal year. The bonus varies from 0% of base salary (if we achieve 85% or less of the target for that fiscal year) to 100% of base salary (if we achieve 115% or more of the target for that year). In between 85% of the target and 115% of the target, the bonus varies on a straight line basis. The employment agreement also provides that if Mr. Buck relocates his residence at our request before September 30, 2005, we will reimburse him for all expenses incurred for the relocation. For the period before he relocates his residence, we have agreed to rent an apartment for his use in the Boston area and reimburse him for travel expenses for up to two round trips per month for him and his wife between their primary residence and the Boston area. Mr. Buck also receives a $1,000 per month car allowance. Under his employment agreement, Mr. Buck is entitled to severance equal to 12 months base salary if we terminate his employment without cause, as that term is defined in his employment agreement, or if we are not willing to renew his employment agreement at the end of the term. The employment agreement limits Mr. Buck's ability to compete with us for 18 months after his employment ends.
Each of our other executive officers is elected by and serves at the discretion of the board of directors.
Compensation committee interlocks and insider participation
We do not currently have a compensation committee. Our board of directors approved the employment agreement with Mr. Buck, which established his compensation, and made all
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compensation decisions regarding our other executive officers. Mr. Buck participated in discussions with the board of directors concerning executive officer compensation. We will establish a compensation committee prior to the closing of this offering and we expect that the compensation committee will be comprised of at least two non-employee directors (as defined in Rule 16b-3 under the Securities Exchange Act) who do not have "interlocking" or other relationships with us that would detract from their independence as committee members.
Stock plans
Equity compensation plan information
1998 Stock Plan
We currently maintain the Beacon Roofing Supply, Inc. 1998 Stock Plan, pursuant to which there are outstanding stock options granted to employees and non-employee directors to purchase shares of our common stock. No further awards will be made under the 1998 plan after the offering. We will make any future stock-based awards under a new Beacon Roofing Supply, Inc. 2004 Stock Plan, which will be adopted prior to the offering and which is described in the next section.
The following is a summary of the 1998 plan and the outstanding stock options. It is qualified by reference to the full text of the 1998 plan, which is attached as an exhibit to the registration statement of which this prospectus forms a part.
Plan administration. The 1998 plan is administered by our board of directors, which has authority to delegate administration to a committee. To the extent the board delegates its authority, references in this summary to the board mean the committee.
Number of shares of common stock. The number of shares of our common stock that may be issuable upon exercise of outstanding stock options under the 1998 plan is 465. These shares may be authorized but unissued shares or treasury shares. The number of issuable shares is subject to adjustment in the event of any reorganization, recapitalization, stock split or dividend, merger, consolidation, split-up, spin-off, combination, subdivision or any similar corporate transaction. In each case, the board has the discretion to make adjustments it deems necessary to preserve the intended benefits under the 1998 plan.
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Stock options. All stock options outstanding under the 1998 plan are non-qualified stock options. The options are evidenced by a written stock option agreement specifying the terms and conditions of the options, as determined by the board consistent with the terms of the 1998 plan, including the option exercise price, the number of shares subject to the option and the vesting schedule. The exercise price of any option is not less than 100% of the fair market value of our stock at the time the option was granted, and no stock option can be exercised later than 10 years after the date of grant.
If a participant's employment with us terminates without cause (as defined in the 1998 plan), he or she must exercise any vested outstanding options within 30 days of termination (90 days if termination is due to death or disability), or if earlier, by the end of their term. Options not exercised within this time period will expire. If a participant's employment with us terminates for cause, all of his or her options expire upon the date of termination.
Payment of stock options and withholding taxes. A participant may at the option of the board pay the exercise price of an option by one or more of the following methods: paying cash; delivering other shares already owned by the participant; or having us retain shares which would otherwise be issued upon the option exercise. The board may permit a participant to pay the minimum amount of any required withholding tax by using one or more of the payment methods described above, and/or by directing us to withhold shares otherwise issuable in connection with the award.
Provisions relating to a change in control. If there is a merger, consolidation, reorganization or sale of our stock, or any extraordinary transaction in which we are involved, the board, or the board of the surviving corporation, has sole discretion to require that the outstanding stock options (i) be assumed by the acquiring or surviving corporation, (ii) be purchased for cash equal to the difference between the exercise price and the then fair market value of the common stock subject to the option, (iii) be converted into other property, or (iv) be exercised within a specified period of time. The board also has the discretion to make adjustments to any outstanding awards as it deems appropriate to reflect the transaction.
Amendment of award agreements; amendment and termination of the 1998 plan. The board may amend any award agreement, and may amend or terminate the 1998 plan, at any time, as long as the amendment or termination does not adversely affect the right of any participant under any agreement without the written consent of the participant, unless the amendment or termination is required by law, regulation or stock exchange rule.
As indicated above, no additional awards will be made under the 1998 plan, although outstanding awards will continue to be governed by its terms and the terms of the related stock option agreements. We intend to make future stock-based awards under the Beacon Roofing Supply, Inc. 2004 Stock Plan described below.
2004 Stock Plan
Prior to the offering, we expect our board of directors and stockholders will approve the Beacon Roofing Supply, Inc. 2004 Stock Plan. We intend to make awards of stock options and restricted stock under the 2004 plan to key employees and directors. We want to recognize the contributions made by our key employees, provide them with additional incentives to devote themselves to our future success and improve our ability to attract and retain employees. We also want to provide additional incentives to members of our board of directors to serve on
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the board and dedicate themselves to our future success. The following is a summary of the 2004 plan. It is qualified by reference to the full text of the 2004 plan, which is attached as an exhibit to the registration statement of which this prospectus forms a part.
Plan administration. The 2004 plan will be administered by our board, which has authority to delegate administration to the compensation committee so long as the committee is comprised of two or more directors who satisfy the "non-employee director" definition under Rule 16b-3 of the Securities Exchange Act of 1934 and the "outside director" definition under Section 162(m) of the Internal Revenue Code. The board or committee, as applicable, has full authority to select the individuals who will receive awards under the 2004 plan, determine the form and amount of each of the awards to be granted, and establish the terms and conditions of awards. To the extent the board delegates its authority, references in this summary to the board mean the committee.
Number of shares of common stock. The number of shares of our common stock that may be issued under the 2004 plan is . Of these shares: (i) the maximum number issuable as stock options to any employee in any calendar year is (or in the calendar year in which the employee's employment starts), (ii) the maximum number issuable as incentive stock options is , and (iii) the maximum number that may be used for restricted stock awards is .
Shares issuable under the 2004 plan may be authorized but unissued shares or treasury shares. If any award expires, terminates or is forfeited or cancelled for any reason, the shares subject to the award will again be available for issuance. In addition, any shares subject to an award that are delivered to or withheld by us as payment for an award or for withholding taxes due in connection with an award will again be available for issuance, and only the net number of shares delivered to the participant will count toward the number of shares issued under the 2004 plan. The number of shares issuable under the 2004 plan is subject to adjustment in the event of any reorganization, recapitalization, stock split or dividend, merger, consolidation, split-up, spin-off, combination, subdivision or any similar corporate transaction. In each case, the board has the discretion to make adjustments it deems necessary to preserve the intended benefits under the 2004 plan.
Term of plan. Our board can grant awards under the 2004 plan for 10 years following its adoption, or until , 2014. Awards outstanding on that date will continue to be subject to the terms of the plan.
Awards to employees. The 2004 plan provides for discretionary awards of stock options and restricted stock to selected employees and directors.
Stock options. Our board may grant non-qualified or incentive stock options to selected employees and non-qualified stock options to non-employee directors. The board may set the terms and conditions applicable to the options, including the exercise price of the option, type of option and the number of shares subject to the option. In any event, each option will expire 10 years from the date of grant.
In addition, an incentive stock option is subject to the following rules: (i) the aggregate fair market value (determined at the time the option is granted) of the shares of common stock with respect to which incentive stock options are exercisable for the first time by an employee during any calendar year (under all of our stock option plans) cannot exceed $100,000, and if
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this limitation is exceeded, the portion of the incentive stock option that does not exceed this dollar limit will be an incentive stock option and the remainder will be a non-qualified stock option; and (ii) if an incentive stock option is granted to an employee who owns stock possessing more than 10% of the total combined voting power of all classes of our stock, the exercise price will be 110% of the closing price of our stock on the date of grant and the incentive stock option will expire no later than five years from the date of grant.
Restricted stock. Our board may grant restricted stock awards to directors and selected employees, either for no consideration or for such appropriate consideration, as the board determines. The board has the discretion to determine the number of shares awarded and the restrictions, terms and conditions of the award. Subject to the restrictions, the recipient of an award will be a stockholder with respect to the shares awarded to him or her and will have the rights of a stockholder with respect to the shares, including the right to vote the shares and receive dividends, if any, on the shares.
Our board may establish, as restrictions on the stock, performance goals and targets for participants, which lapse if we achieve the performance goals and targets for the designated performance period. The performance goals may be based on one or more business criteria. Performance goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the board.
Payment of stock options and withholding taxes. Our board may permit a participant to pay the exercise price of an option or pay for restricted stock by one or more of the following methods: cash; cash received from a broker dealer to whom the employee has submitted an exercise notice and irrevocable instructions to deliver to us the sales proceeds from the sale of the shares subject to the award to pay the exercise price; delivery of previously acquired shares of stock that are acceptable to the board; or certification of ownership by attestation of these previously acquired shares. Our board may permit an employee to pay the minimum amount of any required withholding tax by using one or more of the payment methods described above, and/or by directing us to withhold shares otherwise issuable in connection with the award.
Provisions relating to a change in control. If there is a change in control (as defined in the 2004 plan), all outstanding awards will become fully exercisable and all restrictions applicable to any awards will terminate or lapse. In addition, our board has sole discretion to provide for the purchase of outstanding stock options for cash equal to the difference between the exercise price and the then fair market value of the common stock subject to the option, make adjustments to any outstanding awards as the board deems appropriate to reflect the change in control, and cause any awards to be assumed by the acquiring or surviving corporation.
Amendment of award agreements; amendment and termination of the plan. Our board may amend any award agreement, and may amend or terminate the 2004 plan, at any time, as long as the amendment or termination does not adversely affect the right of any participant under any agreement in any material way without the written consent of the participant, unless the amendment or termination is required by law, regulation or stock exchange rule. No amendment to the 2004 plan or any award agreement will permit the repricing of stock options.
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Robert Buck option
We entered into a special purchase option agreement on October 20, 2003 with Robert Buck, our CEO. At the time, this option agreement entitled Mr. Buck to purchase 74.724 shares of our common stock. As of January 28, 2004, the parties amended and restated the option to increase the number of shares that could be purchased under the option to 89.724 shares. That amendment and restatement did not otherwise change the terms of the option. The amended and restated special purchase option entitles Mr. Buck to purchase 89.724 shares of our common stock at an exercise price of $15,900 per share. Under this option, the exercise price must be paid in cash, unless we permit otherwise. The option expires on October 20, 2013, and will be fully vested upon the completion of our this offering. The option was not granted under our 1998 plan or our 2004 plan.
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Principal and selling stockholders
The following table sets forth information regarding the beneficial ownership of our common stock as of May 28, 2004, and as adjusted to reflect the sale of the shares of common stock offered by us in this offering for:
Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law. Unless otherwise indicated below, each entity or person listed below maintains an address of c/o Beacon Roofing Supply, Inc., 1 Lakeland Park Drive, Peabody, MA 01960.
The number of shares beneficially owned by each stockholder is determined under rules promulgated by the SEC. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting or investment power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days after May 28, 2004 through the exercise of any stock option, warrant or other right. The
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inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner.
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Relationships and transactions with related parties
Executive officers and directors
We have entered into executive securities agreements with 44 employees, including Robert Buck, David Grace, and Andrew Logie. The agreements apply to any shares of our stock that the employees own or acquire, including shares issued upon the exercise of options. All of the agreements contain restrictions on the transfer of shares in the open market after an initial public offering. The terms of 15 of the agreements, including the agreements with David Grace and Andrew Logie, restrict the transfer of shares during the period that Code, Hennessy & Simmons III, L.P. owns more than 30% of our common stock. During each calendar quarter in that period, the employee may sell a number of shares equal to his pro rata share of 1% of our outstanding shares or a lower number as is permitted by lock-up agreements with the underwriters.
Two of the executive securities agreements have registration rights. See "Description of capital stock, certificates of incorporation and by-laws—Registration rights."
William Logie, son of Andrew Logie, is employed by us. His 2003 salary and bonus was $208,320.
We lease three buildings for $0.5 million per year from a limited liability company in which Andrew Logie is a member. We believe that the terms of these leases approximate those we would receive in arms-length transactions with unrelated third parties.
In 2002, John Meister, our former CEO, acquired shares of our stock in exchange for a note for $150,000. He repaid this note in fiscal 2003.
Relationship with Code Hennessy
Our subsidiary, Beacon Sales Acquisition, Inc., entered into a management agreement in 1997 with CHS Management III, L.P., which is an affiliate of Code Hennessy, our largest stockholder. The management agreement provides for CHS Management III to provide management services to Beacon Sales, for which Beacon Sales pays to CHS Management III an annual management fee of $300,000 in monthly installments. The management agreement is being terminated in connection with this offering.
In connection with this offering, we will enter into a registration rights agreement with Code Hennessy. The agreement will provide that, at the request of Code Hennessy, we will register under the Securities Act any shares of common stock currently held or later acquired by Code Hennessy for sale in accordance with Code Hennessy's intended method of disposition. Code Hennessy also will have the right to include the shares of our common stock that it holds in registrations of common stock that we initiate on our own behalf or on behalf of other stockholders. See "Description of capital stock, certificate of incorporation and by-laws—Registration rights."
Redemption of junior subordinated notes payable
Upon completion of the offering, we will use a portion of the proceeds to redeem $ aggregate principal amount of junior subordinated notes payable. The following executive officers and director own and will have redeemed the principal amount of notes set forth opposite his name.
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|
|||
| Andrew Logie | $ | 1,486,500 | |
| David Grace | $ | 135,000 | |
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Description of capital stock,
certificate of incorporation and by-laws
General matters
Upon the closing of this offering, our authorized capital stock will consist of shares of common stock and shares of undesignated preferred stock. As of the date hereof, our authorized capital stock consisted of 10,000 shares of Class A common stock and 10,000 shares of Class B common stock. As of May 28, 2004, we had outstanding 3,925.083 shares of common stock, all of which was Class A common stock.
As of May 28, 2004, we had 53 stockholders of record of our common stock. As of May , 2004, we had outstanding options to purchase 418.524 shares of our common stock and outstanding warrants to purchase 624.162 shares of common stock.
After giving effect to this offering, we will have shares of common stock, options to purchase shares of common stock, no warrants and no shares of preferred stock outstanding. The following summary describes all material provisions of our capital stock. We urge you to read our certificate of incorporation and our by-laws, which are included as exhibits to the registration statement of which this prospectus forms a part.
Our certificate of incorporation and by-laws contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of our company unless the takeover or change in control is approved by our board of directors.
These provisions include elimination of stockholder action by written consents, elimination of the ability of stockholders to call special meetings and advance notice procedures for stockholder proposals.
Common stock
Shares of our common stock have the following rights, preferences and privileges:
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We intend to apply to list our common stock on The Nasdaq National Market under the trading symbol "BECN".
Registration rights
In connection with this offering, we will enter into a registration rights agreement with Code, Hennessy & Simmons III, L.P. The agreement will provide that, upon the request of Code Hennessy, we will register under the Securities Act any of the shares of our common stock held by Code Hennessy for sale in accordance with Code Hennessy's intended method of disposition, and will take other actions as are necessary to permit the sale of the shares in various jurisdictions. Our obligation to register the shares and take other actions is subject to certain restrictions on, among other things, the frequency of requested registrations, the number of shares to be registered and the duration of these rights. For a period of seven years following completion of this offering, Code Hennessy may demand registration once in any twelve-month period, as long as the demand covers a specified minimum number of shares and Code Hennessy (along with its transferees) owns at least 5% of our common stock. Code Hennessy's ability to demand registration is subject to certain conditions, including the release from or expiration of the 180-day lockup agreement with our underwriters. Code Hennessy also has the right, for a period of seven years following completion of this offering, to include the shares of our common stock held by it in other registrations of our common stock (whether those registrations are initiated by us or by other stockholders). We will pay all expenses in connection with a registration made on Code Hennessy's demand, except that Code Hennessy will pay the underwriting discount and its own legal fees. If Code Hennessy exercises its rights to include shares in a registration initiated by us or a third party, Code Hennessy will pay any incremental expenses. Upon notice, Code Hennessy may transfer its rights under the registration rights agreement to purchasers or transferees of 20% or more of the initial shares of common stock owned by Code Hennessy under certain circumstances. The registration rights agreement will contain indemnification and contribution provisions (i) by Code Hennessy for our benefit and the benefit of related persons and (ii) by us for the benefit of Code Hennessy and related persons, as well as any underwriter.
We granted to Robert Buck, our CEO, registration rights under his executive securities agreement. The agreement provides that if we propose to file a registration statement with the SEC registering shares owned by Code Hennessy, then Mr. Buck has the right to include (and Code Hennessy has the right to require that he include) the same percentage of his shares of common stock in the registration statement as Code Hennessy is including of its shares of common stock. These rights are subject to certain limitations. Among other things, if Mr. Buck exercises this registration right, then we may elect not to proceed with the registration. If any underwriter advises us that the number of shares requested to be included in the registration would adversely affect the offering, then we may reduce the number of Mr. Buck's shares that
64
are included in the registration (so long as the reduction is proportionate to the reduction in the number of shares Code Hennessy included in the registration). We must pay all expenses incurred in connection with the registration, except that Mr. Buck must bear the underwriting and brokerage discounts and commissions on the sale of his shares and the fees of his own lawyers, accountants and other advisers. The agreement provides that, if we or our underwriters ask, Mr. Buck will not sell our securities (including any securities convertible into or exchangeable or exercisable for our securities) during the 7 days before and the 180 days after any registration statement has become effective. This standstill provision does not apply to any shares included in the registration. Although Mr. Buck is thus entitled under these registration rights to sell shares in this offering, he has chosen not to do so.
We granted to Andrew Logie, our Chairman, registration rights under his executive securities agreement. The agreement provides that if we determine to file a registration statement with the SEC registering shares owned by us or by Code Hennessy, then Mr. Logie has the right to include the same percentage of his shares of common stock in the registration statement as Code Hennessy is including of its shares of common stock. This right is subject to certain limitations. If Mr. Logie exercises this registration right, then we may elect not to proceed with the registration. If any underwriter advises us that the number of shares requested to be included in the registration would adversely affect the offering, then we may reduce the number of Mr. Logie's shares that are included in the registration (so long as the reduction is proportionate to the reduction in the number of shares of Code Hennessy included in the registration). We must pay all expenses incurred in connection with the registration, except that Mr. Logie must bear the underwriting and brokerage discounts and commissions on the sale of his shares and the fees of his own lawyers, accountants and other advisers.
Other provisions of our certificate of incorporation and by-laws
Elimination of stockholder action through written consent. Our by-laws provide that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting.
Elimination of the ability to call special meetings. Our certificate and by-laws provide that, except as otherwise required by law, special meetings of our stockholders can only be called pursuant to a resolution adopted by a majority of our board of directors or by our chief executive officer or the chairman of our board of directors. Stockholders are not permitted to call a special meeting or to require our board to call a special meeting.
Advance notice procedures for stockholder proposals. Our by-laws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board. Stockholders at our annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given to our secretary timely written notice, in proper form, of the stockholder's intention to bring that business before the meeting. Although our by-laws do not give our board the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, our by-laws may have the effect of precluding the conduct of some business at a meeting if the proper procedures are not followed or may discourage or defer a
65
potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us.
Anti-takeover effects of Delaware law
Following the completion of this offering, we will be subject to provisions of the Delaware General Corporation Law that prohibit a publicly-held Delaware corporation from engaging in any "business combination" transaction with any "interested stockholder" for a period of three years after the date on which the person became an "interested stockholder," unless:
A "business combination" is defined to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder. In general, an "interested stockholder" is a person who, together with affiliates and associates, owns 15% or more of a corporation's voting stock or within three years did own 15% or more of a corporation's voting stock. However, in the case of our company, Code Hennessy and its affiliates will not be deemed to be "interested stockholders" regardless of the percentage of our voting stock owned by them. The statute could prohibit or delay mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us.
Limitations on liability and indemnification of officers and directors
Our certificate of incorporation limits the liability of our directors to the fullest extent permitted by the Delaware General Corporation Law and provides that we will indemnify them to the fullest extent permitted by this law. We expect to increase our directors' and officers' liability insurance coverage prior to the completion of this offering.
Transfer agent and registrar
The transfer agent and registrar for our common stock is and its telephone number is .
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Senior secured credit facility
In March 2004, we entered into an amended and restated senior secured credit facility. Beacon Sales Acquisition, Inc., our primary operating subsidiary, is the only borrower under our senior secured credit facility. Our senior secured credit facility, consists of:
The borrower is obligated with respect to all amounts owing under our senior secured credit facility. In addition, our senior secured credit facility is:
Our future subsidiaries will guarantee the senior secured credit facility and secure that guarantee with all of their real and personal property.
Our senior secured credit facility requires us to meet financial tests, including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. In addition, our senior secured credit facility contains negative covenants limiting additional liens and indebtedness, capital expenditures, transactions with certain shareholders and any affiliates, mergers and consolidations, liquidations and dissolutions, sales of assets, dividends, investments and joint ventures, loans and advances, modifications of debt instruments and other matters customarily restricted in these agreements. Our senior secured credit facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the senior secured credit facility to be in full force and effect and a change of control of our business.
Each of the term loan facilities matures in quarterly installments from June 30, 2005 through December 31, 2006. The revolving credit facility will terminate on December 31, 2006.
Our borrowings under the senior secured credit facility bear interest at a floating rate and may be maintained as index rate loans or as LIBOR loans. Index rate loans bear interest at the index rate plus the applicable index rate margin, as described in the senior secured credit facility. Index rate is defined as the higher of (1) the rate of interest publicly quoted from time to time by The Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation's largest banks, and (2) the Federal Reserve reported overnight funds rate plus 1 / 2 of 1%.
67
LIBOR loans bear interest at the LIBOR rate, as described in the senior secured credit facility, plus the applicable LIBOR rate margin.
The applicable margin with respect to the term loan A facility and the revolving credit facility is:
The applicable margin with respect to the term loan B facility is:
With respect to letters of credit, which may be issued as a part of the revolving loan commitment, the revolver lenders will be entitled to receive a fee equal to the product of 2% and the daily amount available to be drawn under these letters of credit. This fee will be payable monthly in arrears based on the aggregate undrawn amount of all letters of credit outstanding from time to time under the revolver. In addition, the issuing bank will be entitled to receive its customary processing fees and charges.
The senior secured credit facility prescribes that specified amounts must be used to prepay the term loan facilities and reduce the outstanding principal balance under the revolving credit facility, including:
In connection with this offering, we expect to obtain an amendment or waiver under the senior credit facility to permit the use of proceeds described under "Use of proceeds." Voluntary prepayments of our senior secured credit facility are permitted at any time.
In general, the mandatory prepayments described above will be applied first to prepay the term loan A facility, second to prepay the term loan B facility and third to reduce the outstanding principal balance under the revolving credit facility without a permanent reduction of the revolving credit facility commitments. Prepayments of the term loan facilities, optional or mandatory, will be applied to the scheduled installments of the term loan facilities in the inverse order of maturity.
This summary of the senior secured credit facility may not contain all of the information that is important to you and is subject to, and qualified in its entirety by reference to, all of the provisions of the credit agreement and related documents, copies of which are filed as exhibits
68
to the registration statement of which this prospectus forms a part. See "Where you can find more information."
Canadian senior secured credit facility
In March 2004, we entered into an amended and restated Canadian senior secured credit facility. Beacon Roofing Supply Canada Company, our Canadian operating subsidiary, is the only borrower under our Canadian senior secured credit facility. Our Canadian senior secured credit facility consists of a revolving credit facility of up to CDN$15.0 million in revolving credit loans.
The borrower is obligated with respect to all amounts owing under our Canadian senior secured credit facility. In addition, our Canadian senior secured credit facility is:
Our future subsidiaries will guarantee the Canadian senior secured credit facility and secure that guarantee with all of their real and personal property.
Our Canadian senior secured credit facility requires us to meet financial tests, including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. In addition, our Canadian senior secured credit facility contains negative covenants limiting additional liens and indebtedness, capital expenditures, transactions with certain shareholders and any affiliates, mergers and consolidations, liquidations and dissolutions, sales of assets, dividends, investments and joint ventures, loans and advances, modifications of debt instruments and other matters customarily restricted in these agreements. Our Canadian senior secured credit facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the senior secured credit facility to be in full force and effect and a change of control of our business.
Our Canadian senior secured credit facility will terminate on December 31, 2006.
Our borrowings under the Canadian senior secured credit facility bear interest at a floating rate and may be maintained as index rate loans or as BA rate loans. Index rate loans bear interest at the index rate plus the applicable index rate margin, as described in the Canadian senior secured credit facility. Index rate is defined as the higher of (1) the rate of interest publicly quoted from time to time by the Globe and Mail as the current Canadian prime rate, and (2) the 30-day BA Rate plus 1.25%. BA Rate loans bear interest at the BA rate, as described in the Canadian senior secured credit facility, plus the applicable BA rate margin.
The applicable margin with respect to the revolving credit facility is:
69
The Canadian senior secured credit facility prescribes that specified amounts must be used to reduce the outstanding principal balance under the revolving credit facility, including:
In connection with this offering, we expect to obtain an amendment or waiver under the Canadian senior credit facility to permit the use of proceeds described under "Use of proceeds." Voluntary prepayments of our Canadian senior secured credit facility are permitted at any time.
This summary of our Canadian senior secured credit facility may not contain all of the information that is important to you and is subject to, and qualified in its entirety by reference to, all of the provisions of the credit agreement and related documents, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part. See "Where you can find more information."
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Shares eligible for future sale
The sale of a substantial amount of our common stock in the public market after this offering could adversely affect the prevailing market price of our common stock. Furthermore, because % of our common stock outstanding prior to the consummation of this offering will be subject to the contractual and legal restrictions on resale described below, the sale of a substantial amount of common stock in the public market after these restrictions lapse could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future.
Upon completion of this offering, we expect to have outstanding an aggregate of shares of our common stock, assuming no exercise of outstanding options and warrants. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 of the Securities Act. The remaining shares of common stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. These restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act. These rules are summarized below.
Upon completion of the offering, shares of common stock, including shares sold in the offering and restricted shares not held by affiliates will be available for immediate sale in the public market. Commencing 90 days after the completion of the offer, and subject to the provisions of Rule 144 and Rule 701, an additional restricted shares will be available for sale in the public market.
Upon the expiration of the lock-up agreements described below 180 days after the date of this prospectus, and subject to the provisions of Rule 144 and Rule 701, an additional restricted shares will be available for sale in the public market. The sale of these restricted securities is subject, in the case of shares held by affiliates, to the volume restrictions contained in those rules.
Lock-up agreements
We, our directors and executive officers and certain of our stockholders are subject to lock-up agreements with the underwriters. Under these agreements, subject to limited exceptions, neither we nor any of our directors or executive officers or these stockholders may dispose of, hedge or otherwise transfer the economic consequences of ownership of any shares of common stock or securities convertible into or exchangeable or exercisable for shares of common stock. These restrictions will be in effect for a period of 180 days after the date of this prospectus. At any time and without notice, J.P. Morgan Securities Inc. may, in its sole discretion, release all or some of the securities from these lock-up agreements. Transfers or dispositions can be made sooner, provided the transferee becomes bound to the terms of the lock-up:
71
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year from the later of the date those shares of common stock were acquired from us or from an affiliate of ours would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
Sales of shares of common stock under Rule 144 may also be subject to manner of sale provisions and notice requirements and will be subject to the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years from the later of the date these shares of common stock were acquired from us or from an affiliate of ours, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted pursuant to the lock-up agreements or otherwise, those shares may be sold immediately upon the completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act, each of our employees, consultants or advisors who purchased shares from us in connection with a compensatory stock plan or other written agreement is eligible to resell those shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.
No precise prediction can be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price of our common stock prevailing from time to time. We are unable to estimate the number of our shares that may be sold in the public market pursuant to Rule 144 or Rule 701 because this will depend on the market price of our common stock, the personal circumstances of the sellers and other factors.
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Nevertheless, sales of significant amounts of our common stock in the public market could adversely affect the market price of our common stock.
Stock plans
We intend to file a registration statement or statements on Form S-8 under the Securities Act covering shares of common stock reserved for issuance under our 2004 stock plan and pursuant to all option grants made prior to this offering under the 1998 plan. Subject to lock-up arrangements, these registration statements are expected to be filed as soon as practicable after the closing date of this offering. Shares issued upon the exercise of stock options after the effective date of the applicable Form S-8 registration statement will be eligible for resale in the public market without restriction, subject to Rule 144 limitations applicable to affiliates and the lock-up agreements described above.
Registration rights
Following this offering, some of our stockholders will, under some circumstances, have the right to require us to register their shares for future sale. See "Description of capital stock, certificate of incorporation and by-laws—Registration rights."
73
J.P. Morgan Securities Inc. is acting as sole book-running manager and joint lead manager for this offering, and William Blair & Company, L.L.C. is also acting as joint lead manager. Subject to the terms and conditions set forth in an underwriting agreement, we and the selling stockholders have agreed to sell to each underwriter named below, and such underwriters have agreed to purchase, the number of shares of common stock set forth opposite their names below.
|
|
||
|---|---|---|
|
Underwriter
|
Number of
shares |
|
|
|
||
| J.P. Morgan Securities Inc. | ||
| William Blair & Company, L.L.C. | ||
|
Total |
|
|
|
|
||
The underwriting agreement provides that the obligations of the underwriters to purchase our common stock included in this offering are subject to certain conditions precedent customary for offerings of this type. The underwriters are obligated to purchase all of the shares of common stock offered by this prospectus, other than those covered by the option described below, if they purchase any of these shares.
Certain stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price less the underwriting discount set forth on the cover page of this prospectus. The underwriters may exercise that option solely for the purpose of covering over-allotments, if any, in connection with this offering.
The following table shows the per share and total underwriting discounts that we and the selling stockholders will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Paid by Beacon
|
Paid by selling stockholders
|
||||||||||
|
|
No exercise
|
Full exercise
|
No exercise
|
Full exercise
|
||||||||
|
|
||||||||||||
| Per share | $ | $ | $ | $ | ||||||||
|
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
||||||||||||
The representatives of the underwriters have advised us that the underwriters propose initially to offer such shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to dealers at the public offering price less a concession not in excess of $ per share. The underwriters may allow, and such dealers may reallow, a concession of not more than $ per share to other dealers. After the public offering, the representatives may change the offering price and the other selling terms.
We, our executive officers and directors and certain stockholders have agreed that, during the period beginning from the date of this prospectus and continuing to and including the date
74
180 days after the date of this prospectus, none of us will, directly or indirectly, offer, sell, offer to sell, contract to sell or otherwise dispose of any shares of our common stock without the prior written consent of J.P. Morgan Securities Inc.
We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments that the underwriters may be required to make because of those liabilities.
The underwriters may engage in stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Rule 104 under the Securities Exchange Act in connection with this offering. Stabilizing transactions permit bids to purchase the common stock so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of the common stock in the open market following completion of this offering to cover all or a portion of a syndicate short position created by the underwriters selling more shares of common stock in connection with this offering than they are committed to purchase from us and the selling stockholders. In addition, the underwriters may impose "penalty bids" under contractual arrangements between the underwriters and dealers participating in this offering whereby they may reclaim from a dealer participating in this offering the selling concession with respect to shares of common stock that are distributed in this offering but subsequently purchased for the account of the underwriters in the open market. Such stabilizing transactions, syndicate covering transactions and penalty bids may result in the maintenance of the price of the common stock at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and, if any are undertaken, they may be discontinued at any time.
We estimate that the total expenses of this offering will be approximately $ , excluding the underwriting discounts.
William Blair & Company, L.L.C. is a member of William Blair Mezzanine Capital Partners III, L.L.C., the general partner of William Blair Mezzanine Capital Fund III, L.P., which owns $15.0 million in aggregate principal amount of our 18% junior subordinated notes payable and warrants to purchase shares of our common stock at an aggregate purchase price of $ . Upon the completion of the offering, we will redeem all of our 18% junior subordinated notes payable, including those held by William Blair Mezzanine Capital Fund III, L.P., at 100% of the principal amount thereof plus accrued and unpaid interest. According to Rule 2720 of the National Association of Securities Dealers, Inc.'s Conduct Rules, the offering must comply with requirements of Rule 2720 of the NASD Conduct Rules. That rule requires that the initial public offering price can be no higher than that recommended by a "qualified independent underwriter," as defined by the NASD. In view of William Blair & Company, L.L.C.'s relationship with us, the offering is being conducted in accordance with the rules of the NASD, and J.P. Morgan Securities Inc. will serve in the capacity of "qualified independent underwriter" and will perform due diligence investigations and will review and participate in the preparation of the registration statement of which this prospectus forms a part. We and certain selling stockholders have agreed to indemnify J.P. Morgan Securities Inc. for any losses, claims, damages, and expenses it may incur as a result of acting as a qualified independent underwriter in connection with the offering. We have also agreed to reimburse J.P. Morgan Securities Inc. for any fees and expenses incurred in this capacity. The underwriters may not confirm sales to any discretionary account without the prior specific written approval of the customer.
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In the ordinary course of the underwriters' respective businesses, the underwriters and their affiliates have engaged and may engage in commercial, investment banking and other advisory transactions with us and our affiliates for which they have received and will receive customary fees and expenses.
We intend to list our common stock on The Nasdaq National Market under the symbol "BECN." The underwriters intend to sell shares to a minimum of 400 beneficial owners in lots of 100 or more so as to meet the distribution requirements of this listing.
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between the representatives of the underwriters, us and the selling stockholders. Among the factors that we and these representatives will consider in determining the initial public offering price will be our future prospects and our industry in general, our sales, earnings and other financial and operating information in recent periods and the price-to-earnings ratio, market prices of securities and other financial and operating information of companies engaged in activities similar to ours.
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The validity of the issuance of the shares of common stock offered hereby will be passed upon for us by Schiff Hardin LLP, Chicago, Illinois. Legal matters in connection with this offering will be passed upon for the underwriters by Winston & Strawn LLP, Chicago, Illinois.
Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements at September 27, 2003 and September 28, 2002 and for each of the three years in the period ended September 27, 2003, as set forth in their report. We've included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.
Where you can find more information
We have filed with the SEC a registration statement on Form S-1, including exhibits and schedules, under the Securities Act with respect to the common stock to be sold in this offering. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules that are part of the registration statement. For further information about us and our common stock, you should refer to the registration statement. Any statements made in this prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the registration statement, you should refer to the exhibit for a more complete description of the matter involved, and each statement in this prospectus shall be deemed qualified in its entirety by this reference.
You may read, without charge, and copy, at prescribed rates, all or any portion of the registration statement or any reports, statements or other information in the files at the public reference room at the SEC's principal office at 450 Fifth Street, N.W., Washington, D.C., 20549. You can request copies of these documents upon payment of a duplicating fee by writing to the SEC. You may call the SEC at 1-800-SEC-0330 for further information on the operation of its public reference room. Our filings, including the registration statement, will also be available to you on the Internet website maintained by the SEC at http://www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act and will file annual, quarterly and current reports, proxy statements and other information with the SEC. You can request copies of these documents, for a copying fee, by writing to the SEC. We intend to furnish our stockholders with annual reports containing financial statements audited by our independent auditors.
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Beacon Roofing Supply, Inc.
Index to consolidated financial statements
|
|
Page
|
|---|---|
| Report of Independent Registered Public Accounting Firm | F-1 |
| Consolidated Balance Sheets as of September 28, 2002, September 27, 2003 and March 31, 2004 (unaudited) | F-2 |
| Consolidated Statements of Operations for the years ended September 29, 2001, September 28, 2002 and September 27, 2003 and the six months ended March 31, 2003 and 2004 (unaudited) | F-3 |
| Consolidated Statements of Stockholders' Equity for the years ended September 29, 2001, September 28, 2002 and September 27, 2003 and the six months ended March 31, 2004 (unaudited) | F-4 |
| Consolidated Statements of Cash Flows for the years ended September 29, 2001, September 28, 2002 and September 27, 2003 and the six months ended March 31, 2003 and 2004 (unaudited) | F-5 |
| Notes to Consolidated Financial Statements | F-6 |
F-Index
Report of Independent Registered Public Accounting Firm
The
Board of Directors
Beacon Roofing Supply, Inc.
We have audited the accompanying consolidated balance sheets of Beacon Roofing Supply, Inc. (the Company) as of September 28, 2002 and September 27, 2003, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 27, 2003. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Beacon Roofing Supply, Inc. at September 28, 2002 and September 27, 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 27, 2003, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill, pursuant to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
/s/ Ernst & Young LLP
Boston,
Massachusetts
May 21, 2004
F-1
Beacon Roofing Supply, Inc.
Consolidated Balance Sheets
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|
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|---|---|---|---|---|---|---|---|---|---|---|---|
|
(Dollars in thousands, except per share data)
|
September 28
2002 |
September 27
2003 |
March 31
2004 (unaudited) |
||||||||
|
|
|||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash | $ | 69 | $ | 64 | $ | 1,595 | |||||
| Accounts receivable, less allowance of $1,860 in 2002, $2,322 in 2003 and $3,213 in 2004 for doubtful accounts | 78,231 | 86,964 | 68,740 | ||||||||
| Inventories | 48,811 | 55,077 | 69,877 | ||||||||
| Prepaid expenses and other assets | 9,248 | 9,834 | 8,508 | ||||||||
| Deferred income taxes | 1,964 | 2,317 | 2,320 | ||||||||
|
|
|||||||||||
| Total current assets | 138,323 | 154,256 | 151,040 | ||||||||
|
Property and equipment, net |
|
|
24,146 |
|
|
24,955 |
|
|
24,146 |
|
|
|
Goodwill, net |
|
|
91,964 |
|
|
93,564 |
|
|
93,876 |
|
|
| Other assets | 3,499 | 2,933 | 1,870 | ||||||||
|
|
|||||||||||
| Total assets | $ | 257,932 | $ | 275,708 | $ | 270,932 | |||||
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|
|||||||||||
|
Liabilities and stockholders' equity |
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities: | |||||||||||
| Borrowings under revolving lines of credit | $ | 65,901 | $ | 59,831 | $ | 52,392 | |||||
| Accounts payable | 45,661 | 56,151 | 53,105 | ||||||||
| Accrued expenses | 21,713 | 25,133 | 21,590 | ||||||||
| Warrant derivative liability | 2,953 | 3,683 | 6,942 | ||||||||
| Current portions of long-term debt and capital lease obligations | 12,292 | 9,200 | 6,125 | ||||||||
|
|
|||||||||||
| Total current liabilities | 148,520 | 153,998 | 140,154 | ||||||||
|
Senior notes payable and other obligations, net of current portion |
|
|
7,424 |
|
|
149 |
|
|
24,149 |
|
|
| Junior subordinated notes payable | 32,436 | 35,171 | 16,432 | ||||||||
| Subordinated notes payable to related parties | 25,041 | 27,087 | 28,243 | ||||||||
| Deferred income taxes | 5,862 | 8,797 | 8,748 | ||||||||
| Long-term obligations under capital leases, net of current portions | — | 497 | 1,045 | ||||||||
| Warrant derivative liabilities | 6,359 | 8,243 | 15,984 | ||||||||
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| Class A Common Stock (voting); $.01 par value; 10,000 shares authorized; 3,961 shares issued in 2002 and 2003 and 3,976 issued in 2004 | — | — | — | ||||||||
| Class B Common Stock (nonvoting); $.01 par value; 10,000 shares authorized; none issued or outstanding | — | — | — | ||||||||
| Additional paid-in capital | 26,213 | 26,213 | 26,992 | ||||||||
| Deferred compensation | — | — | (357 | ) | |||||||
| Treasury stock (38 shares in 2002, and 51 shares in 2003 and 2004 of Class A Common Stock), at cost | (400 | ) | (515 | ) | (515 | ) | |||||
| Retained earnings | 7,383 | 14,488 | 7,899 | ||||||||
| Accumulated other comprehensive income (loss) | (906 | ) | 1,580 | 2,158 | |||||||
|
|
|||||||||||
| Total stockholders' equity | 32,290 | 41,766 | 36,177 | ||||||||
|
|
|||||||||||
| Total liabilities and stockholders' equity | $ | 257,932 | $ | 275,708 | $ | 270,932 | |||||
|
|
|||||||||||
See accompanying notes.
F-2
Beacon Roofing Supply, Inc.
Consolidated Statements of Operations
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Year Ended
|
Six Months Ended
|
||||||||||
|
(Dollars in thousands, except
per share data) |
September 29
2001 (53 weeks) |
September 28
2002 |
September 27
2003 |
March 31
2003 (unaudited) |
March 31
2004 (unaudited) |
|||||||
|
|
||||||||||||
| Net sales | $415,089 | $549,873 | $559,540 | $239,305 | $292,667 | |||||||
| Cost of products sold | 321,153 | 413,925 | 418,662 | 178,516 | 217,303 | |||||||
|
|
||||||||||||
| Gross profit | 93,936 | 135,948 | 140,878 | 60,789 | 75,364 | |||||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| Selling, general and administrative expenses | 75,209 | 106,520 | 109,586 | 53,230 | 57,229 | |||||||
|
|
||||||||||||
|
Income from operations |
|
18,727 |
|
29,428 |
|
31,292 |
|
7,559 |
|
18,135 |
|
|
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense | 15,702 | 15,308 | 14,052 | 6,893 | 6,965 | |||||||
| Change in value of warrant derivatives | 116 | 2,756 | 2,614 | 1,292 | 11,000 | |||||||
| Loss on early retirement of debt | 2,487 | — | — | — | 3,285 | |||||||
|
|
||||||||||||
| 18,305 | 18,064 | 16,666 | 8,185 | 21,250 | ||||||||
|
|
||||||||||||
|
Income (loss) before income taxes |
|
422 |
|
11,364 |
|
14,626 |
|
(626 |
) |
(3,115 |
) |
|
| Income taxes | 798 | 6,153 | 7,521 | 292 | 3,474 | |||||||
|
|
||||||||||||
|
Net income (loss) |
|
$(376 |
) |
$5,211 |
|
$7,105 |
|
$(918 |
) |
$(6,589 |
) |
|
|
|
||||||||||||
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| Basic | $(114 | ) | $1,340 | $1,812 | $(234 | ) | $(1,684 | ) | ||||
|
|
||||||||||||
| Diluted | $(114 | ) | $1,325 | $1,773 | $(234 | ) | $(1,684 | ) | ||||
|
|
||||||||||||
|
Weighted average shares used in computing net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| Basic | 3,301 | 3,890 | 3,921 | 3,923 | 3,913 | |||||||
|
|
||||||||||||
| Diluted | 3,301 | 3,932 | 4,007 | 3,923 | 3,913 | |||||||
|
|
||||||||||||
See accompanying notes.
F-3
Beacon Roofing Supply, Inc.
Consolidated Statements of Stockholders' Equity
|
|
|||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Class A Common Stock
|
|
|
|
|
|
|
||||||||||||||||||
|
|
Additional
Paid-in Capital |
|
|
|
Accumulated
Other Comprehensive Income (Loss) |
Total
Stockholders' Equity |
|||||||||||||||||||
|
(Dollars in thousands, except per share data)
|
Number
of Shares |
Amount
|
Deferred
Compensation |
Treasury
Stock |
Retained
Earnings |
||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| Balances at September 30, 2000 | 2,318 | $ | — | $ | 4,992 | $ | (5 | ) | $ | 2,548 | $ | (238 | ) | $ | 7,297 | ||||||||||
| Issuance of Class A Common Stock | 1,599 | — | 20,649 | — | — | — | 20,649 | ||||||||||||||||||
| Repurchase of Class A Common Stock | — | — | — | (331 | ) | — | — | (331 | ) | ||||||||||||||||
| Net loss (53 weeks) | — | — | — | — | (376 | ) | — | (376 | ) | ||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (671 | ) | (671 | ) | ||||||||||||||||
|
|
|||||||||||||||||||||||||
| Comprehensive loss | (1047 | ) | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| Balances at September 29, 2001 | 3,917 | — | 25,641 | (336 | ) | 2,172 | (909 | ) | 26,568 | ||||||||||||||||
| Issuance of Class A Common Stock at below fair market value | 44 | 572 | $ | (522 | ) | 50 | |||||||||||||||||||
| Amortization of deferred compensation | 522 | 522 | |||||||||||||||||||||||
| Repurchase of Class A Common Stock | (64 | ) | (64 | ) | |||||||||||||||||||||
| Net income | 5,211 | 5,211 | |||||||||||||||||||||||
| Foreign currency translation adjustment | 3 | 3 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| Comprehensive income | 5,214 | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| Balances at September 28, 2002 | 3,961 | — | 26,213 | (400 | ) | 7,383 | (906 | ) | 32,290 | ||||||||||||||||
| Repurchase of Class A Common Stock | (115 | ) | (115 | ) | |||||||||||||||||||||
| Net income | 7,105 | 7,105 | |||||||||||||||||||||||
| Foreign currency translation adjustment | 2,486 | 2,486 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| Comprehensive income | 9,591 | ||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| Balances at September 27, 2003 | 3,961 | — | 26,213 | (515 | ) | 14,488 | 1,580 | 41,766 | |||||||||||||||||
| Issuance of Class A Common Stock and options to purchase Class A Common Stock at below fair market value (unaudited) | 15 | 779 | (529 | ) | 250 | ||||||||||||||||||||
| Amortization of deferred compensation (unaudited) | 172 | 172 | |||||||||||||||||||||||
| Net loss (unaudited) | (6,589 | ) | (6,589 | ) | |||||||||||||||||||||
| Foreign currency translation adjustment (unaudited) | 578 | 578 | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| Comprehensive loss (unaudited) | (6,011 | ) | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
| Balances at March 31, 2004 (unaudited) | 3,976 | — | $ | 26,992 | $ | (357 | ) | $ | (515 | ) | $ | 7,899 | $ | 2,158 | $ | 36,177 | |||||||||
|
|
|||||||||||||||||||||||||
See accompanying notes.
F-4
Beacon Roofing Supply, Inc.
Consolidated Statements of Cash Flows
See accompanying notes.
F-5
Beacon Roofing Supply, Inc.
Notes to Consolidated Financial Statements
Year ended September 27, 2003
and six months ended
March 31, 2004 (unaudited)
(dollars in thousands, except per share data)
1. The Company
Business
Beacon Roofing Supply, Inc. (the Company), an investee company of Code, Hennessy & Simmons, LLC, was formed on August 22, 1997. The Company distributes roofing materials and other complementary building materials to customers in the Eastern United States, Texas and Canada through its wholly-owned subsidiaries, Beacon Sales Acquisition, Inc., Quality Roofing Supply Company, Inc., Beacon Roofing Supply Canada Company, Best Distributing Co., The Roof Center, Inc. and West End Lumber Company, Inc.
Basis of Presentation
The consolidated financial statements as of March 31, 2004 and for the six months ended March 31, 2003 and 2004 have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the six months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the full year. All financial statement amounts and disclosures related to the six-month periods ended March 31, 2003 and 2004 are unaudited.
Estimates
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the consolidated financial statements. Actual amounts could differ from those estimates.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company transactions have been eliminated.
F-6
Fiscal Year
The Company's fiscal year ends on the close of business on the last Saturday in September of each year. Each of the Company's quarters ends on the last day of the calendar month. Fiscal 2001 included 53 weeks.
Industry Segment Information
Based on qualitative and quantitative criteria established by Statement of Financial Accounting Standards (SFAS) No. 131 (SFAS No. 131), Disclosures about Segments of an Enterprise and Related Information , the Company operates within one reportable segment, which is the wholesale distribution of building materials.
Inventories and Rebates
Inventories, consisting substantially of finished goods, are valued at the lower of cost or market. Cost is determined using the moving weighted-average cost method.
The Company's arrangements with vendors provides for rebates of a specified amount of consideration, payable when a number of measures, generally related to a specified cumulative level of purchases, have been achieved. The Company accounts for such rebates as a reduction of the prices of the vendor's products and therefore as a reduction of inventory until the product is sold, at which time, such rebates reduce cost of sales in the accompanying consolidated statements of operations. Throughout the year, the Company estimates the amount of the rebates earned based on an estimate of purchases to date relative to the purchase levels that mark progress toward earning the rebates. The Company continually revises these estimates to reflect actual rebates earned based on actual purchase levels.
In January 2003, the Emerging Issues Task Force (EITF) issued EITF No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (EITF No. 02-16) which states that cash consideration received from a vendor is presumed to be a reduction of the prices of the vendor's products or services and should, therefore, be characterized as a reduction of cost of sales when recognized in the statement of operations. That presumption is overcome when the consideration is either a reimbursement of specific, incremental, identifiable costs incurred to sell the vendor's products, or a payment for assets or services delivered to the vendor. Since the Company has treated all rebates as a reduction of the price of the vendor's products, adoption of EITF No. 02-16 in 2003 did not have a material impact on the Company's results of operations.
F-7
Property and Equipment
Property and equipment acquired in connection with acquisitions are recorded at fair market value as of the date of the acquisition; all other additions are recorded at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:
|
|
||
|---|---|---|
|
Asset
|
Estimated Usefule Life
|
|
|
|
||
| Buildings | 40 years | |
| Equipment | 3 to 5 years | |
| Furniture and fixtures | 5 to 10 years | |
| Leasehold improvements | Shorter of the term of the lease or the estimated useful life | |
Revenue Recognition
The Company recognizes revenue in accordance with Securities and Exchange Commissions (SEC) Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements, as amended by Staff Accounting Bulletin 104. The SEC requires that the following four basic criteria must be met before the Company recognizes revenue:
The Company generally recognizes revenue at the point of sale or upon delivery to the customer site. For goods shipped by third party carriers, the Company recognizes revenue upon shipment since the terms are generally FOB shipping point.
The Company also ships certain products directly from the manufacturer to the customer. The Company recognizes the gross revenue for these sales upon notification of delivery from the vendor in accordance with EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent .
All revenues recognized are net of allowances for discounts and estimated returns, which are also provided for at the time of pick up or delivery.
Shipping and Handling Costs
The Company classifies shipping and handling costs, consisting of driver wages and vehicle expenses, as selling, general and administrative expenses in the accompanying consolidated statements of operations. Shipping and handling costs were approximately $19,302 in fiscal 2001, $29,522 in fiscal 2002, and $31,465 in fiscal 2003.
F-8
Interest Rate Collars
The Company enters into interest rate collars to manage its interest rate exposure. These derivatives, which are not formal hedges, must be adjusted to fair value through income.
Warrant Derivative Liabilities
The Company has warrants outstanding that include a "put" feature, which allows the holder to require a fair market value cash settlement at a fixed date. The Company accounts for this warrant derivative in accordance with EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock . The warrants are included as a liability and valued at fair market value until the warrants are exercised or cash settled.
Concentrations of Risk
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of accounts receivable. The Company's accounts receivable are principally from customers in the building industry located predominately in the Eastern United States and Canada. Concentration of credit risk with respect to accounts receivable, however, is limited due to the large number of customers comprising the Company's customer base. The Company performs credit evaluations of its customers; however, the Company's policy is not to require collateral. At September 28, 2002 and September 27, 2003, the Company had no significant concentrations of credit risk.
Approximately 66% of the Company's inventory purchases were from 7 vendors in fiscal 2001 and 2002 and 9 vendors in fiscal 2003.
Impairment of Long-Lived Assets
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. If such asset is considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset, if any, exceeds its fair value determined using a discounted cash flow model.
Amortizable Intangible Assets
Amortizable intangible assets, which consist of non-compete agreements are amortized on a straight-line basis over 60 months and are tested for impairment under SFAS No. 144.
Goodwill
Goodwill represents the excess of the amount paid to acquire a company over the estimated fair value of the net assets acquired.
In fiscal 2002, the Company elected early adoption of the provisions of SFAS No. 142 , Goodwill and Other Intangible Assets , (SFAS No. 142) which revised the accounting for goodwill and other intangible assets. Under this pronouncement, the Company no longer amortizes goodwill
F-9
(see Note 4). Instead, the Company performs an annual impairment test for goodwill and other indefinite-lived intangible assets in accordance with SFAS No. 142, during the fourth quarter of each fiscal year and more frequently if an event or circumstances indicate that an impairment loss has been incurred. The Company performs the impairment test based upon one reporting unit.
Early Extinguishment of Debt
SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections , (SFAS No. 145) was issued in April 2002 and addresses the reporting of gains and losses resulting from the extinguishment of debt, accounting for sale-leaseback transactions and rescinds or amends other existing authoritative pronouncements. SFAS No. 145 requires that any gain or loss on extinguishment of debt that does not meet the criteria of Accounting Principles Board Opinion (APB) No. 30 for classification as an extraordinary item shall not be classified as extraordinary and shall be included in earnings from continuing operations. The loss on early retirement of debt in fiscal year 2001 and the six months ended March 31, 2004 have been classified within other expense in the accompanying consolidated statements of operations.
Stock-Based Compensation
The Company accounts for its stock compensation arrangements with employees under the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees . The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation , as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure.
Pro forma information regarding net income (loss) is required by SFAS No. 123. The fair value for options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
For purposes of the required pro forma disclosures, the estimated fair value of the options is amortized to expense over the service period that generally is the option vesting period. Had
F-10
compensation costs been determined consistent with SFAS No. 123, the Company's net income (loss) would have been the following pro forma amounts:
Deferred Compensation (unaudited)
Deferred compensation represents the excess of fair market value over the exercise price of options granted to employees to purchase common stock and amounts associated with shares sold to employees at less than fair market value. Such amounts are amortized over the vesting period of the related awards. During the six months ended March 31, 2004, the Company granted options to purchase common stock with an exercise price below fair value and issued common stock at below fair value resulting in the recognition of deferred compensation of $529, which is being amortized over a two year period.
Comprehensive Income (Loss)
The Company reports comprehensive loss in accordance with SFAS No. 130, Reporting Comprehensive Income (SFAS No. 130). SFAS No. 130 establishes rules for the reporting and display of comprehensive income (loss) and its components. Accumulated other comprehensive income (loss) as of September 28, 2002 and September 27, 2003 consists entirely of foreign currency translation.
Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings per Share (SFAS No. 128). Under the provisions of SFAS No. 128, basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted net income per common share is computed by dividing net income by the weighted-average number of common shares and dilutive common share equivalents then outstanding using the treasury stock method. For periods with net losses, the Company has excluded the impact of common share equivalents on diluted net loss per share as their impact would be anti-dilutive.
F-11
Common equivalent shares may consist of the incremental common shares issuable upon the exercise of stock options and warrants.
The following table reflects the calculation of weighted-average shares outstanding for each period presented:
For the six months ended March 31, 2004, options to purchase 418.5 shares of Common Stock and warrants to purchase 624 shares of Common Stock were outstanding but not included in the diluted weighted average common share calculation as the effect would have been anti-dilutive.
Fair Value of Financial Instruments
Financial instruments consist mainly of cash, accounts receivable, accounts payable, borrowings under its line of credit and long-term debt. At September 28, 2002 and September 27, 2003, the carrying amounts of these instruments approximate their fair values.
Income taxes
The Company accounts for income taxes using the liability method, which requires it to recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences between the financial statement and tax reporting bases of assets and liabilities to the extent that they are realizable. Deferred tax expense (benefit) results from the net change in deferred tax assets and liabilities during the year.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiary, Beacon Roofing Supply Canada Company, are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average monthly exchange rates. Net translation gains or losses are recorded directly to a separate component of stockholders' equity. Foreign currency transaction gains and losses were not material for any of the periods presented. The Company has inter-company debt from its Canadian subsidiary, which has been
F-12
considered as long-term for financial reporting purposes since repayment is not planned or anticipated in the foreseeable future.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities , an Interpretation of Accounting Research Bulletin (ARB) No. 51 (FIN 46) . FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. However, in December 2003, the FASB deferred the effective date of FIN 46 to the end of the first interim or annual period ending after December 15, 2003 for those arrangements involving special purpose entities entered into prior to February 1, 2003. All other arrangements within the scope of FIN 46 are subject to its provisions beginning in 2004. The Company adopted FIN 46, as required, with no material impact to its consolidated financial position or results of operations.
3. Acquisitions
In June 2001, the Company acquired certain assets and liabilities of The Roof Center, Inc. and West End Lumber Company, Inc. for approximately $48,715, net of the assumption of long-term debt. The purchase price, which includes the resolution of certain post closing working capital amounts in fiscal 2002, was allocated as follows:
|
|
||||
| Working capital | $ | 25,560 | ||
| Property and equipment | 9,987 | |||
| Other assets | 100 | |||
| Long-term debt | (2,038 | ) | ||
| Goodwill | 15,106 | |||
|
|
||||
| Cash consideration | $ | 48,715 | ||
|
|
||||
F-13
This acquisition has been accounted for as a purchase and the results of operations of the acquired businesses have been included in the accompanying consolidated statements of operations since the date of acquisition. The purchase price of the acquired business has been allocated to the acquired assets and assumed liabilities based upon their fair market values as determined by the Company and any excess purchase price assigned to goodwill.
Had the acquisition been completed as of the beginning of fiscal 2001, pro forma amounts are as follows:
|
|
||||
|---|---|---|---|---|
|
|
Fiscal Year 2001
|
|||
|
|
(pro forma and
unaudited) |
|||
|
|
||||
| Income from operations | $ | 19,867 | ||
|
|
||||
| Pre-tax loss | $ | (1,936 | ) | |
|
|
||||
| Net loss | $ | (1,720 | ) | |
|
|
||||
| Basic and diluted net loss per share | $ | (446 | ) | |
|
|
||||
4. Goodwill and Other Intangible Assets
Goodwill, net, amounted to $91,964 and $93,564 at September 28, 2002 and September 27, 2003, respectively. Amortized intangible assets, included in other long-term assets, consist of non-compete agreements with a gross carrying value of approximately $1.0 million at September 28, 2002 and September 27, 2003, and accumulated amortization of $636 and $768 at September 28, 2002 and September 27, 2003, respectively. Amortization expense related to intangible assets amounted to approximately $120 annually in fiscal 2001, 2002 and 2003, and is estimated to be approximately the same annually over the remaining two years.
In fiscal year 2002, the Company's goodwill balance increased by $1,103 due to currency translation and post-closing working capital amounts. The Company's goodwill balance increased by $1,600 in fiscal 2003 due to increases from foreign currency translations.
The following table presents prior year reported amounts adjusted to eliminate the effect of goodwill amortization in accordance with SFAS No. 142:
F-14
5. Property and Equipment
Property and equipment consist of the following:
6. Accrued Expenses
The significant components of accrued expenses are as follows:
|
|
||||||
|---|---|---|---|---|---|---|
|
|
September 28
2002 |
September 27
2003 |
||||
|
|
||||||
| Accrued inventory receipts | $ | 10,252 | $ | 13,513 | ||
| Other | 11,461 | 11,620 | ||||
|
|
||||||
| $ | 21,713 | $ | 25,133 | |||
|
|
||||||
7. Financing Arrangements
Senior Notes Payable
Senior notes payable consist of the following:
|
|
||||||
|---|---|---|---|---|---|---|
|
|
September 28
2002 |
September 27
2003 |
||||
|
|
||||||
| Senior notes payable to commercial lenders, due in varying quarterly payments of principal, plus required prepayment amounts and interest at the bank prime rate plus 1.75% (or three month LIBOR plus 3.00%) (4.80% at September 27, 2003) through June 2006 | $ | 12,500 | $ | 9,075 | ||
| Senior notes payable to commercial lenders, due in equal quarterly payments of principal, plus interest at the bank prime rate plus 2.25% (or LIBOR plus 3.75%) (5.55% at September 28, 2002) | 6,000 | — | ||||
| Other | 1,216 | 149 | ||||
|
|
||||||
| 19,716 | 9,224 | |||||
| Less current portion | 12,292 | 9,075 | ||||
|
|
||||||
| $ | 7,424 | $ | 149 | |||
|
|
||||||
F-15
The Company is required to prepay certain amounts of excess annual cash flows while the senior notes payable are outstanding. The Company has estimated this amount to be $9,075 (including regularly scheduled payments) for 2004, which is included in the current portion of long-term debt in the accompanying consolidated financial statements.
In September 2003, the Company purchased an interest rate collar derivative with a notional amount of $30,000, which establishes a floor of 1.69% and a cap of 3.00%, thereby reducing the potential impact of interest rate increases on future income. This instrument expires on September 12, 2005. The fair market value of the agreement resulted in a liability of $149 at September 27, 2003, which was determined based on current interest rates and expected trends. Since this instrument does not qualify as a hedge, changes in the unrealized gain or loss are recorded in interest expense in the accompanying statements of operations. The differentials to be paid or received under the terms of the agreement are accrued as interest rates change, and are recognized as an adjustment to interest expense related to the debt.
The Company had an interest rate collar derivative for a notional amount of $19,050 at September 28, 2002, which established a floor of 5.75% and a cap of 7.75%, and expired on June 30, 2003. The fair market value of the interest rate collar resulted in a liability of $768 at September 28, 2002.
Junior Subordinated Notes Payable
The Company has 18% junior subordinated notes payable to certain mezzanine financing providers in the amount of $32,436 and $35,171 at September 28, 2002 and September 27, 2003, respectively (net of warrant allocation—see Note 8). Annual interest of 6% (included in the 18% annual rate) is deferred until maturity in August 2007, and is included in the principal balance. The notes are subordinate to the senior notes payable and borrowings under the revolving lines of credit.
Subordinated Notes Payable to Related Parties
Subordinated notes payable to related parties consist of the following:
|
|
||||||
|---|---|---|---|---|---|---|
|
|
September 28
2002 |
September 27
2003 |
||||
|
|
||||||
| 12% subordinated notes payable, including deferred interest of $5,831 in 2002 and $7,921 in 2003, to stockholders and former owner, due August 2007 | $ | 18,041 | $ | 20,087 | ||
| 8% subordinated promissory notes payable to former owners, due in August 2007 | 7,000 | 7,000 | ||||
|
|
||||||
| $ | 25,041 | $ | 27,087 | |||
|
|
||||||
Payment of the notes is subordinate to the senior notes payable due June 2006 and the junior subordinated notes payable due August 2007.
F-16
Revolving Lines of Credit
The Company has a revolving line of credit agreement (U.S. Revolver), which allows for borrowings up to $114,500, subject to a limitation based on a percentage of eligible inventories and accounts receivable and any borrowings outstanding under the Company's Canadian revolving line of credit. Interest is payable monthly at the bank prime rate (4.00% at September 27, 2003) plus 1.50%, or one month LIBOR (1.12% at September 27, 2003) plus 2.75%. This credit facility expires on June 8, 2006. Borrowings outstanding amounted to $59,543 and $52,399 at September 28, 2002 and September 27, 2003, respectively. These amounts have been classified as current liabilities in the accompanying balance sheets in accordance with the consensus of EITF No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box Arrangement (EITF No. 95-22).
The Company also has a revolving line of credit agreement which allows for borrowings up to $C15,000 (Canadian), subject to a limitation based on a percentage of eligible inventories and accounts receivable. As of September 27, 2003, interest is payable monthly at the Canadian Bank Prime Rate (4.5%) plus 2.75%. This credit facility expires June 8, 2006. Borrowings outstanding amounted to $6,358 and $7,432 (U.S.) at September 28, 2002 and September 27, 2003, respectively, have been classified as current liabilities in the accompanying balance sheets in accordance with the consensus of EITF 95-22.
The Company has $48,000 in borrowings available under the revolving lines of credit at September 27, 2003.
The borrowings under the senior notes payable and revolving lines of credit are collateralized by substantially all of the Company's assets and are subject to certain operating and financial covenants, which, among other things, restrict the payment of dividends.
The Company made interest payments amounting to $11,428 in fiscal year 2001, $11,290 in fiscal year 2002 and $9,621 in fiscal year 2003.
Annual principal payments for all outstanding borrowings for each of the next five years as of September 27, 2003 are as follows (prior to the refinancing discussed in the following paragraph):
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|
||||
|---|---|---|---|---|
|
Fiscal year
|
|
|||
|
|
||||
| 2004 | $ | 68,906 | ||
| 2005 | 149 | |||
| 2006 | — | |||
| 2007 | 64,932 | |||
| 2008 | — | |||
March 2004 Refinancing (unaudited)
On March 12, 2004, the Company refinanced its senior secured credit facilities (revolving lines of credit and term loans), executing term loans in the amount of $30 million due in quarterly installments through 2006 and reducing the interest rate for its U.S. revolving line of credit.
F-17
The bank reduced the borrowing availability under the U.S. revolving line to $113 million from $114.5 million. The borrowing base for the Canadian revolving line of credit remained the same.
At March 31, 2004, there was $52,392 outstanding under the revolving lines of credit and $44 million available for borrowing under the revolving lines of credit.
Interest on borrowings under the U.S. facilities is payable at the Company's election at either of the following rates:
Interest under the Canadian facility is payable at the Company's election at either of the following rates:
The borrowings continue to be collateralized by substantially all of the Company's assets and are subject to certain operating and financial covenants, which, among other things, restrict the payment of dividends. The senior secured credit facilities have numerous restrictive covenants, including required fixed charge coverage ratios. As of March 31, 2004, the Company was in compliance with all covenants and financial ratio requirements.
In connection with this refinancing, the Company repaid $21.5 million of junior subordinated notes payable. The Company recognized a loss on early extinguishment of debt in the amount of approximately $3.3 million associated with the overall refinancing.
8. Warrants and Related Derivative Liabilities
In 1997 in connection with the issuance of senior debt, the Company issued warrants to purchase 162 shares of Class B Common Stock at $.015 per share, exercisable through August 2007.
The Company also issued warrants to purchase 327 and 135 shares of Class A Common Stock at $.01 per share, exercisable through September 2008, in connection with the issuance of junior subordinated notes payable in September 2000 and June 2001, respectively.
The Company allocated from the proceeds an aggregate of $4,669 to the value of the warrants based upon the Company's assessment of fair market value on the dates of issuance which is amortized into interest expense over the term of the notes.
F-18
8. Warrants and Related Derivative Liabilities (Continued)
Each warrant includes a "put" feature which allows the holder to receive a cash settlement equivalent to the difference between the fair market value of the Company's common stock and the exercise price of the warrant. The put feature is available any time from five years after the date of the issuance of the warrant or upon the occurrence of certain events, including a change in control, qualified initial public offering or repayment of over 50% of the related debt outstanding.
The Company values the warrant derivatives using the fair market value of the Company's common stock adjusted for lack of marketability. The aggregate liability for the derivatives amounted to $9,312 at September 28, 2002, $11,926 at September 27, 2003 and $22,926 at March 31, 2004. The relevant assumptions included in the calculation were discounts ranging from 24% to 26% for September 28, 2002 and from 21% to 23% for September 27, 2003.
At September 28, 2003, the derivative liability in the amount of $3,683 is currently due since the related put feature is exercisable. Derivative liabilities aggregating $8,243 are due between September 4, 2005 and June 5, 2006 and are included in long-term liabilities, although their payment may be accelerated upon the occurrence of certain events, including a change in control, qualified initial public offering or repayment of over 50% of the related debt outstanding.
In computing earnings per share, the Company has assumed the warrants will be settled in cash since the impact is more dilutive than the exercise of the warrants.
9. Leases
The Company conducts certain of its operations in leased facilities, which are accounted for as operating leases. The leases typically provide for a base rent plus real estate taxes. The Company leases 15 buildings from certain stockholders for an aggregate of approximately $2,300 each year. The Company believes that the terms of these leases approximate fair value. The Company also leases certain equipment under a master lease agreement, which provides for borrowings of up to approximately $1,500. Assets acquired under this line are accounted for as capital leases. The Company has assets under capital lease obligations amounting to $690 and related accumulated amortization of $22 at September 27, 2003. Amortization of such equipment is included in depreciation and amortization expense.
F-19
At September 27, 2003, the minimal rental commitments under all noncancelable capital and operating leases with initial or remaining terms of more than one year are as follows:
Rent expense amounted to $5,813 in fiscal 2001, $7,218 in fiscal 2002 and $7,537 in fiscal 2003.
10. Stock Option Plan and Common Stock
Stock Option Plan
The 1998 Stock Option Plan (the Plan) allows for the granting of options to purchase 465 shares of Class A Common Stock to certain directors and key employees of the Company. Options generally may be exercised beginning 18 months after the date of grant and terminate ten years thereafter. In the event of a change in control of the Company, all options are immediately vested.
F-20
Information regarding the Company's stock option plan is summarized below (not in thousands):
There are options available for grant to purchase 184.20 shares of Class A Common Stock under the Plan at September 27, 2003. Options are exercisable for the purchase of 201.8 shares of Class A Common Stock at exercise prices ranging from $2,000 to $9,100 and a weighted-average exercise price of $6,813 at September 27, 2003.
There are options for the purchase of 183.20 shares of Class A Common Stock available for grant under the Plan and options exercisable for the purchase of 88.8 shares of Class A Common Stock at exercise prices ranging from $2,000 to $5,000 and a weighted-average exercise price of $3,935 at September 28, 2002.
The weighted-average contractual life of options outstanding at September 28, 2002 and September 27, 2003, was approximately 7 and 8 years, respectively.
Details regarding options to purchase common stock outstanding are as follows:
|
|
||||||
|---|---|---|---|---|---|---|
|
Exercise
Price |
Options
Outstanding |
Weighted
Average Contractual Life |
Options
Exercisable |
|||
|
|
||||||
| $2,000 | 44.3 | 5 | 44.3 | |||
| 5,800 | 44.5 | 6 | 44.5 | |||
| 9,100 | 113.0 | 7.6 | 113.0 | |||
| $12,750 | 79.0 | 9 | 0.0 | |||
|
|
|
|||||
| 280.8 | 7.33 | 201.8 | ||||
|
|
|
|||||
Special Options Grant (unaudited)
The Company granted a stock purchase option to its new President and Chief Executive Officer (CEO) in October of 2003, under an executive securities agreement. The grant included options to purchase 74.724 shares of common stock at fair value which vests over two years. In January
F-21
2004, the Company and the CEO amended the special purchase option agreement to increase the number of shares that could be purchased under the option to 89.724 shares. Such amendment did not change the exercise price, contractual term or vesting of the original award. Under this option, the exercise price must be paid in cash, unless the Company permits otherwise. The option expires on October 20, 2013, and will be fully vested upon the completion of an initial public offering or certain other events. This option was not granted under our 1998 plan.
Common Stock
The Company has the right to repurchase certain shares of Class A Common Stock issued to employees and shares issuable upon exercise of certain stock options at the lower of cost or fair value upon termination of employment with cause or upon resignation. However, this repurchase right terminates upon an initial public offering or change in control.
The Company has determined that these awards are performance based and therefore, will recognize a charge for the intrinsic value of the award once the contingency is resolved.
The Company has included these awards in earnings per share since the holders of the shares are entitled to participate in dividends.
11. Benefit Plans
The Company maintains defined contribution plans covering all full-time employees of the Company who have one year of service and are at least 21 years old. An eligible employee may elect to make a before-tax contribution of between 1% and 15% of his or her compensation through payroll deductions. The Company matches the first 50% of participant contributions and is limited to 6% of a participant's gross compensation (maximum Company match is 3%). Amounts charged to expense were $1,341 in fiscal 2001, $1,893 in fiscal 2002 and $2,442 in fiscal 2003.
The Company also contributes to an external pension fund for certain of its employees who belong to a local union. Annual contributions amounted to approximately $70 in each of the fiscal years presented.
F-22
12. Income Taxes
The income tax provision consists of the following:
The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate:
The effective tax rate was in excess of the statutory federal income tax rate for the six months ended March 31, 2004 and 2003 due primarily to the impact of the non-deductible warrant derivative.
F-23
The components of the Company's deferred taxes are as follows:
The Company made tax payments of $853 in fiscal year 2001, $3,060 in fiscal year 2002 and $3,251 in fiscal year 2003. The Company used net operating losses in the amount of $1,500 in fiscal year 2002.
The Company has operations in 12 U.S. states and three provinces in Canada, and it is subject to tax audits in each of these jurisdictions and federally in both the United States and Canada. These audits may involve complex issues, which may require an extended period of time to resolve. The Company has provided for its estimate of taxes payable in the accompanying financial statements.
13. Related-Party Transactions
The Company's former legal service provider is also an investor in the Company. Fees paid to this provider amounted to $429 in fiscal 2001, $127 in fiscal 2002 and $156 in fiscal 2003. Additionally, the Company has paid management fees in the amount of $300 in fiscal 2001, 2002 and 2003 to its principal stockholder.
The Company believes all related party transactions are at arms-length and reflect the fair market value for services rendered to the Company.
F-24
14. Contingencies
The Company is subject to loss contingencies pursuant to various federal, state and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical or other substances by the Company or by other parties. In connection with its acquisitions, the Company has been indemnified for any and all known environmental liabilities as of the respective dates of acquisition.
The Company is subject to litigation from time to time in the ordinary course of business, however, the Company does not expect the results, if any, to have a material adverse impact on its business.
15. Geographic Data
In accordance with the enterprise-wide disclosure requirements of SFAS No. 131, the Company's geographic information is as follows:
16. Allowance for Doubtful Accounts
The activity in the allowance for doubtful accounts consists of the following:
F-25
shares
[Logo]
Common stock
Prospectus
| Sole book-running manager | ||
|
JPMorgan |
|
William Blair & Company |
, 2004
Until , 2004, all dealers that buy, sell or trade in our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all the costs and expenses, other than underwriting discounts, payable in connection with the issuance and distribution of the common stock being registered. Except as otherwise noted, the registrant will pay all of those amounts. All amounts shown below are estimates, except the registration fee:
| Registration fee of Securities and Exchange Commission | $ | 22,173 | |
| NASD filing fee | $ | 30,500 | |
| Accountants' fees and expenses | * | ||
| Legal fees and expenses | * | ||
| Printing expenses | * | ||
| Transfer agent fees and expenses | * | ||
| Blue sky fees, expenses and legal fees | * | ||
| Miscellaneous | * | ||
|
|
|||
| TOTAL | $ | * | |
|
|
|||
Item 14. Indemnification of Directors and Officers
Section 102 of the Delaware law allows a corporation to eliminate the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except in cases where the director breached his or her duty of loyalty to the corporation or its stockholders, failed to act in good faith, engaged in intentional misconduct or a knowing violation of the law, willfully or negligently authorized the unlawful payment of a dividend or approved an unlawful stock redemption or repurchase or obtained an improper personal benefit. The registrant's certificate of incorporation contains a provision which eliminates directors' personal liability as set forth above.
The registrant's certificate of incorporation and bylaws provide in effect that the registrant shall indemnify its directors and officers to the extent permitted by the Delaware law. Section 145 of the Delaware law provides that a Delaware corporation has the power to indemnify its directors, officers, employees and agents in certain circumstances. Subsection (a) of Section 145 of the Delaware law empowers a corporation to indemnify any director, officer, employee or agent, or former director, officer, employee or agent, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding provided that such director, officer, employee or agent acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, provided that such director, officer, employee or agent had no reasonable cause to believe that his or her conduct was unlawful.
Subsection (b) of Section 145 of the Delaware law empowers a corporation to indemnify any director, officer, employee or agent, or former director, officer, employee or agent, who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and
II-1
reasonably incurred in connection with the defense or settlement of such action or suit provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent that a director or officer or employee of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith; that indemnification provided by Section 145 shall not be deemed exclusive of any other rights to which the party seeking indemnification may be entitled; and the corporation is empowered to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against him or her or incurred by him or her in any such capacity or arising out of his or her status as such whether or not the corporation would have the power to indemnify him or her against such liabilities under Section 145; and that, unless indemnification is ordered by a court, the determination that indemnification under subsections (a) and (b) of Section 145 is proper because the director, officer, employee or agent has met the applicable standard of conduct under such subsections shall be made by (1) a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders.
The registrant has in effect insurance policies for general officers' and directors' liability insurance covering all of its officers and directors.
Item 15. Recent Sales of Unregistered Securities
During the three years preceding the filing of this registration statement, we have issued the following securities which were not registered under the Securities Act of 1933, as amended (all share numbers before the proposed split):
On June 6, 2001, we issued an aggregate of 23.66 shares of Class A common stock for an aggregate price of $307,580. The issuance of these shares was exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 506. On August 14, 2001, we issued an aggregate of 618.217 shares of Class A common stock for an aggregate price of $8,036,821. The issuance of these shares was exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 506. On July 1, 2002, we issued an aggregate of 44 shares of Class A common stock for an aggregate price, of $50,000. The issuance of these shares was exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 506. On January 28, 2004, we issued an aggregate of 15.724 shares of Class A common stock for an aggregate price of $250,000. The issuance of these shares was exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 506.
On March 1, 2002, we granted our employees options to purchase an aggregate of 28.5 shares of Class A common stock with an aggregate exercise price of $259,350. The issuance of these options was exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 701. On March 1, 2002, we granted certain of our employees options to purchase an aggregate of 41.5 shares of Class A common stock with an aggregate exercise price of $377,650. The issuance of these options was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. On June 6, 2002, we granted one of our employees the option to purchase 76 shares of Class A common stock
II-2
with an aggregate exercise price of $691,600. The issuance of this option was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. On January 3, 2003, we granted our employees options to purchase an aggregate of 49.5 shares of Class A common stock with an aggregate exercise price of $631,125. The issuance of these options was exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 701. On January 3, 2003, we granted certain of our employees options to purchase an aggregate of 35.5 shares of Class A common stock with an aggregate exercise price of $452,625. The issuance of this option was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. On January 20, 2004, we granted our employees options to purchase an aggregate of 50 shares of Class A common stock with an aggregate exercise price of $795,000. The issuance of these options was exempt from registration under the Securities Act of 1933, as amended, by virtue of Rule 701.
On July 1, 2002, we granted our former CEO a special purchase option to purchase up to 25 shares of Class A common stock with an exercise price equal to fair market value, as determined by our Board at the start of the applicable option exercise windows. On October 20, 2003, we granted our CEO a special purchase option to purchase 74 shares of Class A common stock with an aggregate exercise price of $1,176,600. We then amended that special purchase option on January 28, 2004 to grant the employee the option to purchase an additional 15.72 shares with an exercise price equal to $249,948. The issuance of all of these special purchase options was exempt from registration under Section 4(2) of the Securities Act of 1993.
Item 16. Exhibits and Financial Statement Schedules
The Exhibits filed herewith are set forth on the Index to Exhibits filed as a part of this Registration Statement on page II-5 hereof.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and, therefore, unenforceable. In the event 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 of 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 Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of 1933, 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 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 of 1933, 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-3
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Peabody, Commonwealth of Massachusetts, on this 28th day of May, 2004.
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BEACON ROOFING SUPPLY, INC. (Registrant) |
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By: |
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/s/ DAVID R. GRACE David R. Grace Chief Financial Officer |
Each person whose signature appears below constitutes and appoints Robert R. Buck, Andrew R. Logie and David R. Grace, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any related Registration Statements filed pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
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SIGNATURE
|
TITLE
|
DATE
|
||
|---|---|---|---|---|
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/s/
ROBERT R. BUCK
Robert R. Buck |
President, Chief Executive Officer
and Director |
May 28, 2004 | ||
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/s/ ANDREW R. LOGIE Andrew R. Logie |
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Chairman of the Board, Executive Vice President and Director |
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May 28, 2004 |
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/s/ DAVID R. GRACE David R. Grace |
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Chief Financial Officer and Chief Accounting Officer |
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May 28, 2004 |
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/s/ PETER M. GOTSCH Peter M. Gotsch |
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Director |
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May 28, 2004 |
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/s/ KRISTA M. HATCHER Krista M. Hatcher |
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Director |
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May 28, 2004 |
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/s/ BRIAN P. SIMMONS Brian P. Simmons |
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Director |
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May 28, 2004 |
II-4
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EXHIBIT
NUMBER |
EXHIBIT
|
|
|---|---|---|
|
1.1 |
|
Form of Underwriting Agreement* |
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3.1 |
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Certificate of Incorporation of Beacon Roofing Supply, Inc.* |
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3.1.1 |
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Form of Amended and Restated Certificate of Incorporation of Beacon Roofing Supply, Inc. to be in effect upon the closing of this offering* |
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3.2 |
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By-Laws of Beacon Roofing Supply, Inc.* |
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3.2.1 |
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Form of Amended and Restated By-Laws of Beacon Roofing Supply, Inc. to be in effect upon the closing of this offering* |
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4.1 |
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Form of Specimen Common Stock Certificate of Beacon Roofing Supply, Inc.* |
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5.1 |
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Opinion of Schiff Hardin LLP* |
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10.1 |
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Form of Registration Rights Agreement by and between Beacon Roofing Supply, Inc. and Code, Hennessy & Simmons III, L.P.* |
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10.2 |
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Employment Agreement dated as of October 20, 2003 by and between Robert Buck and Beacon Sales Acquisition, Inc. d/b/a Beacon Sales Company |
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10.3 |
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Amendment to Employment Agreement dated as of May 19, 2004 by and between Robert Buck and Beacon Sales Acquisition, Inc. d/b/a Beacon Sales Company* |
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10.4 |
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Chief Executive Securities Agreement dated as of August 21, 1997 by and between Beacon Roofing Supply, Inc. (formerly known as Beacon Holding Corporation), Andrew Logie and Code, Hennessy & Simmons III, L.P. |
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10.5 |
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Executive Securities Agreement dated as of October 20, 2003 by and between Beacon Roofing Supply, Inc., Robert Buck and Code, Hennessy & Simmons III, L.P. |
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10.6 |
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Amendment to Executive Securities Agreement dated as of January 28, 2004 by and between Beacon Roofing Supply, Inc., Robert Buck and Code, Hennessy & Simmons III, L.P. |
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10.7 |
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Executive Securities Agreement dated as of August 21, 1997 by and among Beacon Roofing Supply, Inc. (formerly known as Beacon Holding Corporation), David Grace and Code, Hennessy & Simmons III, L.P. |
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10.8 |
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1998 Stock Option Plan |
|
10.9 |
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2004 Stock Option Plan* |
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10.10 |
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Amended and Restated Special Purchase Option Agreement dated January 28, 2004 by and between Beacon Roofing Supply, Inc. and Robert Buck |
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10.11 |
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Second Amended and Restated Loan and Security Agreement dated as of March 12, 2004, among Beacon Sales Acquisition, Inc., the Domestic Subsidiaries of Beacon Sales Acquisition, Inc. named therein, General Electric Capital Corporation, GECC Capital Markets Group, Inc., Fleet Capital Corporation, and the lenders party thereto |
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10.12 |
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Second Amended and Restated Loan and Security Agreement, dated as of March 12, 2004, among Beacon Roofing Supply Canada Company, GE Canada Finance Holding Company, and the lenders party thereto |
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10.13 |
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Management Services Letter Agreement dated August 21, 1997 by and between Beacon Sales Acquisition Inc. and CHS Management III, L.P. |
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21.1 |
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Subsidiaries of Beacon Roofing Supply, Inc. |
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23.1 |
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm |
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23.2 |
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Consent of Schiff Hardin LLP (contained in their opinion filed as Exhibit 5.1) |
|
23.3 |
|
Consent of James J. Gaffney |
|
24.1 |
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Powers of Attorney (set forth on the signature page of this Registration Statement) |
II-5
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into and effective as of October 20, 2003, by and between Robert R. Buck ("EXECUTIVE") and Beacon Sales Acquisition, Inc. d/b/a Beacon Sales Company, a Delaware corporation (the "COMPANY").
R E C I T A L S :
A. The Company and its Subsidiaries (as defined herein) are engaged in the business of distributing commercial and residential roofing and related products, including without limitation, shingles, sheet metal, lumber, water proofing products, siding, windows and insulation.
B. The Company desires to employ Executive as its President and Chief Executive Officer, and Executive desires to be so employed by the Company, on the terms and conditions set forth herein.
C. The Company desires to bind Executive to certain restrictive covenants, and Executive agrees to be so bound, on the terms and conditions set forth herein.
A G R E E M E N T S:
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT TERM. Subject to the terms and conditions set forth herein, the Company agrees to employ Executive, and Executive agrees to be employed by the Company, for a term commencing on the date hereof and ending on November 19, 2006, unless sooner terminated as herein provided (the "INITIAL TERM"). The parties may, by mutual written agreement executed in their sole discretion, extend the Initial Term (any such extension, together with the Initial Term, the "EMPLOYMENT TERM").
2. EMPLOYMENT DUTIES; OTHER OFFICES.
(a) During the Employment Term, Executive shall serve as the President and Chief Executive Officer ("CEO") of the Company under the direction and control of the board of directors of the Company (the "BOARD OF DIRECTORS"), subject to the terms of this Agreement. Executive shall perform such services and assume such duties and responsibilities as are commensurate with his position as such President and CEO, including such services, duties and responsibilities as may from time to time be assigned to him by the Board of Directors. Executive shall serve the Company faithfully, diligently and competently and to the best of his ability, and Executive shall use his best efforts to further enhance and develop the Company's business affairs, interests and welfare. Except for illness, vacation periods and reasonable leaves of absence, Executive shall devote his full business time and attention to the business and affairs of the Company and the performance of his duties hereunder.
(b) Code, Hennessy & Simmons III, L.P., a Delaware limited partnership ("CHS"), shall cause Executive to be elected as a director of the Company's parent, Beacon Roofing Supply, Inc., a Delaware corporation (the "PARENT") at all times during the Employment Term that CHS owns a majority of the shares of voting stock of Parent. CHS shall cause Executive to be elected as the President and CEO of Parent at all times during the Employment Term that CHS owns a majority of the shares of voting
stock of Parent. Although Executive shall serve as a director and the President and Chief Executive Officer of Parent, he shall not be an employee of Parent.
3. COMPENSATION. During the Employment Term, the Company shall pay to Executive the following:
(a) The Company shall pay to Executive a salary ("BASE SALARY") for all services rendered by Executive under this Agreement of $430,000 per year in fiscal year 2004 (prorated for any partial year), which ends on September 25, 2004, and of $445,000 per year for fiscal year 2005 (prorated for any partial year), which ends on September 24, 2005. Thereafter, the Base Salary shall be reviewed annually by the Board of Directors and shall be subject to additional increases (but not decreases) at the sole discretion of the Board of Directors. The Base Salary shall be paid on a regular basis in accordance with the Company's normal payroll procedures and policies, and shall be prorated for any partial fiscal years.
(b) Subject to the last sentence of this Section 3(b), the Company shall
pay an annual bonus ("INCENTIVE BONUS") of up to 100% of Base Salary for each
fiscal year of the Company in which the Executive is employed by the Company
during such fiscal year, based upon achievement of the performance target for
such fiscal year as follows: If the Company achieves only 85% or less of the
target for a fiscal year, then no Incentive Bonus shall be paid for such fiscal
year. If the Company achieves 100% of the target for a fiscal year, then the
Incentive Bonus for that fiscal year shall be equal to 50% of the Base Salary
for that fiscal year. If the Company achieves 115% or more of the target for a
fiscal year, then the Incentive Bonus for that year shall be equal to 100% of
the Base Salary for that fiscal year. If the Company achieves a percentage of
the target for a fiscal year that is between any two of the 85%, 100% or 115%
thresholds referred to above, then the Incentive Bonus shall be calculated on a
straight line basis between the Incentive Bonus that would apply at those two
thresholds. For example, (i) if the Company achieves 92.5% of the target for a
fiscal year, then the Incentive Bonus for that fiscal year shall be equal to 25%
of the Base Salary for that fiscal year; and (ii) if the Company achieves 107.5%
of the target for a fiscal year, then the Incentive Bonus for that fiscal year
shall be equal to 75% of the Base Salary for that fiscal year. As used in this
Section 3(b), the phrase "Base Salary for that year" means the rate of Base
Salary in effect for a majority of that fiscal year (or, if no Base Salary rate
was in effect for a majority of such fiscal year, then the weighted average Base
Salary for that fiscal year). No later than sixty (60) days after the beginning
of each fiscal year, the Board of Directors and Executive shall mutually agree
upon the performance target for such fiscal year. Notwithstanding anything to
the contrary herein, the Company shall not be obligated to pay any Incentive
Bonus for any fiscal year unless Executive is employed by the Company at the end
of that fiscal year.
4. PAYMENTS. All payments made to Executive pursuant to this Agreement
(whether during his employment with the Company or thereafter as severance)
shall be treated as wages for withholding and employment tax purposes as
provided by law (except that reimbursement of expenses will not be so treated to
the extent permitted by law).
5. LOCATION.
(a) Subject to Section 5(b), during the Employment Term, Executive's office shall be located at a Company facility in the greater Boston metropolitan area. During the Apartment Period, the Company shall rent an apartment in the greater Boston metropolitan area for Executive's use; provided that until December 1, 2003, the Company may instead provide hotel accommodations in the greater Boston metropolitan area for Executive's use. As used herein, "APARTMENT PERIOD" means the period starting on the date hereof and ending on the earlier of (i) the date that Executive changes his permanent primary residence from the Cincinnati area to the Boston area or any other area in accordance with Section 5(b) or (ii) the date that the Employment Term ends pursuant to Section 8.
(b) At any time during the period starting on July 31, 2004 (or earlier,
if mutually agreed by the parties) and ending on December 31, 2004 (the
"RELOCATION PERIOD"), the Company may, after consultation with Executive,
request that Executive relocate to a greater metropolitan area located in the
Northeastern, Eastern, or Southeastern United States, including the Washington,
D.C. area. If the Company does so, then (i) Executive shall, by the later of
December 31, 2004 or three months after receiving such request, relocate his
office to the requested metropolitan area, establish his primary permanent
residence in such area, and move himself and his family permanently out of his
home in the Cincinnati area; and (ii) Executive shall use commercially
reasonable efforts to sell his home in the Cincinnati area promptly after
receiving such request. If, during the Relocation Period, the Company, after
consultation with Executive, notifies Executive that he should not relocate his
office but should instead remain in the greater Boston metropolitan area, then
(i) Executive shall, by the later of December 31, 2004 or three months after
receiving such request, establish his primary permanent residence in the greater
Boston metropolitan area, and move himself and his family permanently out of his
home in the Cincinnati area; and (ii) Executive shall use commercially
reasonable efforts to sell his home in the Cincinnati area promptly after
receiving such request. If the Executive sells his home in the Cincinnati area
and moves his primary, permanent residence in accordance with this Section 5(b),
then the Company shall reimburse Executive for all reasonable, documented
expenses incurred by Executive during the Employment Term on or prior to
September 30, 2005 for such relocation, including expenses for any house search,
moving company, broker's fee and up to $500 of attorneys fees on the sale of
Executive's home in Cincinnati.
6. BENEFITS.
(a) Executive shall be entitled during the Employment Term to participate in such employee benefit plans and programs, including, without limitation, life and disability insurance and medical, dental and 401(k) plans and the Company's standard stock option plan, as are maintained from time to time for salaried employees of the Company, to the extent that his position, tenure, compensation, age, health and other qualifications make him (and his dependents) eligible to participate. Notwithstanding anything to the contrary herein contained, (i) the Company does not promise the continuance of any particular plan or program during the Employment Term, (ii) Executive's (and his dependents') participation in any such plan or program shall be subject to the provisions, rules, regulations and laws applicable thereto and (iii) such plans or programs may be amended or terminated at any time by the Board of Directors in its sole discretion.
(b) During the Employment Term, Executive shall be entitled to four (4) weeks of paid vacation per fiscal year (pro rated for partial years) to be taken at times mutually acceptable to Executive and the Company, and such holidays as are observed by the Company from time to time. Paid vacation which is not used in a fiscal year may not be carried over to a subsequent fiscal year, except as expressly agreed by the Board of Directors.
(c) During the Employment Term, Executive shall be entitled to a car allowance of $750 per month. Any automobile lease payments, insurance payments or other payments made by the Company with respect to any vehicle leased by the Company for Executive's use (the "LEASED VEHICLE") shall be credited against such car allowance.
7. REIMBURSEMENT OF EXPENSES. Except for expenses related to the Leased Vehicle, Executive shall be entitled to reimbursement for ordinary, necessary and reasonable out-of-pocket business expenses which Executive incurs in connection with performing his duties under this Agreement, including reasonable travel expenses. The reimbursement of all such expenses shall be made in accordance with the Company's customary practices and policies (including presentation of evidence reasonably satisfactory to the Company of the amounts and nature of such expenses) for reimbursement
of expenses of senior executive officers. Notwithstanding the foregoing, during the Apartment Period, Executive shall be entitled to reimbursement from the Company for reasonable travel expenses for up to two round trips per month for each of Executive and his wife between the Boston area and the Cincinnati area, upon presentation to the Company of evidence reasonably satisfactory to the Company of the amounts and nature of such expenses.
8. TERMINATION; SEVERANCE.
(a) Executive's employment with the Company: (x) shall terminate upon
Executive's resignation, death, Disability or Retirement (as defined herein);
and (y) may be terminated at any time by the Board of Directors for any reason
(or no reason), including for Cause (as defined herein). As used in this
Agreement, "CAUSE" means any of the following, as determined by the Board of
Directors, in its reasonable judgment: (i) Executive's failure or refusal to
perform such material duties and responsibilities as are reasonably requested by
the Board of Directors; (ii) Executive's failure to observe all material
policies of the Company generally applicable to executives of the Company; (iii)
Executive's gross negligence or willful misconduct in the performance of
Executive's duties; (iv) any act of fraud or embezzlement by Executive against
the Company Group, other wrongful taking by Executive of money or other assets
of the Company Group for Executive's personal use, self-dealing by Executive or
his spouse or children directly or indirectly involving the Company Group, or
Executive's conviction for (or plea of nolo contendere or the like with respect
to) any felony; (v) Executive's dissemination of information, observations and
data concerning the business plans, financial data, referral sources, customers,
suppliers, manufacturing procedures and techniques, trade secrets or acquisition
strategies of the Company Group or any other Confidential Information in
violation of Section 9(b); (vi) a breach by Executive of any obligation under
Section 2(a) of the Securities Agreement (as defined herein); or (vii) any other
material breach of the terms of this Agreement or the Securities Agreement. As
used herein, the "COMPANY GROUP" means the Parent and its Subsidiaries,
including the Company. "RETIREMENT" means the voluntary termination of
Executive's employment with the Company when Executive is at least 65 years old
(for purposes hereof, such a termination shall not be treated as a resignation).
(b) For purposes of this Agreement, Executive's employment shall be
terminated: (i) if terminated as a result of the Disability of Executive, on the
effective date of Executive's termination of employment pursuant to Section 10
hereof; (ii) if terminated by Executive's resignation or Retirement, on the date
specified in a written notice delivered by Executive to the Company, which date
shall be at least sixty (60) days following the date of such written notice;
(iii) if terminated as a result of the death of Executive, on the date of such
death; (iv) if terminated by the Company with or without Cause, at the time
specified in a written notice delivered by the Company to Executive (which time
shall not be earlier than the time that the notice is given).
(c) If Executive's employment is terminated by the Company without Cause
or if the Executive's employment ends effective as of the expiration of the then
current term hereof because the Company is unwilling to extend this Agreement on
the same terms as then currently apply, Executive shall be entitled to the
continuation of Executive's Base Salary (the "SEVERANCE PAYMENT") for a period
of twelve (12) months from the date of termination of Executive's employment.
The Severance Payment shall be paid in accordance with the Company's customary
payroll practices over such twelve (12) month period. Notwithstanding the
foregoing, the Company shall not be obligated to pay the Severance Payment (i)
at any time when Executive is in material breach of any material provision of
this Agreement, and (ii) unless and until Executive executes and delivers to the
Company a release (in form and substance reasonably satisfactory to the Company)
whereby Executive releases the Company Group, and their respective directors,
officers, employees, agents, representatives and shareholders, from all claims
Executive may have from or arising out of this Agreement or otherwise from his
employment with the Company, except for the Company's obligation under this
Section 8(c) and the Parent's obligations under
Section 2, 3 and 4 of the Stock Option Agreement and Sections 3, 7, 8 and 13 of
the Securities Agreement (both as defined herein).. Without limiting any other
provision of this Agreement, the Company shall not be obligated to make the
Severance Payments (or any other severance payment) if Executive's employment is
terminated by the Company for Cause, or by the Executive's death, Disability,
resignation or Retirement, or upon expiration of this Agreement (other than
expiration under the circumstances described in the first sentence of this
Section 8(c)). If Executive's title is diminished or his duties are
substantially and materially reduced (including his title and duties as
President and Chief Executive Officer of Parent), or his Base Salary or bonus
opportunity is reduced and Executive resigns as a result thereof, such
resignation will constitute termination by the Company without Cause. For
purposes hereof, Executive's "bonus opportunity" shall be treated as reduced if
(and only if) the Company breaches its obligations under Section 3(b).
(d) Upon termination of employment for any reason, Executive (or, if Executive is deceased, his estate) shall be entitled to any accrued but unpaid Base Salary under Section 3, benefits under Section 6 required to be extended to Executive pursuant to applicable law or the terms of a particular plan or program, and reimbursement for expenses under Sections 5 and 7, in each case with respect to the period ending on the date of termination of employment.
(e) Upon termination of his employment, Executive shall be entitled only to the payments described in this Section 8 and shall not be entitled to any other salary, benefits or other payments from the Company Group pursuant to this Agreement.
(f) Concurrent with termination of Executive's employment with the Company for any reason, Executive shall resign from all positions with the Company Group.
(g) Nothing in this Section 8 shall relieve the Company of any obligation it may have under applicable law to continue any health benefits.
9. RESTRICTIVE COVENANTS.
(a) NON-COMPETE. During the Restricted Period, Executive must not directly or indirectly: (i) engage in the Business anywhere in the Territory other than on the Company Group's behalf; (ii) solicit any actual (as opposed to merely prospective) customer of the Company Group, with whom Executive has had direct contact while employed by the Company, to purchase other than from the Company Group any goods or services sold by the Company Group; or (iii) solicit the employment (or solicit to retain the services) of any employee, sales representative or sales agent of the Company Group. Nothing in this Agreement, however, prevents Executive from (x) owning less than five percent (5 %) of any class of publicly traded securities so long as such investment is passive and Executive has no other involvement with the issuer of such securities or (y) continuing to receive benefits from his prior employer, provided that Executive does not perform any services for his prior employer. To "ENGAGE" in a business in the Territory means (x) to render services in (or with respect to) the Territory for that business, or (y) to own, manage, operate or control (or participate in the ownership, management, operation or control of) an enterprise engaged in that business in the Territory. "RESTRICTED PERIOD" means the period beginning on the date hereof and ending eighteen (18) months after the last day of Executive's employment by the Company. "TERRITORY" means the state of Texas and all states in the United States east of the Mississippi River. "BUSINESS" means the wholesale distribution of (i) commercial roofing products, (ii) residential roofing products or (iii) any related products, including shingles, sheet metal, lumber, water proofing products, siding, windows and insulation.
(b) CONFIDENTIALITY. During the Confidentiality Period: (i) Executive must maintain all Confidential Information in confidence and must not disclose any Confidential Information to anyone
outside of the Company Group; and (ii) Executive must not use any Confidential Information for the benefit of Executive or any third party. Nothing in this Agreement, however, prohibits Executive: (1) from disclosing any Confidential Information (or taking any other action) in furtherance of Executive's duties to the Company Group while employed by the Company; or (2) from disclosing Confidential Information to the extent required by law (after giving prompt notice to the Company in order that the Company Group may attempt to obtain a protective order or other assurance that confidential treatment will be accorded such information). Upon the Company's request at any time, Executive must immediately deliver to the Company all tangible items in Executive's possession or control that are or that contain Confidential Information, without keeping any copies. For purposes of this Agreement, "CONFIDENTIAL INFORMATION" means information regarding the Company Group that is not generally available to the public, including (to the extent that it is not so generally available): (1) information regarding the Company Group's business, operations, financial condition, customers, vendors, sales representatives and other employees; (2) projections, budgets and business plans regarding the Company Group; (3) information regarding the Company Group's planned or pending acquisitions, divestitures or other business combinations; (4) the Company Group's trade secrets and proprietary information; and (5) the Company Group's technical information, discoveries, inventions, improvements, techniques, processes, business methods, equipment, algorithms, software programs, software source documents and formulae. For purposes of the preceding sentence, information is not treated as being generally available to the public if it is made public by Executive in violation of this Agreement. "CONFIDENTIALITY PERIOD" means the period beginning on the date hereof and ending three years after the last day of Executive's employment by the Company.
10. DISABILITY. If at any time during the term of this Agreement, Executive is suffering from any illness, injury or other disability which has caused (or which the Board of Directors reasonably determines will cause) Executive to be unable to perform Executive's duties with the Company for 90 consecutive days or for 120 cumulative days during any 180 day period or Executive is receiving long term disability benefits under any policy, plan or program ("DISABILITY"), the Company may assume management responsibilities for the duration of Executive's absence and may, upon thirty (30) days prior written notice to Executive, terminate Executive's employment for Disability.
11. NOTICES. Any notice provided for in this Agreement must be in writing and must be either personally delivered, or sent by confirmed facsimile (provided, however, that notices delivered by facsimile shall be effective only if such notice is also delivered by hand, or mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier (charges prepaid), on or before two (2) business days after its delivery by facsimile) or by reputable overnight courier service (charges prepaid) to the recipient at the address indicated below:
TO THE COMPANY:
Beacon Sales Acquisition, Inc.
c/o Code, Hennessy & Simmons III, L.P.
10 South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Peter M. Gotsch
Fax: (312) 876-3854
WITH A COPY TO:
Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606
Attention: S. Michael Peck and Steve Otis
Fax: (312) 258-5600
TO EXECUTIVE:
Robert R. Buck
5650 Wm. H. Harrison Lane
Cincinnati, Ohio 45243
WITH A COPY TO:
John S. Stith
Frost Brown Todd LLC
2200 PNC Center
Cincinnati, Ohio 45202
Fax: (513) 651-6981
and/or such other address and/or to the attention of such other person as the
recipient party shall have designated by notice given in accordance with this
Section 11. Any notice under this Agreement shall be deemed to have been given:
(i) if delivered in person, at the time delivered; (ii) if sent by confirmed
facsimile, at the time sent; or (iii) if sent by overnight courier, one (1)
business day after being given to the courier.
12. GENERAL PROVISIONS.
(a) SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, and this Agreement shall (subject to Section 12(c) hereof) be reformed, construed and enforced in such jurisdiction so as to best give effect to the intent of the parties under this Agreement.
(b) REMEDIES. If Executive breaches any of the provisions of this Agreement (including the provisions of Section 9), then the Company shall be entitled, in addition to any other remedies that it may have, to specific injunctive or other equitable relief (without the requirement of posting of a bond or other security) in order to enforce such provision.
(c) SCOPE OF COVENANTS. Executive acknowledges that the territorial, time and activity limitations set forth in Section 9 (or the lack thereof, as the case may be) are reasonable and are properly required for the protection of the Company. If any such territorial, time or activity limitation (or the lack thereof) is determined to be unreasonable by a court or other tribunal, the parties agree to the reduction of such territorial, time or activity limitations (including the imposition of such a limitation if it is missing) to such an area, period or scope of activity as said court or tribunal shall deem reasonable under the circumstances. Also, if the Company seeks partial enforcement of Section 9 as to only a territory, time and scope of activity which is reasonable, then the Company shall be entitled to such reasonable partial enforcement. If such reduction or (if the Company seeks partial enforcement) such partial enforcement is
not possible, then the unenforceable provision or portion thereof shall be severed as provided in Section 12(a).
(d) COMPLETE AGREEMENT. This Agreement, that certain Special Purchase Agreement of even date herewith between Executive and the Parent ("STOCK OPTION AGREEMENT"), and that certain Executive Securities Agreement of even date herewith among Executive, the Parent and Code, Hennessy & Simmons III, L.P. (the "SECURITIES AGREEMENT"), and any and all other documents executed by Executive on the date hereof in connection with the transactions contemplated by the foregoing embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof or thereof in any way.
(e) COUNTERPARTS. This Agreement may be executed in separate counterparts (including by facsimile), each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
(f) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company Group and their respective heirs, legal representatives, successors and assigns; provided that the rights and obligations of Executive under this Agreement shall not be assignable.
(g) CHOICE OF LAW. This Agreement shall be governed and construed in
accordance with the internal laws of the Applicable State, without giving effect
to any choice of law or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the Applicable State. As
used herein, "APPLICABLE STATE" means the Commonwealth of Massachusetts;
provided, however, that when and if Executive relocates his offices to a
location outside of the greater Boston metropolitan area in accordance with
Section 5(b), then the Applicable State shall be (at all times thereafter) the
state in which such relocated office is situated immediately after such
relocation.
(h) CONSENT TO JURISDICTION. The parties irrevocably consent and submit to the nonexclusive jurisdiction of any local, state or federal court within the Applicable County for the enforcement of this Agreement. The parties irrevocably waive (with respect to any such court) any objection they may have to venue in the defense of an inconvenient forum to the maintenance of such actions or proceedings to enforce this Agreement. As used herein, "APPLICABLE COUNTY" means Suffolk County, Massachusetts; provided, however, that when and if Executive relocates his offices to a location outside of the greater Boston metropolitan area in accordance with Section 5(b), then the Applicable County shall be (at all times thereafter) the county in which such relocated office is situated immediately after such relocation.
(i) WAIVER. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
(j) HEADINGS. The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
(k) AMENDMENTS. This Agreement shall not be amended or modified unless pursuant to an agreement in writing signed by the Company and Executive.
(l) SURVIVAL. The rights and obligations of the parties shall survive the termination of Executive's employment to the extent that any performance is required following termination.
(m) CERTAIN DEFINITIONS. As used herein, "SUBSIDIARY," of a specified person means (i) an entity that is directly or indirectly Controlled by the specified person, or (ii) an entity in which the specified person, directly or indirectly, owns a majority economic interest; and "CONTROL" means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through ownership of voting securities, by contract or otherwise.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
BEACON ROOFING SUPPLY, INC.
By: /s/ Peter M. Gotsch
---------------------------------
Peter M. Gotsch, Vice President
|
EXECUTIVE
/s/ Robert R. Buck --------------------------------- Robert R. Buck |
JOINDER
The undersigned hereby agrees to be bound by Section 2(b) of this Employment Agreement.
CODE, HENNESSY & SIMMONS III, L.P.
By: CHS Management III, L.P.,
its general partner
By: CODE, HENNESSY & SIMMONS, L.L.C.,
its general partner
By: /s/ Peter M. Gotsch
----------------------------------
Peter M. Gotsch, Member
|
Exhibit 10.4
EXECUTION VERSION
CHIEF EXECUTIVE SECURITIES AGREEMENT
This Chief Executive Securities Agreement ("AGREEMENT") is made as of August 21, 1997 by and among Beacon Holding Corporation, a Delaware corporation (the "COMPANY"), Andrew R. Logie ("EXECUTIVE") and Code, Hennessy & Simmons III, L.P., a Delaware limited partnership ("CHS").
R E C I T A L:
The Company, CHS and Executive desire to enter into an agreement with respect to the equity and subordinated debt securities of the Company owned by Executive, including, without limitation, with respect to the transfer of such securities.
A G R E E M E N T S:
The parties hereto agree as follows:
1. DEFINITIONS.
(a) For purposes of this Agreement, the following terms shall have the following meanings unless the context indicates otherwise:
"AFFILIATE" of a Person means any other Person controlling, controlled by or under common control with such Person and any partner of such Person if such Person is a partnership. An "Affiliate", with respect to the Company includes each of the Company's direct or indirect Subsidiaries.
"BEACON OPERATING" means Beacon Sales Acquisition, Inc., a Delaware corporation doing business as Beacon Sales Company Incorporated.
"BOARD" means the board of directors of the Company.
"CLASS A SHARES" means shares of Class A Common Stock, $.01 par value per share, of the Company.
"CLASS B SHARES" means shares of Class B Common Stock, $.01 par value per share, of the Company.
"COMPETITIVE BUSINESS" means any business which is directly or indirectly competitive with the business of Beacon Operating or any of its Subsidiaries as conducted at the time this definition is applied, and any business which is under development by Beacon Operating or any of its Subsidiaries as of such date. Without limiting the generality of the foregoing sentence, the term Competitive Business shall include, without limitation, any business which engages, directly or indirectly, in the distribution of commercial and residential roofing and related products, including without limitation, shingles, sheet metal, lumber, water proofing products and insulation and any other products or services which Beacon Operating or any of its
Subsidiaries is planning to manufacture, distribute, sell or provide as of the date this definition is applied.
"CONFIDENTIAL INFORMATION" means all information, including but not limited to trade secrets, disclosed to Executive or known by Executive as a consequence of or through his employment by Beacon Operating or any of its Subsidiaries concerning the products, processes or services offered by Beacon Operating or any of its Subsidiaries and which: (i) has not been made generally available to the public, and is useful or of value to Beacon Operating's or any of its Subsidiaries' current or anticipated business, research or development activities; or (ii) has been identified to Executive as confidential, either orally or in writing. Confidential Information shall include, but is not limited to: computer programs; unpatented inventions, discoveries or improvements; marketing, manufacturing, or organizational research and development, or business plans; sales forecasts; personnel information, including the identity of other employees of Beacon Operating and its Subsidiaries, their responsibilities, competence, abilities, and compensation; manufacturing techniques; product formulations and product constructions; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning planned or pending acquisitions or divestitures; and information concerning purchases of major equipment or property. Confidential Information shall not include information which: (A) is in or hereafter enters the public domain through no act of Executive; (B) is obtained by Executive from a third party having the legal right to use and disclose the same; (C) is in the possession of Executive prior to receipt from the Company, Beacon Operating, or any of its predecessors (including the company formerly known as Beacon Sales Company, Incorporated) (as evidenced by Executive's written records pre-dating the date of employment by any of such entities); or (D) is not unique to the Company or any of its Affiliates.
"CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
"CONVERTIBLE NOTE" means the Convertible Junior Subordinated Promissory Note issued by Beacon Operating on the date hereof pursuant to the terms of and in connection with the transactions contemplated by the Purchase Agreement and assumed by the Company.
"CREDIT AGREEMENT" means (i) that certain Credit Agreement dated August 21, 1997 among Beacon Sales Acquisition, Inc., Beacon Holding Corporation, and NationsCredit Commercial Corporation, as Agent ("NationsCredit"), and (ii) any replacement credit or loan agreement between the Company and/or Beacon Operating and any new or replacement lender.
"DISABILITY" means Executive is unable, by reason of accident or illness, to perform his duties with Beacon Operating and its Subsidiaries for ninety (90) consecutive days during any six (6) month period, and from which he is not expected to recover in the reasonably near future, all as determined upon examination by a physician acceptable to both Executive and the Company and retained by the Company. Executive shall cooperate fully with such physician. If such physician determines that Executive is so disabled, the physician shall deliver to the Company a certificate certifying that both Executive is disabled and the date upon which the
condition of disability commenced. The determination of the physician shall be final and binding on both parties.
"EXECUTIVE SECURITIES" means (i) all Executive Shares, (ii) all Subordinated Notes acquired by the Executive and the Convertible Note acquired by Executive, (iii) all vested Options issued to Executive, and (iv) all securities of the Company issued or issuable with respect to the securities referred to in clauses (i), (ii), and (iii) above, including, by way of a stock split, stock dividend or other recapitalization. Executive Securities shall continue to be Executive Securities in the hands of any holder other than Executive (other than the Company, its Subsidiaries or CHS and except for transferees in a Public Sale or a Sale of the Company), and, except as otherwise provided in this Agreement, each such other Holder shall succeed to all rights and obligations attributable to Executive as a Holder hereunder.
"EXECUTIVE SHARES" means all Shares acquired by Executive pursuant to this Agreement or any other agreement, note, option plan or other arrangement with the Company or any Subsidiary, whether on or following the date of this Agreement, and all Shares of the Company issued or issuable with respect to such Shares by way of a stock split, stock dividend or other recapitalization.
"EXEMPT TRANSACTION" means any transfer of Executive Securities pursuant to Section 3, 4, 6(d), 7 or 8 of this Agreement.
"FAIR MARKET VALUE" of any security of the Company means:
(i) the average of the closing prices of the sales of such
security on all securities exchanges on which such security may at the time
be listed, or, if there have been no sales on any such exchange on any
particular day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such particular day, or, if on any
particular day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00
p.m., New York time, or, if on any particular day such security is not
quoted in the NASDAQ System, the average of the highest bid and lowest
asked prices on such particular day in the domestic over-the-counter market
as reported by the National Quotation Bureau Incorporated, or any similar
successor organization, in each such case averaged over a period of
twenty-one (21) business days ending on the day as of which the Fair Market
Value is being determined; or
(ii) with respect to any security which is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market for the entire twenty-one (21) day averaging period specified above, the fair value of such security as determined in good faith by agreement of a majority of the members of the Board, on the one hand, and the Executive (or his personal representative, if Executive is deceased or incompetent) on the other hand; provided however that if the Board and Executive (or his personal representative) cannot so agree within twenty (20) business days following notification by one party to the other of the need for a valuation of securities of the Company, then each of the Board and the Executive shall select one independent investment banking or accounting firm and each such firm shall determine the fair value
of such security. If the lowest valuation made by the investment banking or accounting firms is within ten percent (10%) of the highest valuation, then the fair value shall be the average of the two appraisals. If the difference between the two appraisals is greater than ten percent (10%), then the two firms shall jointly select a third investment banking or accounting firm (or such firm shall be selected by lot if the two cannot promptly agree on such firm), and the determination of fair value by such third firm shall be final and binding on the parties hereto. The expenses of the investment banking or accounting firm retained pursuant to this Agreement shall be borne one-half by Executive and one-half by the Company.
With respect to Options, "Fair Market Value" means the amount determined pursuant to the preceding sentence less the exercise price for such Option.
"FAMILY GROUP" means the spouse and immediate descendants (whether natural or adopted) of Executive (collectively, "RELATIVES"), any custodian of a custodianship for and on behalf of one or more Relatives or Executive and any trustee of a trust solely for the benefit of one or more Relatives.
"FOUNDER'S COST" means $1,000 per share (such amount to be equitably adjusted, upward or downward, for stock splits, stock dividends and recapitalizations), provided that the Founder's Cost of Executive Shares purchased pursuant to the exercise of Options shall be the exercise price, if any, actually paid therefor, and if such Options have not been exercised, the Founder's Cost of such Options shall be the greater of $0.01 per Option or the cash price actually paid therefor.
"FULLY-DILUTED BASIS" shall mean the number of Shares which would be outstanding, as of the date of computation, if all convertible obligations, options and warrants and like rights and instruments, to acquire Shares had been converted or exercised.
"HOLDER" means any holder of Executive Securities (including, without limitation, Executive and Executive's Permitted Transferees).
"INDEPENDENT THIRD PARTY" means any Person who, immediately prior to the contemplated transaction, does not directly or indirectly beneficially own in excess of five percent (5%) of the Shares on a Fully-Diluted Basis, who is not an Affiliate of any five percent (5%) owner of such Shares and who is not the spouse or descendant (by birth or adoption) of any five percent (5%) owner.
"JUST CAUSE" means any of the following, as determined by the Board in its reasonable judgment: (i) Executive's repeated failure or refusal to perform such material duties and responsibilities as are reasonably requested by the Board or an Affiliate's Board of Directors, (ii) Executive's repeated failure to observe all material policies generally applicable to executives of Beacon Operating and its Subsidiaries, (iii) Executive's gross negligence or willful misconduct in the performance of Executive's duties to Beacon Operating and its Affiliates, (iv) the commission by Executive of any act of fraud or embezzlement against the Company or any of its Affiliates, or the commission of any felony or act involving moral turpitude, (v) Executive's unauthorized dissemination of information, observations and data concerning the
business plans, financial data, referral sources, customers, suppliers, manufacturing procedures and techniques, trade secrets or acquisition strategies of Beacon Operating and its Subsidiaries, or any other Confidential Information. For purposes of clauses (i), (ii) and (iii) of this definition, "Just Cause" shall exist only if (A) the applicable breach impacts or is likely to impact the financial performance of the Company and (B) the applicable breach remains uncured after the expiration of fifteen (15) days following delivery of written notice to Executive by the Company or the Board. In no event shall termination upon expiration of an employment agreement at the end of its term or Resignation be considered termination without Just Cause.
"1933 ACT" means the Securities Act of 1933, as amended from time to time, or any successor thereto.
"1934 ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto.
"OPEN MARKET TRANSACTION" means any Transfer of Executive Securities in the open market following a Public Sale.
"OPTIONS" means (i) all warrants, options or other rights to subscribe for purchase or otherwise acquire Shares and (ii) all or any securities convertible into or exchangeable for Shares, including, without limitation, the Convertible Note.
"OUTSTANDING INDEBTEDNESS" means, as of the date of determination, the outstanding principal balance of, and all accrued and unpaid interest under, the applicable Subordinated Note(s).
"PERSON" means an individual, a partnership, a limited partnership, a corporation, a limited liability company or partnership, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or the United States of America or any other nation, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government.
"PUBLIC OFFERING" means a public offering of Shares (or the securities of any successor to the Company) or any shares of capital stock of a Subsidiary pursuant to an effective registration statement under the 1933 Act.
"PUBLIC " means any sale pursuant to a Public Offering or any sale to the public pursuant to Rule 144 (as defined below).
"PURCHASE AGREEMENT" means that certain Asset Purchase Agreement, dated August 21, 1997, among Beacon Sales Acquisition, Inc., Beacon Sales Company, Incorporated, a Massachusetts corporation, and the stockholders of Beacon Sales Company, Incorporated.
"RESIGNATION" means termination by Executive of his employment with the Company or any of the Subsidiaries or successors.
"RETIREMENT" means the voluntary termination of Executive's employment with the Company and its Subsidiaries when Executive is at least 65 years old, in accordance with the Company's or any Subsidiary's established retirement policies.
"SALE OF THE COMPANY" means the sale (in a single transaction or in a series of related transactions) of the Company to any Independent Third Party or group of Independent Third Parties pursuant to which such party or parties acquire (i) Shares (whether by merger, consolidation, sale or transfer of shares, reorganization, recapitalization or otherwise) possessing the voting power under normal circumstances to elect a majority of the directors of the Company or (ii) all or substantially all of the assets of the Company and its Subsidiaries, determined on a consolidated basis.
"SELLER" means Beacon Sales Company, Incorporated, a Massachusetts corporation.
"SHARES" means Class A Shares and Class B Shares (now or hereafter issued), and any shares issued in respect of such shares pursuant to a dividend, stock split reclassification or like action, or pursuant to an exchange (including a merger).
"SUBORDINATED NOTES" means the 12% Junior Subordinated Promissory Notes issued from time to time by the Company or assumed by the Company from time to time.
"SUBSIDIARY" means any Person of which the Company owns securities having a majority of the voting power in electing the board of directors directly or through one or more Subsidiaries (or, in the case of a partnership, limited liability company or other similar entity, securities conveying, directly or indirectly, a majority of the economic interests in such partnership or entity), including, without limitation, Beacon Operating.
"TRANSFER" shall mean any transfer, sale, assignment, pledge, encumbrance or other disposition (irrespective of whether any of the foregoing are effected, with or without consideration, voluntarily or involuntarily, by operation of law or otherwise, or whether INTER VIVOS or upon death).
"VESTED RESIGNATION" means voluntary resignation by Executive of his employment with the Company and its Subsidiaries and successors following the third anniversary hereof (unless such voluntary resignation is under circumstances which would also permit the Company or any of its Subsidiaries to terminate Executive's employment for Just Cause, in which case such resignation shall not be considered a Vested Resignation, but rather shall be deemed a termination for Just Cause).
(b) OTHER DEFINITIONS. Other defined terms are contained in the body of this Agreement.
2. REPRESENTATIONS AND WARRANTIES AND ADDITIONAL AGREEMENTS AND UNDERSTANDINGS.
(a) EXECUTIVE REPRESENTATIONS AND WARRANTIES. Executive acquired a Subordinated Note in the original principal amount of $1,194,000 and the Convertible Note in the original principal amount of $398,000 pursuant to the terms of and in connection with the
transactions contemplated by the Purchase Agreement. Executive represents and warrants to the Company, and agrees and acknowledges that:
(i) The Executive Securities acquired by Executive pursuant to the Purchase Agreement are and shall be acquired for Executive's own account, for investment purposes only and not with a present view to, or intention of, distribution or resale thereof in violation of the 1933 Act or any state securities laws and that, irrespective of any other provisions of this Agreement, the Executive Securities shall be Transferred only in compliance with all applicable federal and state securities laws, including, without limitation, the 1933 Act.
(ii) The Executive Securities are not registered under the 1933 Act and must be held by Executive until such Executive Securities are registered under the 1933 Act or an exemption from such registration is available; the Company shall have no obligation to take any actions that may be necessary to make available any exemption from registration under the 1933 Act; and the Company shall place "stop transfer" restrictions on the party responsible for recording Transfers of Executive Securities in violation of the foregoing provisions of this clause (ii).
(iii) Executive is familiar with Rule 144 ("RULE 144") adopted by the Securities and Exchange Commission ("SEC") which establishes guidelines governing, among other things, the resale of "restricted securities" (securities, such as Executive Securities, which are acquired from the issuer of such securities in a transaction not involving any Public Offering).
(iv) Rule 144 is not presently available for Transfers of the Executive Securities because, among other things, the Company is not presently required to file the reports required to be filed by Section 15(d) of the 1934 Act, and does not have a class of securities registered pursuant to Section 12 of that statute; and, even if the Company were required to file reports under the 1934 Act, and had filed all reports required to be filed, reliance on Rule 144 to Transfer securities is subject to other restrictions and limitations, as set forth in Rule 144.
(v) In connection with any Transfer of Executive Securities under Rule 144 or pursuant to any other exemption, Executive may, at the option of the Company, be required to deliver to the Company an opinion from counsel for Executive (reasonably acceptable to the Company) and/or receive an opinion from counsel for the Company, to the effect that all applicable federal and state securities law requirements have been met.
(vi) Executive has been an executive employee of the Seller and is an executive employee of Beacon Operating.
(vii) Executive is able to evaluate the risks and merits of the investment in the Executive Securities and of making an informed investment decision with respect thereto.
(viii) Executive is able to bear the economic risk of Executive's investment in the Executive Securities for an indefinite period of time because the Executive Securities have not been registered under the 193 3 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or unless an exemption from such registration is available.
(ix) Executive has reviewed the financial and other information with respect to the Company, Beacon Operating and the Subsidiaries previously provided to Executive, and all such other documents and information made available to, or requested by, Executive, and Executive has had the opportunity to ask questions and receive answers concerning all such materials and the terms and conditions of the offering of the Executive Securities. Executive has had full access to such other information and materials concerning the Company as Executive has requested. The Company has answered all inquiries that Executive has made to the Company relating to the Company and the sale of the Executive Securities hereunder.
(x) The execution, delivery and performance of this Agreement by Executive does not and shall not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject.
(xi) The Executive has not granted any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement.
(xii) Executive has the legal capacity to execute and perform this Agreement. This Agreement has been duly executed and delivered by Executive, and constitutes a valid and legally binding obligation of Executive, enforceable against him in accordance with its terms (except to the extent that enforcement may be affected by laws relating to bankruptcy, reorganization, insolvency and creditors' rights and by the availability of injunctive relief, specific performance and other equitable remedies). Executive's spouse has the legal capacity to execute and deliver the Spousal Consent attached to this Agreement (the "SPOUSAL CONSENT") and to deliver the Spousal Consent and such consent has been validly executed and delivered.
(b) COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to Executive that:
(i) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has full power and authority to enter into and perform its obligations under this Agreement. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder have been duly authorized and approved by all requisite action. This Agreement has been duly executed and delivered by a duly authorized officer of the Company.
(ii) The execution, delivery and performance of his Agreement by the Company does not and shall not conflict with, violate or cause a breach of any of the terms or provisions of the Certificate of Incorporation of the Company or its by-laws, or of any agreement, contract or instrument to which the Company is a party, or any judgment, order or decree to which the Company is subject.
(iii) On the date of this Agreement and after giving effect
to the transactions contemplated by (1) this Agreement, (2) other Executive
Securities Agreements of even date herewith between the Company and other
officers and employees of the Company, (3) the Investor Securities
Agreement dated of even date herewith among the Company, CHS, and certain
investors, and (4) certain agreements and instruments entered into with and
issued to NationsCredit Commercial Corporation (the "Agent") as agent for
the lenders, and assuming that Executive exercises Executive's rights under
the Convertible Note to convert the principal amount thereof into Shares:
(A) the number of Class A Shares issued and outstanding shall be 2,000, (B)
the number of Class B shares issued and outstanding shall be zero, (C) the
face value of all Subordinated Notes issued and outstanding shall be
$6,000,000 and (D) the Company shall have issued to Agent, the Company's
senior lender, a warrant to purchase 162 shares of Class B Common Stock of
the Company (representing 7.5% of the outstanding common stock of the
Company following exercise thereof, assuming no adjustments as a result of
anti-dilution provisions). All Shares heretofore issued and delivered by
the Company to any Holder have been, and all Shares to be issued by the
Company to any Holder pursuant to this Agreement, when issued and
delivered, shall be, duly authorized, validly issued, fully paid and
nonassessable. The Executive Securities are subject to dilution by future
issuances of securities of the Company including by issuance of common
stock to lenders pursuant to warrants.
(c) ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. As an additional inducement to the Company to issue Executive Shares to Executive, Executive acknowledges and agrees that:
(i) Neither the ownership of Executive Shares by the Executive nor any provision contained herein shall entitle Executive to remain in the employment of the Company or any of its Subsidiaries or affect the right of the Company to terminate Executive's employment at anytime for any reason.
(ii) Shares issued by the Company pursuant to a stock dividend, stock split, reclassification or like action, or pursuant to the exercise of a right granted by the Company to all holders of Shares to purchase Shares on a proportionate basis, shall be Transferred only, and for all purposes be treated, in the same manner as, and be subject to the same options with respect to, the Shares which were split or reclassified or with respect to which a stock dividend was paid or rights to purchase Shares on a proportionate basis were granted. In the event of a merger of the Company where this Agreement does not terminate, partnership units, membership units or shares of common stock (and/or securities convertible into such units or shares) which are issued in exchange for Shares shall thereafter be deemed to be Shares subject to the terms of this Agreement.
(iii) Any person to whom Executive Securities are to be Transferred (except pursuant to a Public Offering) shall execute and deliver, as a condition to such Transfer, whatever documents are deemed reasonably necessary by the Company, in consultation with its counsel, to evidence such party's joinder in, acceptance of, and agreement with, the obligations with respect to the Executive Securities contained in this Agreement.
(iv) Within thirty (30) days from the date hereof,
Executive shall make an election with the Internal Revenue Service under
Section 83(b) of the Internal Revenue Code and the regulations promulgated
thereunder in form and substance reasonably satisfactory to the Company.
(v) Except with the prior written consent of CHS, (A) Executive shall not grant any proxy or become party to any voting trust or other agreement with respect to the Executive Securities or any interest therein (provided, however, that Executive may enter into that certain Stock Appreciation Rights Agreement dated as of even date herewith, with John Swansburg, in the form provided to the Company on the date hereof, which shall not be amended after the date hereof) and (B) Executive shall not pledge any securities to secure indebtedness.
(vi) Pursuant to a management agreement of even date herewith, the Company and Beacon Operating will pay to CHS (or one of its Affiliates) management fees in the amount of $300,000 per year (payable monthly) plus reasonable out of pocket expenses.
3. REPURCHASE OPTION.
(a) GENERAL. Upon the termination of Executive's employment with Beacon Operating or any of its Subsidiaries for any reason ("TERMINATION"), all Executive Securities, whether held by Executive or one or more of Executive's transferees (collectively, the "AVAILABLE SECURITIES"), shall be subject to repurchase by CHS and the Company pursuant to the terms and conditions set forth in this Section 3 (the "REPURCHASE OPTION").
(b) COMPANY OPTION. The Board, acting in good faith, may elect (in its sole discretion) to cause the Company to purchase all or any portion of the Available Securities pursuant to the Repurchase Option by delivering written notice (the "REPURCHASE NOTICE") to CHS and Executive within thirty (30) days following Termination. The Repurchase Notice shall set forth the number and amount of Available Securities to be acquired from each Holder, the aggregate consideration to be paid for such securities and the time and place for the closing of such purchase.
(c) CHS OPTION. If for any reason the Company does not elect to purchase all of the Available Securities pursuant to the Repurchase Option, CHS may elect (in its sole discretion) to exercise the Repurchase Option for all (but not less than all) of the Available Securities which the Company has not elected to purchase (the "SECURITIES AVAILABLE FOR CHS"). Within sixty (60) days following Termination, CHS may elect to purchase all (but not less than all) of the Securities Available for CHS by giving written notice to Executive as to the number
and amount of securities being purchased by CHS from each Holder (the
"SUPPLEMENTAL REPURCHASE NOTICE").
(d) REPURCHASE PRICE. Upon exercise of the Repurchase Option, the purchase price for the Available Securities (the "REPURCHASE PRICE") shall be as follows:
(i) if the Repurchase Option is triggered by termination of Executive's employment by reason of Executive's death, Executive's Disability, Vested Resignation of Executive, termination of Executive's employment by Beacon Operating without Just Cause, or termination for any other reason (other than those described in subsection 3(d)(ii) below), the Repurchase Price shall be Fair Market Value of the Available Securities as of the date of Termination; and
(ii) if the Repurchase Option is triggered by termination of Executive's employment by the Company or any Subsidiary for Just Cause or Resignation of the Executive (other than a Vested Resignation), the purchase price of the Available Securities shall be the lesser of: (A) the Founder's Cost (in the case of Executive Shares and Options) and the Outstanding Indebtedness (in the case of Subordinated Notes and other notes constituting Available Securities); and (B) the Fair Market Value of the Available Securities.
The Repurchase Price for the Available Securities under this Section 3(d) shall be computed as of the date of Termination. The Repurchase Price shall be calculated by the Board within thirty (30) days following Termination (provided, however, that Fair Market Value shall be determined in accordance with the definition thereof in Section 1). Notwithstanding anything to the contrary herein contained, if the Company and CHS collectively have elected to purchase less than all of the Available Securities, then the Company and CHS shall be deemed to have elected not to purchase any of the Available Securities pursuant to the Repurchase Option.
(e) CLOSING. If and only if the Company and CHS collectively have
elected to purchase all (but not less than all) of the Available Securities, the
purchase of Available Securities pursuant to this Section 3 shall be consummated
at the Company's principal office at 10:00 a.m., on the thirtieth (30th) day
next following the final determination of the Repurchase Price as provided in
Section 3(d), or on such earlier day as designated by CHS or the Company, as the
case may be, in its sole discretion, upon not less than ten (10) days prior
notice to Executive. If such date is a Saturday, Sunday or legal holiday, the
closing shall occur at the same time and place on the next succeeding business
day. Subject to Section 5 hereof, at the option of the Company and/or CHS, the
Person exercising the Repurchase Option shall pay for the Available Securities
to be purchased pursuant to the Repurchase Option by (i) delivery of a cashier's
check or wire transfer of immediately available funds or (ii) delivery of a
negotiable secured junior subordinated promissory note (the "Repurchase Note")
in the form of EXHIBIT A hereto, the principal amount of which shall bear
interest at the rate of eight percent (8%) per annum, with interest and a pro
rata portion of principal payable quarterly over a three-year period following
delivery of the Repurchase Note, and with such additional terms (including
subordination provisions) as shall be required by the senior lenders to the
Company and its Subsidiaries. Whenever a Repurchase Note is used pursuant to any
provision of this Agreement, the obligations of the Company or CHS (as the case
may be) under the Repurchase Note shall be
secured by a pledge of all Executive Shares purchased pursuant to delivery of such Repurchase Note. The pledge of the Executive Shares shall be made pursuant to a pledge agreement in the form of EXHIBIT B hereto. The purchasers of Executive Securities to be purchased pursuant to the Repurchase Option hereunder shall be entitled to receive customary representations and warranties as to ownership, title, authority to sell and the like from the Holders regarding such sale and to receive such other evidence, including applicable inheritance and estate tax waivers, as may reasonably be necessary to effect the purchase of the Executive Securities to be purchased pursuant to the Repurchase Option.
(f) FAILURE TO DELIVER SHARES. If Executive or any other Holder of
Executive Securities whose Executive Securities are to be purchased pursuant to
Section 3, 4 or 6 fails to deliver them on the scheduled closing date of such
purchase, the Company or CHS (as the case may be) may elect to deposit the
consideration representing the purchase price of the Executive Securities with
the Company's attorney (or any other third party, including a bank or a
financial institution), as escrowee. In the event of the foregoing election, the
Executive Securities shall be deemed for all purposes (including the right to
vote and receive payment for dividends) to have been Transferred to the
purchasers thereof and the Company shall issue new certificates representing the
Executive Securities to the Company, CHS or their respective designees, as the
case may be, and the certificates or instruments registered in the name of the
Person obligated to sell such Executive Securities shall be deemed to have been
canceled and to represent solely a right to receive payment of the purchase
price, without interest, from the escrow funds. If, prior to the third (3rd)
anniversary of the scheduled closing date for the purchase pursuant to Sections
3, 4 or 6, the proceeds of sale have not been claimed by the Executive or other
seller of the Executive Securities, the escrow deposit (and any interest earned
thereon) shall be returned to the Person originally depositing the same, and the
transferors whose Executive Securities were so purchased shall look solely to
the purchasers thereof for payment of the purchase price. The escrowee shall not
be liable for any action or inaction taken by it in good faith.
(g) TERMINATION OF REPURCHASE OPTION. The rights of the Company and/or CHS to purchase Executive Securities pursuant to this Section 3 shall terminate upon the consummation of a Sale of the Company or a Public Offering.
(h) PRICE PROTECTION. In the event that the Company or CHS exercises a Repurchase Option following termination of Executive's employment with Beacon Operating by Beacon Operating without Just Cause, and a Sale of the Company or Beacon Operating is consummated during the twelve (12) month period following the date of the Closing pursuant to exercise of such Repurchase Option, the Company shall pay to each Holder of Available Securities which sold such securities pursuant to the exercise of such Repurchase Option, as additional purchase price for the Executive Securities purchased pursuant to such Repurchase Option, an amount (the "Additional Amount") equal to the aggregate amount, if any, by which such Holder's Sale Price (as defined herein) would exceed the Repurchase Price paid to such Holder with respect to the Available Securities sold by such Holder pursuant to the Repurchase Option. "Sale Price" shall mean the amount which would have been realized by a Holder of Available Securities as a result of a Sale of the Company had the purchase of such Holder's Available Securities pursuant to the exercise of the Repurchase Option not occurred and such Holder had participated in, or received proceeds as a result of, such Sale of the Company (assuming exercise of all outstanding options, warrants and other convertible securities). For
purposes of computing the Sale Price, (i) the computation shall take into account the portion of all transaction and other costs which such Holder would have had to bear as a result of participation in the Sale of the Company; (ii) if any part of the consideration in connection with a Sale of the Company is paid in property or securities, the value of said consideration shall be computed by determining the fair market value of such property or securities at the time of closing of the Sale of the Company (which, in the case of securities shall, if applicable, take into account reductions or discounts in the fair market value resulting from such securities being "restricted securities" within the meaning of Rule 144); (iii) if the consideration in connection with a Sale of the Company is payable in installments or otherwise on a deferred basis, the value of said consideration shall be computed at the present value thereof as of the date of consummation of the Sale of the Company, taking into account interest payable on said installments according to the terms thereof and using as a discount rate the "prime rate" then in effect at the First National Bank of Chicago; and (iv) an equitable adjustment shall be made to take into account all Common Stock splits, Common Stock dividends and other changes to the Company's capital structure occurring between the date the Repurchase Option is exercised and the date on which the Sale of the Company takes place; provided, however, that all subsequent issuances of securities or other interests by the Company following exercise of the Repurchase Option which would have the effect of diluting the seller's ownership interest in the Company shall so dilute such ownership interest for purposes of this paragraph. The Additional Amount shall be payable by the Company in cash (or, if not cash, the same property received in the Sale of the Company, in which case subsection (ii) above shall not apply) not later than thirty (30) days after the date on which the Sale of the Company is consummated, unless the following sentence is applicable. In the case of a Sale of the Company where deferred payments (including, without limitation, pursuant to a promissory note or an escrow arrangement) are to be made by the purchaser, the Additional Amount shall be paid at such time(s) as the purchaser makes payments to the Company or all other holders of Common Stock, as the case may be (in which case subsection (iii) shall not apply). The Additional Amount shall be determined by the independent certified public accountants regularly engaged by the Company, whose determination shall be final and binding on the parties hereto.
4. PUT.
(a) GENERALLY. Upon the occurrence of a termination of Executive's employment with Beacon Operating and its Subsidiaries as a result of Executive's death or Disability or as a result of termination by Beacon Operating of Executive's employment with Beacon Operating without Just Cause (other than a termination which results from expiration of his employment agreement at the end of its term or thereafter) (a "PUT EVENT"), Executive may require the Company to repurchase all (but not less than all) of the Executive Securities owned by the Executive as of the date of such termination, pursuant to the terms and conditions in this Section 4 (the "Put").
(b) PUT NOTICE. Upon the occurrence of a Put Event, Executive (or his personal representative, if Executive is deceased or incompetent) may exercise the Put by delivering written notice (the "PUT NOTICE") to the Company within thirty (30) days following the occurrence of the Put Event.
(c) PUT PRICE. Upon the exercise of the Put, the purchase price for the Executive Securities (the "PUT PRICE") shall be the Fair Market Value of such securities computed as of the date of the Put Event. The Board shall calculate the Put Price within thirty (30) days following delivery of a Put Notice (provided, however, that Fair Market Value shall be determined in accordance with the definition thereof in Section 1).
(d) MANNER OF PAYMENT. Subject to Section 5, the Put Price payable in connection with the exercise of a Put Option shall, at the option of the Company, be paid either (i) in full in cash on the Put Closing Date (as defined herein) or (ii) by delivery of a Repurchase Note.
(e) CLOSING. The closing of the purchase of Executive Securities pursuant to the Put (the "PUT CLOSING") shall take place on the date (the "PUT CLOSING DATE") designated by the Company in a written notice to Executive, which date shall be not more than thirty (30) days after final determination of the Put Price as provided in Section 4(e).
(f) TERMINATION OF RIGHT. The right of Executive to require the Company to repurchase Executive Securities pursuant to this paragraph 4 will terminate immediately after consummation of a Sale of the Company or a Public Offering.
5. MANNER OF PAYMENT AND RESTRICTIONS ON THE COMPANY'S OBLIGATION TO PURCHASE.
(a) GENERAL RESTRICTION. Notwithstanding anything to the contrary contained in this Agreement (other than the provisions of this paragraph commencing after the third sentence hereof), the Company shall not be obligated to purchase, pursuant to Section 4 or otherwise, such Executive Securities as the Company may then be prohibited by law or bona fide contract from purchasing, including, without limitation, the Delaware General Corporation Law (the "DELAWARE ACT") and covenants contained in any loan agreements or other bona fide agreements to which the Company or any Subsidiary is then a party. To the extent such Executive Securities cannot be repurchased pursuant to applicable contracts or law, the option contained in Section 4 shall be of no force and effect and shall be null and void. For purposes of this Agreement, the Company shall not be obligated to purchase Executive Securities if any loan or other bona fide agreement to which any Subsidiary is a party or is bound would prohibit the Subsidiaries from paying to the Company dividends or distributions sufficient to permit the Company to pay the entire purchase price for such Executive Securities. Notwithstanding the foregoing restriction set forth in this subsection 5(a), Executive may exercise the Put in the event of Termination by Beacon Operating of Executive's employment with Beacon Operating without Just Cause, and upon exercise of the Put in such circumstances, the Company shall pay to the Executive (as full or partial payment of the Put Price, as the case may be) an amount ("Put Cost") equal to the lesser of (a) the Founder's Cost (in the case of the Executive Shares then held by Executive and originally issued upon conversion of the Convertible Note), or the then outstanding principal balance of the Convertible Note held by Executive if not converted into common stock, plus the outstanding principal balance of the $1,194,000 Subordinated Note included in the Executive Securities held by Executive; and (b) the Fair Market Value of such Executive Securities. The Put Cost shall be paid by delivery of a note of the Company (the "PUT NOTE") in the form of the Repurchase Note, provided, however, that, notwithstanding the terms for principal amortization described in Section 3(e) hereof, the principal balance thereof will be
paid as follows: (1) $1,200,000 of the principal balance of the Put Note (or, if less, the outstanding balance) would be paid on the first anniversary of the date of issuance of the Put Note on the Put Closing Date and the remaining balance, if any, would be paid on the second anniversary of the date of issuance of the Put Note; PROVIDED, HOWEVER, that no payments of principal or interest shall be due or made under or pursuant to the Put Note if, before or after such payment, (i) there exists (or would exist as a result of such payment or otherwise) a Default (as defined in the Credit Agreement) under, or a breach of subsection 8.04(a) of, the Credit Agreement (or any similar provisions of a replacement credit agreement which are not more restrictive than such section 8.04(a)), or (ii) the Company and Beacon Operating would have less than $2,000,000 of availability under its revolving loan facility under the Credit Agreement. Payments would not be due or made under the Put Note until permitted pursuant to the preceding sentence. The remaining amount of the Put Price in the event of exercise of the Put in the event of Termination without Just Cause (i.e. the Put Price minus the Put Cost) would be paid in a form of a Repurchase Note ("Profit Note"), provided that, notwithstanding anything to the contrary contained in this Agreement, the outstanding principal balance of and accrued interest under such Profit Note would be payable in full in a lump sum on the third anniversary of the Put Closing Date, and provided further, however, that no such payments would be due or made under the Profit Note unless and until the Company is permitted to make such payments under the terms of its Credit Agreement. The Put Note and Profit Note would each contain provisions reflecting the foregoing agreements and such other terms as are reasonably satisfactory to the Company's senior lender. If note(s) are delivered in satisfaction of the purchase price of Executive Securities upon the exercise of a Put, the Executive Securities purchased by the Company would be pledged to the seller of such securities pursuant to a pledge agreement in the form of Exhibit B hereto.
(b) PAYMENT LIMITATION. Notwithstanding anything to the contrary
contained in this Agreement or in any Repurchase Note delivered pursuant to the
terms hereof, the Company's obligation to make a payment pursuant to a
Repurchase Note or other note delivered pursuant to Sections 3, 5 or 6 of this
Agreement shall be suspended to the extent and for so long as (x) the making of
such payment, together with the making of all other payments to be made during
such fiscal year on account of the Company's purchases of Executive Securities
pursuant to this Agreement and securities purchased pursuant to any other
agreements with shareholders of the Company, would result in a violation of the
Delaware Act or a breach of any covenant contained in any loan or other bona
fide agreement to which the Company or any of its Subsidiaries is a party, or
(y) the Company's Subsidiaries are unable to pay to the Company dividends or
other distributions sufficient to permit the Company to pay the entire purchase
price for such Executive Securities in cash as a result of applicable law or any
covenant contained in any bona fide agreement to which any of such Subsidiaries
are a party. If any portion of the Company's obligation to Executive or any of
Executive's transferees has been suspended for a period in excess of one hundred
eighty (180) days from the original due date of such obligation, Executive (or
such transferee), by written notice delivered to the Company, may elect to
rescind (on a pro rata basis between debt and equity) the sale of that portion
of the Executive Securities the proceeds of sale of which are represented by
unpaid notes made by the Company which are owed to Executive or such transferee.
If payments are suspended pursuant to this Section 5(b), and the Executive has
not elected to rescind the sale, at such time as the Company is able to resume
making payments without violation of the Delaware Act, applicable law or a
covenant in any bona fide agreement to which the Company or any of its
Subsidiaries is a party, the
Company shall first make payments of arrearage owed to the former shareholders on a proportional (to the amount of arrearage) basis, and shall then make regularly scheduled payments.
(c) If the Executive Securities are purchased by the Company and/or CHS pursuant to the Repurchase Option exercised by the Company upon termination of Executive's employment without Just Cause, then, concurrent with such purchase, the Company shall purchase from Executive the outstanding loans made on the date hereof by Executive to employees of Beacon Operating to purchase Shares or other securities from the Company, which loans shall be in a maximum amount of up to $480,000. The Company shall be entitled to receive customary representations and warranties regarding such loans and to receive such other evidence as may be reasonably necessary to effect such assignment. The loan documents between Executive and such other management employees (including a pledge agreement whereby such management employees pledge their securities of the Company to the lender to secure such loans) shall be assignable to the Company and shall not be amended or sold by the Executive following the date hereof without the prior written consent of the Company (and Executive shall not waive any of his rights thereunder).
6. RESTRICTIONS ON TRANSFER OF EXECUTIVE SECURITIES. This Section 6
shall apply to any proposed Transfer of Executive Securities. Notwithstanding
anything to the contrary contained herein, a Transfer of Executive Securities
shall not be valid or have any force or effect unless (i) such Transfer is made
in accordance with the provisions of this Agreement, (ii) such Transfer would
not result in a violation of any applicable federal or state securities law, and
(iii) the intended transferee of such Transfer is not engaged in a Competitive
Business, has not been engaged in a Competitive Business in the immediately
preceding two years, and is not developing a Competitive Business.
(a) TRANSFER OF EXECUTIVE SECURITIES. No Holder shall Transfer any
interest in any Executive Securities except pursuant to an Exempt Transaction or
pursuant to this Section 6. No Holder shall consummate any such Transfer (except
pursuant to an Exempt Transaction or pursuant to Section 6(c)) until sixty-one
(61) days following the latest of the delivery to the Company and CHS of the
Offer Notice (as defined below), unless all rights provided in Section 6(b) have
been exercised or waived, and the parties to the Transfer have been finally
determined pursuant to such exercises or waivers prior to the expiration of such
sixty-one (61) day period (the "ELECTION PERIOD"). Notwithstanding anything to
the contrary herein contained, except pursuant to an Exempt Transaction, neither
Executive nor any of his Permitted Transferees shall Transfer any interest in
Executive Securities (i) unless Executive or such Permitted Transferee(s) has
received a bona fide written offer to purchase such Executive Securities, (ii)
until the expiration of the Repurchase Options following Executive's Termination
and (iii) in any event without the prior written consent of a majority of the
members of the Board (which approval may be withheld for any reason or no
reason).
(b) FIRST REFUSAL RIGHT. If any Holder desires to Transfer any Executive Securities other than in an Exempt Transaction or a transaction pursuant to Section 6(c), such Holder (the "TRANSFERRING HOLDER") shall deliver a written notice (the "OFFER NOTICE") to the Company and CHS. The Offer Notice shall disclose in reasonable detail the identity of the proposed transferee(s) including, without limitation, all parties holding controlling interests in
such proposed transferee), the proposed number, amount and type of Executive Securities to be transferred and the proposed terms and conditions of the Transfer and any other material information reasonably requested by the Board or CHS and shall include a true and correct copy of the written offer to purchase Executive Securities received by him. The delivery by the Transferring Holder of the Offer Notice shall create the following two (2) options:
(i) First, the Board, acting in good faith, may elect (in its sole discretion) to cause the Company to purchase all or any portion of the Executive Securities specified in the Offer Notice at the price and on the terms specified therein (provided, however, that any promissory note given by the Company pursuant to the terms of this Section 6 shall be subordinated to indebtedness owed to financial institutions on terms reasonably acceptable to such financial institutions) by delivering written notice of such election to the Transferring Holder as soon as practical, but in any event within thirty (30) days following the delivery of the Offer Notice (the "COMPANY OFFER PERIOD").
(ii) If the Company has not elected to purchase all of the Executive Securities within the Company Offer Period, then CHS may elect (in its sole discretion) to purchase all (but not less than all) of the Executive Securities not elected to be purchased by the Company at the price and on the terms specified in the Offer Notice by delivering written notice of such election to the Transferring Holder as soon as practical, but in any event within sixty (60) days following the delivery of the Offer Notice.
If the Company and/or CHS have elected to purchase all (but not less than all) of the Executive Securities offered by the Transferring Holder, the Transfer of such Executive Securities to the Company and/or CHS, as the case may be, shall be consummated as soon as practical after the delivery of the election notices, but in any event within thirty (30) days following the expiration of the Election Period. The purchasers of Executive Securities offered in the Offer Notice hereunder shall be entitled to receive customary representations and warranties as to ownership, title, authority to sell and the like from the Holder regarding such sale and to receive such other evidence, including applicable inheritance and estate tax waivers, as may reasonably be necessary to effect the purchase of the Executive Securities offered in the Offer Notice. Notwithstanding anything to the contrary herein contained, if the Company and CHS collectively have elected to purchase less than all of the Executive Securities offered by the Transferring Holder, then the Company and CHS shall be deemed to have elected not to purchase any of the Executive Securities offered by the Transferring Holder pursuant to this Section 6.
(c) TRANSFER SUBSEQUENT TO EXPIRATION OF ELECTION PERIOD. If the Company and CHS have not collectively elected to purchase all Executive Securities being offered, such Transferring Holder may, within sixty (60) days following the expiration of the Election Period and subject to the provisions of this Section 6 other than Section 6(b), Transfer such Executive Securities referred to in the Offer Notice to the party or parties named therein at a price no less than the price specified in the Offer Notice and on other terms and conditions offered in the Offer Notice. Executive Securities Transferred pursuant to the previous sentence shall thereafter continue to be subject to all restrictions on Transfer and other provisions of this Agreement, including, without limitation, the provisions of this Section 6 with respect to further Transfers of the Executive Securities and a transferee, as a condition of any such Transfer, shall agree in
writing to be bound by the provisions of this Agreement. Any Executive Securities not transferred within such sixty (60) day period shall be subject to the provisions of this Section 6 with respect to any subsequent Transfer.
(d) PERMITTED TRANSFERS. Anything contained in this Agreement to the contrary notwithstanding, Executive Securities may be Transferred without first complying with the provisions of Section 6 other than as provided in this paragraph (d): (i) by Executive or a Permitted Transferee to CHS (it being agreed and understood that CHS shall not be a Holder as a result of such Transfer of Securities), (ii) by Executive to any member of such Executive's Family Group, (iii) by a Permitted Transferee to Executive, (iv) to the personal representative of Executive or a Permitted Transferee who is deceased or adjudicated incompetent, (v) by the personal representative of Executive or a Permitted Transferee who is deceased or adjudicated incompetent to any member of such Executive's or Permitted Transferee's Family Group, or (vi) upon termination of a trust or custodianship which is a Permitted Transferee of a Holder, by the trustee of such trust or custodian of such custodianship to the person or persons who, in accordance with the provisions of such trust or custodianship, are entitled to receive the Executive Securities held in trust or custody (collectively, the "PERMITTED TRANSFEREES"); provided that (A) the restrictions contained in this Section 6 shall continue to be applicable to the Executive Securities after any such Transfer, and (B) the Permitted Transferees of such Executive Securities shall have agreed in writing to be bound by all of the provisions of this Agreement affecting the Executive Securities so transferred.
(e) CONSIDERATION FOR TRANSFER. Notwithstanding anything to the
contrary herein contained, except as may be required by Section 5 hereof, where
a Transfer is made for consideration, in no event shall any such Transfer by
Executive of Executive Securities be made for any consideration other than (i)
United States dollars payable in full upon consummation of such Transfer and/or
(ii) a promissory note with all amounts owed thereunder payable in United States
dollars.
7. PIGGYBACK REGISTRATION.
(a) For purposes of this Section 7, and without implication that the contrary would otherwise be true, the term "COMPANY" shall include any successor to the Company, the term "SHARES" shall include any securities of any such successor and the term "EXECUTIVE SHARES" shall include securities of any such successor issued in respect of Executive Shares. If, at any time or times, the Company determines to file with the SEC a registration statement covering any Shares to be issued or sold by the Company or CHS (or Affiliates of CHS), other than Shares or other securities of the Company which are issuable in an offering (i) to directors and employees of the Company or its Subsidiaries pursuant to an employee stock option, bonus or other employee benefit plan, (ii) in connection with the acquisition of another company's business by the Company or any of its Subsidiaries (whether by acquisition of stock or assets, or by merger, consolidation or other similar transaction) or the formation of a joint venture, or (iii) pursuant to a registration statement on any form which limits the amount of securities which may be registered by the issuer and/or selling securityholders or is not available for registering the Shares held by the Holders for sale to the public if and to the extent that such inclusion would make use of such form unavailable (and no Shares owned by CHS or Affiliates are being registered pursuant to such registration statement) (a "PIGGYBACK EVENT"), the Company shall (at
least fifteen (15) days prior to the filing of such proposed registration statement) notify each Holder of Executive Shares in writing of the proposed registration statement, such notification to describe in detail the proposed registration (including those jurisdictions where registration is required under federal and/or state securities laws). If one or more of such Holders requests the Company in writing, within ten (14) days of the receipt of such notification from the Company, to include in such registration statement any of such Holder's Executive Shares, then, subject to the remaining provisions hereof, the Company will use its best efforts to include those Executive Shares in the registration statement and to have the registration statement declared effective. Each such request by a Holder of Executive Shares shall specify the number of Shares intended to be offered and sold by each such Holder, shall express each such Holder's present intent to offer such Shares for distribution, shall (subject to the provisions of Section 7(b)); if the Company or CHS and its Affiliates has not arranged for a plan of distribution or other marketing arrangements for such distribution), describe the nature or method of the proposed offer and sale thereof and shall contain the undertaking of each such Holder to provide all such information and materials and take all such action as may be requested in order to permit the Company to comply with all applicable requirements of the SEC and to obtain acceleration of the effective date of such registration statement. The Company, at its sole option, may elect not to proceed with the registration statement which is the subject of such notice. The obligations of the Company under this Section 7(a) are subject to the limitations, conditions and qualifications set forth in Section 7(b). If an Executive decides not to include or is precluded from including) all of his Executive Shares in any registration statement thereafter filed by the Company, such Executive will nevertheless continue to have the right, pursuant to this Section 7, to include Executive Shares in future Piggyback Events, all upon the terms and subject to the conditions as set forth in this Agreement. For purposes of this Section 7, the phrase "Affiliates of the Company" shall not include CHS, the Company, Beacon Operating or any of its Subsidiaries.
(b) Notwithstanding anything to the contrary herein contained, if
CHS's or its Affiliates' Shares are included in such registration statement,
each Holder of Executive Shares shall be entitled to include in such
registration statement (subject to the limitations and requirements set forth in
Section 7(c)) a whole number of Executive Shares up to the product of (i) the
number of Executive Shares then owned by such Holder and (ii) a fraction, the
numerator of which is the number of Shares held by CHS or its Affiliates (other
than the Company and its Subsidiaries) which are included in the contemplated
registration, and the denominator of which is the number of Shares then owned by
CHS or its Affiliates other than the Company and its Subsidiaries (it being
understood that this sentence shall require such piggyback registration, and
shall not be construed as an obligation by Company to use best efforts to cause
such registration).
(c) The obligation of the Company pursuant to Subsections 7(a) and 7(b) above are subject to each of the following limitations, conditions and qualifications:
(i) the Company shall be entitled to reduce the number of Executive Shares of any such Holder to be included in such registration if the managing underwriter(s) of a proposed public offering of the Company's securities advises the Company that, in its opinion, (or, if the offering is not underwritten, upon the Company's reasonable determination that) inclusion of all of such Holder's requested Shares would adversely affect the public offering of securities being sold by the Company so long as
such reduction is proportionate to the reduction in the number of shares of CHS included in the offering.
(ii) the Company shall use its best efforts to cause the registration statement to remain current (including the filing of necessary supplements or post-effective amendments) during the period commencing on the initial effective date of such registration statement and ending on the date on which such registration statement shall have remained effective for ninety (90) days;
(iii) provided that the Company or CHS has not arranged for a plan of distribution and other marketing arrangements for such registration, it shall be a condition of the right of a Holder to participate that it shall have arranged for a plan of distribution of its Shares which are to be registered and made all pertinent marketing arrangements for such Shares. Any such plan and arrangements shall contemplate (i) a firm commitment underwriting or a best efforts underwriting, (ii) sales through a single broker-dealer (named in the registration statement as agent for such Holder pursuant to an agreement containing, without limitation, the agreement of such Holder not to offer or sell its Shares otherwise than through such broker-dealer unless and until such broker-dealer's authorization to sell the Shares has been terminated), or (iii) such other plan and arrangements as shall be approved by the Company. Notwithstanding the preceding sentence, if any securities to be sold by the Company or CHS pursuant to such registration statement are to be sold on a firm commitment basis through underwriters, those Holders desiring to sell their Shares in the offering shall, at the request of the Company or CHS, (i) sell their Shares on such basis through such underwriters and (ii) complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents consistent with the terms of this Agreement and reasonably required under the terms of such underwriting arrangements;
(iv) the Company will furnish to each participating Holder such number of copies of any prospectus (including any preliminary or summary prospectus) as such Holder may reasonably request in order to effect the offering and sale of the Executive Shares to be offered and sold by such Holder, but only while the Company is required under the provisions hereof to cause the registration statement to remain current;
(v) the Company shall include such qualification under applicable state securities laws as may be necessary to enable the Holders on whose behalf such registration is to be effected to offer and sell the Executive Shares which are the subject matter of their requests; provided, however, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service of process;
(vi) all expenses incurred in connection with any registration or qualification pursuant to Section 7(a) or 7(b) above, including, without limitation, all SEC registration fees, state securities filing fees, printing expenses (excluding the printing of any agreements, memoranda or other documents pertaining solely to the sale of Executive Shares by Holders) and fees and disbursements of experts used by the Company in connection with such registration, shall, subject to requirements of any
applicable regulatory agency, be borne by the Company. Each participating Holder (including CHS) shall bear the fees and disbursements of its own legal counsel, underwriting or brokerage discounts and commissions, and transfer taxes, on the sale of its Shares;
(vii) the Company may require, as a condition to fulfilling its obligations under the registration provisions of Section 7(a) and 7(b) of this Agreement, receipt of executed customary indemnification agreements in form reasonably satisfactory to the Company from the Holders whose Shares are to be registered, and the Holders may require, as a condition to fulfilling their obligations under the registration provisions of Section 7(a) and 7(b) of this Agreement, receipt of executed customary indemnification agreements from the Company and other participating holders of Shares in form reasonably satisfactory to the Holders whose Shares are to be registered;
(viii) the Company shall notify each participating Holder at any time when a prospectus relating to such Shares is required to be delivered under the Act, of the happening of any event which causes such prospectus as then in effect to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and, if necessary in the reasonable judgment of counsel for the Company, the Company will promptly prepare a supplement or amendment to such prospectus so that as thereafter delivered to the purchasers of such Shares, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading;
(ix) each participating Holder, upon receipt of any notice of the happening of any event of the kind described in Section 7(c)(viii) hereof, will immediately discontinue disposition of the Shares until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 7(c)(viii) hereof or until such Holder is advised in writing by the Company that the use of the prospectus may be resumed, and, if so directed by the Company, such Holder will, or will request the managing underwriter or underwriters (if any) to, deliver to the Company all copies, other than permanent file copies then in such holder's possession, of the prospectus covering such Shares current at the time of receipt of such notice;
(x) Executive agrees (i) to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event, in either case, as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or omits or would omit to state any material fact regarding such Holder required to be stated therein or necessary to make the statements therein not misleading, and (ii) promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Holder, 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 in light of the circumstances then existing; and
(xi) for purposes of this Agreement, the phrases "best efforts" and "best efforts to cause," when used with reference to efforts to be made by a party hereto or any of its affiliates shall not require such party or any of its affiliates to pay or transfer any money, property or other thing of value, shall require such party and its affiliates to act with all reasonable promptness and dispatch with respect thereto and shall require the other party and its affiliates to act with all reasonable promptness and dispatch and to cooperate in all material respects with the first party's efforts in connection therewith.
(d) TRANSFER OF SHARES IN OPEN MARKET TRANSACTIONS. This Section
7(d) shall apply to any proposed Transfer of Shares by any Holder in an Open
Market Transaction during all such times as CHS and/or its Affiliates owns in
the aggregate greater than thirty percent (30%) of the Shares. During each
calendar quarter during which sales of Shares are permitted to be made in
accordance with agreements ("STANDSTILL AGREEMENTS") with the underwriters
engaged in connection with a Public Sale, and during each calendar quarter
following the termination of the Standstill Agreements, any such Holder that
desires to Transfer Shares may sell such number of Shares as equals his pro rata
share of one percent (1.0%) of the then outstanding Shares (or such lesser
percentage or number as maybe permitted by the Standstill Agreements). Fifteen
(15) business days prior to the beginning of each calendar quarter during which
sales of Shares are permitted under the Standstill Agreements, and fifteen (15)
days prior to each calendar quarter after the termination of the Standstill
Agreements, such Holder that desires to Transfer Shares shall deliver a written
notice to the Company setting forth the number of Shares that such Holder
desires to sell (up to such Holder's pro rata share of the aggregate quarterly
maximum specified above) in Open Market Transactions during the succeeding
quarter. If such Holder that is Transferring does not elect to sell his pro rata
share, the Company may allocate the right to sell such unused pro rata share to
any Stockholder of the Company. Within three (3) business days following the
beginning of each applicable quarter, the Company shall deliver a written notice
to such Holder that is Transferring setting forth the amount of Shares permitted
to be sold (as determined in accordance with this Section 7(d)) by such Holder
during such applicable calendar quarter in Open Market Transactions. The Company
may, in its discretion, from time to time increase the aggregate amount of
Shares which may be sold in any calendar quarter in Open Market Transactions.
Any Shares sold in an Open Market Transaction shall cease to be bound by the
terms and provisions of this Agreement. In addition to his pro rata share of one
percent (1%), each Holder may sell a proportionate amount of the Shares held by
such Holder equal to the proportionate amount of Shares sold by CHS in Open
Market Transactions in the public markets from time to time.
8. SALE OF THE COMPANY.
(a) If the holder(s) of a majority of the Shares then outstanding and (if required under applicable law) the Board approve a Sale of the Company (an "APPROVED SALE") (and if the Sale of the Company is to an entity that is an Affiliate of CHS, the consideration for such Sale of the Company is fair to the Company and the holders of Shares as determined pursuant to the same mechanism used to determine Fair Market Value under Section 1), each Holder shall consent to and raise no objections against the Approved Sale, and if the Approved Sale is structured as a sale of Shares, each Holder shall, if requested by the holder(s) of a majority of the Shares then outstanding, sell (or otherwise Transfer) that percentage of his Executive Securities, on terms and conditions approved by the Board (if necessary) and the
holder(s) of a majority of the Shares then outstanding, as shall equal the percentage of Shares and other securities of the Company owned by CHS and any Affiliate or successor of CHS that are to be included in such transaction. Each Holder shall take all actions reasonably necessary or reasonably desirable (as determined by the holder(s) of a majority of the Shares then outstanding) in connection with the consummation of the Approved Sale. Without limiting the foregoing, (i) if the Approved Sale is structured as a merger, consolidation, joint venture or similar transaction, each Holder shall vote in favor of such transaction and waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation, and (ii) if the Approved Sale is structured as a sale or exchange of Shares, each Holder shall agree to sell or exchange all of the Shares and Options held by such Holder on the terms and conditions approved by the Board and the holders of a majority of the Shares then outstanding: The Company shall use best efforts to notify Executive in writing not less than thirty (30) days prior to the proposed consummation of an Approved Sale (or, Participation Sale as described in Section 8(b) below); PROVIDED that such Executive agrees that he or she will not, directly or indirectly (without the prior written consent of the Company), disclose to any other Person (other than to such Executive's legal counsel in confidence, as otherwise necessary to protect such Executive's rights under this Agreement or as otherwise required by law) any information related to such potential Sale of the Company.
(b) If CHS proposes to sell to a purchaser or related group of purchasers such number of Shares as equals or exceeds 50% of the then outstanding Shares determined on a Fully-Diluted Basis (whether in one transaction or a series of transactions) (a "PARTICIPATION SALE"), Executive may elect to participate in the contemplated transaction by delivering written notice to the Company and CHS within ten (10) days following the receipt by Executive of notice of such transaction. Executive shall be entitled to sell, at the same price and on the same terms as CHS, Shares equal to the product of (i) the number of Shares owned by such Executive on a Fully-Diluted Basis multiplied by (ii) the quotient of (x) the number of Shares sold by CHS in such transaction divided by (y) the aggregate number of Shares held by CHS at such time, on a Fully Diluted Basis. Notwithstanding anything to the contrary herein contained, this Section 8(b) shall not apply to (x) any Sale to any officer, director, employee, agent, or lender to the Company, Beacon Operating or any of its Subsidiaries, or (y) any Sale or other Transfer to any successor CHS approved fund or to any affiliate of CHS.
(c) If a Holder is required or elects to participate in an
Approved Sale or a Participation Sale pursuant to subsection (a) or (b) above:
(i) upon the consummation of the Approved Sale or the Participation Sale, as the
case may be, all of the Holders of Shares similarly situated shall receive the
same form and amount of consideration per Share, or if any Holders are given an
option as to the form and amount of consideration to be received, all such
Holders shall be given the same option; (ii) upon the consummation of the
Approved Sale or the Participation Sale, as the case may be, all of the holders
of Subordinated Notes similarly situated shall receive the same form and amount
of consideration in relation to the face amount of Subordinated Notes held by
such holders, or if any such holders are given an option as to the form and
amount of consideration to be received, all holders shall be given the same
option; and (iii) all Holders of then currently exercisable Options shall be
given an opportunity to either (A) exercise such rights prior to the
consummation of the Approved Sale or the Participation Sale, as the case may be,
and participate in such sale as Holders, or (B) upon the consummation of the
Approved Sale or the Participation Sale, as the case may be, receive in exchange
for such rights
consideration equal to the amount determined by multiplying (1) the same amount of consideration per Share received by the Holders in connection with the Approved Sale or the Participation Sale, as the case may be, less the exercise price per share of such rights to acquire Shares, by (2) the number of Shares represented by such rights. Without limiting the foregoing, any Holder participating in a transaction pursuant to this Section 8 shall be required to make such representations, warranties and covenants, and grant such indemnification, as may be required by the purchaser of the Shares and which have been made by CHS or the holders of a majority of the outstanding Shares, as the case may be. Holders exercising rights under this Section 8(c) and 8(b) shall be required to make such representations and warranties and grant such indemnification as may be required by the purchaser of Shares and have been made by CHS in such transaction.
(d) If the Board or the holders of a majority of the outstanding
Shares of the Company enter into any negotiation or transaction for which Rule
506 (or any similar rule then in effect) promulgated by the SEC under the 1933
Act may be available with respect to such negotiation or transaction (including
a merger, consolidation or other reorganization), each Holder shall, acting
together with other Holders, at the request of the Company, appoint a purchaser
representative (as such term is defined in Rule 501 under the 1933 Act)
reasonably acceptable to the Company. If Executive appoints a purchaser
representative designated by the Company, the Company shall pay the fees of such
purchaser representative, but if Executive declines to appoint the purchaser
representative designated by the Company, Executive shall appoint another
purchaser representative (reasonably acceptable to the Company), and Executive
shall be responsible for the fees of the purchaser representative so appointed.
(e) Each Holder shall bear such Holder's pro-rata share (based upon the number of Shares sold on a Fully-Diluted Basis) of the costs of any sale of Executive Securities pursuant to an Approved Sale or a Participation Sale to the extent such costs are not otherwise paid by the Company or the acquiring party; provided, however, that all Holders are treated on an equal basis. Costs incurred by a Holder on such Holder's own behalf shall not be considered costs of the transaction hereunder.
(f) Notwithstanding anything to the contrary contained in this Agreement, the provisions of Section 8 shall terminate upon the consummation of a Sale of the Company or a Public Offering.
9. LIMITED PREEMPTIVE RIGHTS.
(a) Except for the issuance of Shares or Options (A) in connection with the acquisition of another Person's's business by the Company or any of its Affiliates (whether by acquisition of stock or assets, or by merger, consolidation or other similar transaction), the acquisition of any stock or assets of any Person or the formation of a joint venture, (B) pursuant to a Public Offering, (C) to current or future officers, employees, directors, agents or consultants of the Company or its Subsidiaries, to Affiliates of the Company (or any of their respective officers, directors, employees or agents) or to holders of the existing securities of the Company (issued by the Company), or (D) to the Company's or any Subsidiary's lenders in connection with the incurrence, renewal or maintenance of indebtedness (including funded indebtedness), if the Company authorizes the issuance and sale of any Shares (other than as a dividend on the
outstanding Shares) or any Options, pursuant to the exercise of warrants or otherwise, the Company shall first offer to sell to Executive a portion of such Shares or Options equal to an amount determined by multiplying (x) the amount obtained by dividing (1) the number of Executive Shares held by Executive immediately prior to the proposed issuance of securities, on a Fully-Diluted Basis, by (2) the aggregate number of Shares outstanding immediately prior to the proposed issuance of such securities, on a Fully-Diluted Basis by (y) the amount of such Shares or Options being issued in the transaction; provided that Executive, if he is exercising his pre-emptive rights pursuant to this Section 9, shall, as a condition to such exercise, also be required to purchase the same proportionate amount of any other securities that the purchasers of such Shares or Options purchase in connection with the issuance of the securities subject to the preemptive rights. Notwithstanding anything in this Section 9 to the contrary, if preemptive rights arc exercised pursuant to this Section and pursuant to the preemptive rights granted under the Executive Securities Agreements and the Chief Executive Securities Agreements for an aggregate number of Shares or Options which is greater than 100% of the Shares or Options to be issued and sold by the Company, then the number of Shares that each executive, including without limitation the Executive, shall be entitled to purchase pursuant to such agreements shall be reduced, on a pro rata basis among all such executives exercising preemptive rights under such agreements, to the extent necessary such that the number of Shares and Options purchased pursuant to the preemptive rights exercised under such agreements equal the number of Shares and Options to be issued and sold by the Company.
(b) Executive shall exercise Executive's pre-emptive rights hereunder within fifteen (15) days following the receipt of written notice from the Company describing in reasonable detail the purchase price, the payment terms for the Shares or Options, the period in which the pre-emptive right hereunder is to be exercised, and Executive's percentage allotment. The Executive exercising the Executive's pre-emptive right shall execute all documentation, and take all actions, as may be reasonably requested by the Company in connection therewith.
(c) Upon the expiration of the offering period described above, the Company shall be entitled to sell such Shares or Options which Executive has not elected to purchase during the sixty (60) day period following such expiration, on terms and conditions no more favorable to the purchasers thereof than those offered to Executive. Any Shares or Options offered or sold by the Company following such sixty (60) day period shall be reoffered to Executive pursuant to the terms of this Section 9.
(d) The rights of the Executive under this Section 9 shall terminate upon the earlier of (i) consummation of a Sale of the Company, or (ii) the consummation of a Public Offering.
10. ELECTION OF DIRECTOR. Until the date of termination of the employment of Executive with Beacon Operating and its Subsidiaries (for any reason whatsoever), CHS shall vote all Shares owned by it, or where the Company seeks to take action by written consent in lieu of a meeting of stockholders, to execute written consents in lieu of such meeting of stockholders with respect to such Shares, at such time as the election of the Board of Directors is considered, for the election of Executive to serve as a member of the Board of Directors, it being understood, however, that CHS shall control the Board of Directors. Executive shall not be entitled to receive director's fees for his service on the Board. The right to serve as a-director of the
Company is personal to Executive and Executive shall not be permitted to appoint a designee to serve as his replacement as a director. Notwithstanding the foregoing, the provisions of this Section 10 shall be of no further force and effect immediately upon: (i) Executive's material breach of the Asset Purchase Agreement dated as of August 21, 1997 between Seller, Beacon Operating and stockholders of Seller, or (ii) any Closing Document (as defined in the Asset Purchase Agreement), including without limitation, that certain Confidentiality and Non-Competition Agreement between Executive and Beacon Operating of even date herewith.
11. ADDITIONAL RESTRICTIONS ON TRANSFER.
(a) LEGEND. All certificates evidencing Executive Shares which are subject to this Agreement shall bear the following legend:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SHARES REPRESENTED HEREBY ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN A CHIEF EXECUTIVE SECURITIES AGREEMENT BETWEEN BEACON HOLDING CORPORATION ("THE COMPANY") AND THE ORIGINAL HOLDER HEREOF DATED AS OF AUGUST 21, 1997 AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF THIS SECURITY UNTIL THE CONDITIONS THEREIN HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
If Executive Shares remain restricted following a Public Offering and the above legend thereby becomes inappropriate in whole or in part, a new, appropriate legend shall be set forth on such certificates.
(b) OPINION OF COUNSEL. Executive may not Transfer any Executive Shares without first delivering to the Company, if reasonably requested by the Company, an opinion of counsel (reasonably acceptable in form and substance to the Company) that neither registration nor qualification under the 1933 Act and applicable state securities laws is required in connection with such Transfer.
12. NOTICES. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by confirmed facsimile (provided, however, that notices delivered by facsimile shall only be effective if such notice is also delivered by hand, or mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier (charges prepaid), on or before two (2) business days after its delivery by facsimile) or by reputable overnight courier service (charges prepaid) to the recipient at the address indicated below:
TO THE COMPANY:
Beacon Holding Corporation
c/o Code, Hennessy & Simmons III, L.P. 10
South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Brian Simmons and Peter M. Gotsch
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE TO THE COMPANY) TO:
Altheimer & Gray
10 South Wacker Drive, Suite 4000 Chicago,
Illinois 60606
Attention: S. Michael Peck, Esq. and James R. Cruger, Esq.
TO EXECUTIVE:
Andrew R. Logie 35 Myrtle Street Millis, MA 20254
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE TO THE EXECUTIVE) TO:
Sherburne, Powers & Needham, P.C. One Beacon
Street
Boston, MA 02108
Attention: William Machen, Esq. and Theodore Hanselman, Esq.
TO CHS:
Code, Hennessy & Simmons III, L.P. 10 South
Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Brian Simmons and Peter M. Gotsch
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE TO CHS TO:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: S. Michael Peck, Esq. and James R. Cruger, Esq.
and/or such other address and/or to the attention of such other person as the
recipient party shall have designated by notice given in accordance with this
Section 12. Any notice under this Agreement shall be deemed to have been given,
(a) if delivered in person or sent by confirmed facsimile or overnight courier,
one business (1) day following delivery to recipient, facsimile
transmission or delivery to the courier (as the case may be), or (b) if mailed, three (3) business days following deposit in the U.S. mail.
13. AMENDMENT AND TERMINATION.
(a) This Agreement shall be terminated: (i) upon the mutual agreement of the Company (with the approval of the Board), CHS and holders of at least seventy percent of the Executive Securities or (ii) upon the consummation of a Sale of the Company (other than as a result of a sale in a Public Offering) provided, however, that the representations and warranties of the parties hereto contained in Section 2(a) and 2(b) of this Agreement shall survive termination of this Agreement. The rights and obligations of the parties shall survive termination of the Agreement to the extent that any performance i s required after such termination.
(b) This Agreement may not be amended by the Company without the written consent of CHS and Executive (but only if he owns any Shares at such time); provided that in no event shall any such amendment materially and adversely affect the rights of any one Holder without the prior written consent of such Holder unless such amendment materially and adversely affects the rights of all holders.
14. GENERAL PROVISIONS.
(a) SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction so as to best give effect to the intent of the parties under this Agreement.
(b) COMPLETE AGREEMENT. This Agreement, the Convertible Note and the Subordinated Note executed concurrently herewith, collectively embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.
(c) COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
(d) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company, CHS and their respective legal representatives, heirs, successors and assigns (including subsequent holders of Executive Securities); provided that the rights and obligations of Executive under this Agreement shall not be assignable except in connection with a Permitted Transfer of Executive Securities hereunder.
(e) CHOICE OF LAW. This Agreement shall be governed and construed in accordance with the internal laws of the State of Illinois, without giving effect to any choice of
law or conflict of law provision or rule (whether of the Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Illinois.
(f) CONSENT TO JURISDICTION. Executive irrevocably consents and submits to the exclusive jurisdiction of any local, state or federal court within the County of Cook in the State of Illinois for enforcement by the Company or CHS of this Agreement. The Company and CHS irrevocably consent and submit to the exclusive jurisdiction of any local, state or federal court within the County of Cook in the State of Illinois for enforcement by Executive of this Agreement. Executive, the Company and CHS irrevocably waive any objection they may have to venue in the defense of an inconvenient forum to the maintenance of such actions or proceedings to enforce this Agreement.
(g) REMEDIES. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs caused by any breach of any provision of this Agreement and to exercise all other rights existing in such party's favor. In the event of a dispute hereunder, the prevailing party's reasonable attorney's fees and costs shall be reimbursed by the opposing party or parties in such dispute within fourteen days following a judgment by a court or tribunal of competent jurisdiction over such exercise or enforcement. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.
(h) WAIVER. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
(i) BUSINESS DAYS. If any time period forgiving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday.
(j) GENDER. As used in this Agreement, the masculine, feminine or neuter gender shall be deemed to include the others whenever the context so indicates or requires.
(k) HEADINGS. The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Chief Executive Securities Agreement on the date first written above.
BEACON HOLDING CORPORATION
By: /s/ Marcus George
--------------------------------------
Its: Vice President
--------------------------------------
|
CODE, HENNESSY & SIMMONS III, L.P.
By: CHS Management III, L.P.,
its general partner
By: CODE, HENNESSY & SIMMONS, INC.,
its general partner
By: /s/ Peter M. Gotsch
-----------------------------
Its: Principal
-----------------------------
|
EXECUTIVE
/s/ Andrew R. Logie ------------------------------------- Name: Andrew R. Logie |
Exhibit 10.5
EXECUTIVE SECURITIES AGREEMENT
This Executive Securities Agreement ("AGREEMENT") is entered into and effective as of October 20, 2003 by and among Beacon Roofing Supply, Inc., a Delaware corporation (the "COMPANY"), Robert R. Buck ("EXECUTIVE") and Code, Hennessy & Simmons III, L.P., a Delaware limited partnership ("CHS").
R E C I T A L:
The Company, CHS and Executive desire to enter into an agreement pursuant to which (among other things) (a) Executive shall purchase, and the Company shall sell, shares of Class A Common Stock of the Company, and (b) certain obligations regarding the transfer the Company's securities are set forth.
A G R E E M E N T S:
The parties hereto agree as follows:
1. DEFINITIONS.
(a) For purposes of this Agreement, the following terms shall have the following meanings unless the context indicates otherwise:
"AFFILIATE" of a Person means any other Person controlling, controlled by or under common control with such Person and any partner of such Person if such Person is a partnership. An "Affiliate," with respect to the Company includes each of the Company's direct or indirect subsidiaries.
"APPLICABLE COUNTY" means Suffolk County, Massachusetts; provided, however, that when and if Executive relocates his offices to a location outside of the greater Boston metropolitan area in accordance with Section 5(b) of the Employment Agreement, then the Applicable County shall be (at all times thereafter) the county in which such relocated office is situated immediately after such relocation.
"BEACON OPERATING" means Beacon Sales Acquisition, Inc., a Delaware corporation.
"BOARD" means the board of directors of the Company.
"BUSINESS" has the meaning given to it in Section 11(a).
"CAUSE" means any of the following, as determined by the board of directors of Beacon Operating, in its reasonable judgment: (i) Executive's failure or refusal to perform such material duties and responsibilities as are reasonably requested by the board of directors of Beacon Operating; (ii) Executive's failure to observe all material policies of the Beacon Operating generally applicable to executives of Beacon Operating; (iii) Executive's gross negligence or willful misconduct in the performance of Executive's duties; (iv) any act of fraud or embezzlement by Executive against the Company Group, other wrongful taking by Executive of money or other assets of the Company Group for Executive's personal use, self-dealing by Executive or his spouse or children directly or indirectly involving the Company Group, or Executive's conviction for (or plea of nolo contendere or the like with respect to) any felony; (v) Executive's dissemination of information, observations and data concerning the business plans, financial data, referral sources, customers, suppliers, manufacturing procedures and techniques, trade secrets or acquisition strategies of the Company or its Subsidiaries, or any other Confidential Information in violation of Section 11(b); (vi) a breach by Executive of his obligations under
Section 2(a) hereof; or (vii) any other material breach of the terms of this Agreement or the Employment Agreement.
"CLASS A SHARES" means shares of Class A Common Stock of the Company.
"CLASS B SHARES" means shares of Class B Common Stock of the Company.
"COMPANY GROUP" means the Company and its direct and indirect subsidiaries, including Beacon Operating.
"CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
"CREDIT AGREEMENT" means (i) that certain Amended and Restated Loan and Security Agreement dated as of June 8, 2001 among Beacon Sales Acquisition, Inc., as Borrower, the Domestic Subsidiaries of Beacon Sales Acquisition, Inc. named therein as Domestic Subsidiary Guarantors, Heller Financial, Inc. as Agent and as a Lender, CIT Group/Business Credit, Inc. and GMAC Business Credit LLC as Syndication Agents and as Lenders, Wachovia Bank, N.A. and Fleet Capital Corporation as Documentation Agents and as Lenders and the Financial Institutions listed on the signature pages thereof as Lenders and (ii) any replacement credit or loan agreement between the Company and/or Beacon Operating and the Lenders specified in clause (i) above or any new or replacement lender.
"DISABILITY" means that (1) Executive is suffering from any illness, injury or other disability which has caused (or which the board of directors of Beacon Operating reasonably determines will cause) Executive to be unable to perform Executive's duties with Beacon Operating for 90 consecutive days or for 120 cumulative days during any 180 day period; or (2) Executive is receiving long term disability benefits under any policy, plan or program.
"EMPLOYMENT AGREEMENT" means that certain Employment Agreement effective as of the date hereof, by and between Executive and Beacon Operating.
"EXECUTIVE SECURITIES" means any and all (i) Executive Shares, (ii) Subordinated Notes (if any) acquired by Executive; (iii) vested Options issued to Executive, and (iii) securities of the Company issued or issuable with respect to the securities referred to in clauses (i), (ii) and (iii) above by way of a stock split, stock dividend, or other recapitalization, in each case whether on or following the date of this Agreement. Executive Securities shall continue to be Executive Securities in the hands of any Holder other than Executive (other than the Company, its Subsidiaries or CHS and except for transferees in a Public Sale or a Sale of the Company), and, except as otherwise provided in this Agreement, each such other Holder shall succeed to all rights and obligations attributable to Executive as a Holder hereunder.
"EXECUTIVE SHARES" means all Shares acquired by Executive pursuant to this Agreement or any other agreement, option plan or other arrangement with the Company or any Subsidiary, and all Shares of the Company issued or issuable with respect to such Shares by way of a stock split, stock dividend or other recapitalization, in each case whether on or following the date of this Agreement.
"EXEMPT TRANSACTION" means any transfer of Executive Securities pursuant to Section 3, 5(d), 7 or 13 of this Agreement.
"FAIR MARKET VALUE" of any security of the Company means:
(i) the average of the closing prices of the sales of such
security on all securities exchanges on which such security may at the time
be listed, or, if there have been no sales on any such exchange on any
particular day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such particular day, or, if on any
particular day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00
p.m., New York time, or, if on any particular day such security is not
quoted in the NASDAQ System, the average of the highest bid and lowest
asked prices on such particular day in the domestic over-the-counter market
as reported by the National Quotation Bureau Incorporated, or any similar
successor organization, in each such case averaged over a period of
twenty-one (21) business days ending on the day as of which the Fair Market
Value is being determined; or
(ii) with respect to any security which is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market for the entire twenty-one (21) day averaging period specified above, the fair value of such security as determined by a majority of the members of the Board utilizing valuation methods reasonable to the industry.
With respect to Options, "Fair Market Value" means the amount determined pursuant to the preceding sentence less the exercise price for such Option. In determining the fair value of securities, the Board shall not apply a discount for minority interest or lack of liquidity. In no event shall the Fair Market Value of a debt instrument be greater than the outstanding principal and accrued and unpaid interest on that debt instrument.
"FAMILY GROUP" means the spouse and immediate descendants (whether natural or adopted) of Executive (collectively, "RELATIVES"), any custodian of a custodianship for and on behalf of one or more Relatives or Executive and any trustee of a trust solely for the benefit of one or more Relatives.
"FULLY-DILUTED BASIS" shall mean the number of Shares which would be outstanding, as of the date of computation, if all Options (except options to the extent not then vested) to acquire Shares had been converted or exercised.
"HOLDER" means any holder of Executive Securities (including, without limitation, Executive and Executive's Permitted Transferees).
"INDEPENDENT THIRD PARTY" means any Person who, immediately prior to the contemplated transaction, does not directly or indirectly beneficially own in excess of five percent (5%) of the Shares on a Fully-Diluted Basis, who is not an Affiliate of any such five percent (5%) owner and who is not the spouse or descendant (by birth or adoption) of any such five percent (5%) owner.
"INITIAL PUBLIC OFFERING" means the Company's initial Public Offering.
"1933 ACT" means the Securities Act of 1933, as amended from time to time, or any successor thereto.
"1934 ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto.
"OPTIONS" means (i) all warrants, options or other rights to subscribe for purchase or otherwise acquire Shares and (ii) all or any securities convertible into or exchangeable for Shares.
"ORIGINAL COST" means $15,900 per Class A Share (such amount to be equitably adjusted, upward or downward, for stock splits, stock dividends, recapitalizations and the like), provided that the Original Cost of Executive Shares purchased pursuant to the exercise of Options shall be the exercise price, if any, actually paid therefor, and if such Options have not been exercised, the Original Cost of such Options shall be the greater of $0.01 per Option or the cash price actually paid therefor.
"OUTSTANDING INDEBTEDNESS" means, with respect to any Subordinated Note, the outstanding principal balance of, and all accrued and unpaid interest under, such Subordinated Note.
"PERSON" means an individual, a partnership, a limited partnership, a corporation, a limited liability company or partnership, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or the United States of America or any other nation, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government.
"PUBLIC OFFERING" means a public offering of Shares (or the securities of any successor to the Company) or any shares of capital stock of a subsidiary of the Company (or its successor) pursuant to an effective registration statement under the 1933 Act (except on Form S-4 or S-8 or any successor form).
"PUBLIC SALE" means any sale pursuant to a Public Offering or any sale to the public pursuant to Rule 144 (as defined below).
"RESIGNATION" means voluntary termination by Executive of his employment with the Company and the Subsidiaries, but shall not include Retirement. A resignation triggered by the diminution of Executive's title of President and Chief Executive Officer of the Company or of Beacon Operating or a material diminution in his duties or a reduction in Executive's Base Salary (as defined in the Employment Agreement) or bonus opportunity from Beacon Operating shall not constitute a Resignation but rather a termination by Beacon Operating without Cause. For purposes hereof, Executive's "bonus opportunity" shall be treated as reduced if (and only if) Beacon Operating breaches its obligations under Section 3(b) of the Employment Agreement. If Executive's employment ends effective as of the expiration of the then current term of the Employment Agreement, and such event occurs because the Company is unwilling to extend the Employment Agreement on its then current terms, this shall be treated as a termination without Cause and not as a Resignation. If Executive's employment ends effective as of the expiration of the then current term of the Employment Agreement, other than in the circumstances described in the preceding sentence, this shall be treated as Resignation and not as a termination without Cause.
"RETIREMENT" means the voluntary termination of Executive's employment with the Company and its Subsidiaries when Executive is at least 65 years old. Such a termination shall not be considered a "Resignation".
"SALE OF THE COMPANY" means the sale (in a single transaction or in a series of related transactions) of the Company to any Independent Third Party or group of Independent Third Parties pursuant to which such party or parties acquire (i) Shares (whether by merger, consolidation, sale or transfer of shares, reorganization, recapitalization or otherwise) possessing the voting power under normal circumstances to elect a majority of the members of the Board or (ii) all or substantially all of the assets of the Company and its Subsidiaries, determined on a consolidated basis.
"SEC" means the United States Securities and Exchange Commission.
"SHARES" means Class A Shares or Class B Shares (now or hereafter issued), and any shares issued in respect of such shares pursuant to a dividend, stock split reclassification or like action, or pursuant to an exchange (including a merger).
"SUBORDINATED NOTES" means the 12% Junior Subordinated Promissory Notes issued from time to time by the Company or assumed by the Company from time to time.
"SUBSIDIARY" means any Person of which the Company or Beacon Operating owns securities having a majority of the voting power in electing the board of directors directly or through one or more Subsidiaries (or, in the case of a partnership, limited liability company or other similar entity, securities conveying, directly or indirectly, a majority of the economic interests in such partnership or entity). In the case of the Company, the term Subsidiary or Subsidiaries shall include Beacon Operating.
"TRANSFER" shall mean any transfer, sale, assignment, pledge, encumbrance or other disposition (irrespective of whether any of the foregoing are effected, with or without consideration, voluntarily or involuntarily, by operation of law or otherwise, or whether INTER VIVOS or upon death).
(b) OTHER DEFINITIONS. Other defined terms are contained in the body of this Agreement.
2. PURCHASE AND SALE OF EXECUTIVE SHARES AND SUBORDINATED NOTES.
(a) CLOSING. Executive shall purchase from the Company, and the Company shall sell to Executive, at a time prior to January 1, 2004 that Executive shall designate, 31.447 Class A Shares at a price of $15,900.00 per Class A Share. The aggregate purchase price for such Class A Shares is Five Hundred Thousand Dollars ($500,000) (the "ORIGINAL SUBSCRIPTION PRICE"). The Original Subscription Price shall be paid to the Company as follows: at the closing for such purchase, Executive shall pay to the Company $500,000 in cash, by cashiers check or by wire transfer in immediately available funds.
(b) EXECUTIVE REPRESENTATIONS AND WARRANTIES. In connection with the purchase and sale of Executive Securities pursuant to this Agreement, Executive represents and warrants to the Company, and agrees and acknowledges that:
(i) The Executive Securities to be acquired by Executive pursuant to this Agreement are and shall be acquired for Executive's own account, for investment purposes only and not with a present view to, or intention of, distribution or resale thereof in violation of the 1933 Act or any state securities laws and that, irrespective of any other provisions of this Agreement, the Executive Securities shall be Transferred only in compliance with all applicable federal and state securities laws, including, without limitation, the 1933 Act.
(ii) The Executive Securities are not registered under the 1933 Act and must be held by Executive until such Executive Securities are registered under the 1933 Act or an exemption from such registration is available. The Company shall have no obligation to take any actions that may be necessary to make available any exemption from registration under the 1933 Act, and the Company shall place "stop transfer" restrictions on the party responsible for recording Transfers of Executive Securities in violation of the foregoing provisions of this clause (ii).
(iii) Executive is familiar with Rule 144 ("RULE 144") adopted by the SEC which establishes guidelines governing, among other things, the resale of "restricted securities" (securities, such as Executive Securities, which are acquired from the issuer of such securities in a transaction not involving any Public Offering).
(iv) Rule 144 is not presently available for Transfers of the Executive Securities because, among other things, the Company is not presently required to file the reports required to be filed by Section 15(d) of the 1934 Act, and does not have a class of securities registered pursuant to Section 12 of that statute; and, even if the Company were required to file reports under the 1934 Act, and had filed all reports required to be filed, reliance on Rule 144 to Transfer securities is subject to other restrictions and limitations, as set forth in Rule 144.
(v) In connection with any Transfer of Executive Securities under Rule 144 or pursuant to any other exemption, Executive may, at the option of the Company, be required to deliver to the Company an opinion from counsel for Executive (reasonably acceptable to the Company) and/or receive an opinion from counsel for the Company, to the effect that all applicable federal and state securities law requirements have been met.
(vi) Executive is the President and Chief Executive Officer of the Company.
(vii) Executive is able to evaluate the risks and merits of the investment in the Executive Securities and to make an informed investment decision with respect thereto.
(viii) Executive is able to bear the economic risk of Executive's investment in the Executive Securities for an indefinite period of time because the Executive Securities have not been registered under the 1933 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or unless an exemption from such registration is available.
(ix) Executive has reviewed financial and other information with respect to the Company and the Subsidiaries and all such other documents and information made available to, or requested by, Executive, and Executive has had the opportunity to ask questions and receive answers concerning all such materials and the terms and conditions of the offering of the Executive Securities. Executive has had full access to such other information and materials concerning the Company as Executive has requested. The Company has answered all inquiries that Executive has made to the Company relating to the Company and its Subsidiaries and the sale of the Executive Securities hereunder.
(x) The execution, delivery and performance of this Agreement by Executive does not and shall not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject.
(xi) Executive has not granted any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement.
(xii) Executive has the legal capacity to execute and perform this Agreement. This Agreement has been duly executed and delivered by Executive, and constitutes a valid and legally binding obligation of Executive, enforceable against him in accordance with its terms (except to the extent that enforcement may be affected by laws relating to bankruptcy, reorganization, insolvency and creditors' rights and by the availability of injunctive relief, specific performance and other equitable remedies).
(xiii) Executive is an "Accredited Investor" as defined in Regulation D as promulgated under the 1933 Act.
(c) COMPANY REPRESENTATIONS AND WARRANTIES. In connection with the purchase and sale of Executive Securities pursuant to this Agreement, the Company represents and warrants to Executive that:
(i) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has full corporate power and authority to enter into and perform its obligations under this Agreement. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder have been duly authorized and approved by all requisite corporate action. This Agreement has been duly executed and delivered by a duly authorized officer of the Company.
(ii) The execution, delivery and performance of this Agreement by the Company does not and shall not conflict with, violate or cause a breach of any of the terms or provisions of the Certificate of Incorporation of the Company or its bylaws, or of any agreement, contract or instrument to which the Company is a party, or any judgment, order or decree to which the Company is subject.
(d) ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. As an additional inducement to the Company to issue Executive Shares to Executive, Executive acknowledges and agrees that:
(i) Neither the issuance of Executive Shares to Executive nor any provision contained herein shall entitle Executive to remain in the employment of the Company or any of its Subsidiaries or affect the right of the Company or any such Subsidiary to terminate Executive's employment (subject to the provisions of the Employment Agreement).
(ii) Shares issued by the Company pursuant to a stock dividend, stock split, reclassification or like action, or pursuant to the exercise of a right granted by the Company to all holders of Shares to purchase Shares on a proportionate basis, shall be Transferred only, and for all purposes be treated, in the same manner as, and be subject to the same options with respect to, the Shares which were split or reclassified or with respect to which a stock dividend was paid or rights to purchase Shares on a proportionate basis were granted. In the event of a merger of the Company where this Agreement does not terminate, partnership units, membership units or shares of common stock (and/or securities convertible into such units or shares) which are issued in exchange for Shares shall thereafter be deemed to be Shares subject to the terms of this Agreement.
(iii) Any Person to whom Executive Securities are to be Transferred (except pursuant to a Public Offering or a Sale of the Company) shall execute and deliver, as a condition to such Transfer, whatever documents are deemed reasonably necessary by the Company, in consultation with its counsel, to evidence such party's joinder in, acceptance of, and agreement with, the obligations with respect to the Executive Securities contained in this Agreement. No Executive Securities may be Transferred (if the proposed transferee is married), unless, prior to that Transfer, the transferee furnishes a spousal consent in the form attached hereto as EXHIBIT A whereby that spouse agrees that his or her marital property interest or community property interest, if any, in the Executive Securities held from time to time by the transferee is subject to this Agreement.
(iv) Within fifteen (15) days from the date hereof, Executive shall make an election with the Internal Revenue Service under Section 83(b) of the Internal Revenue Code and the regulations promulgated thereunder in form and substance reasonably satisfactory to the Company.
(v) Except with the prior written consent of CHS, Executive shall not grant any proxy or become party to any voting trust or other agreement with respect to the Executive Securities or any interest therein.
3. REPURCHASE OPTION.
(a) GENERAL. Upon the termination of Executive's employment with the
Company for any reason ("TERMINATION"), all Executive Securities issued to
Executive, whether held by Executive or one or more of Executive's transferees
(collectively, the "AVAILABLE SECURITIES"), shall be subject to repurchase by
CHS and the Company pursuant to the terms and conditions set forth in this
Section 3 (the "REPURCHASE OPTION").
(b) COMPANY OPTION. The Company may elect (in its sole discretion) to purchase all or any portion of the Available Securities pursuant to the Repurchase Option by delivering written notice (the "REPURCHASE NOTICE") to CHS and Executive within thirty (30) days following Termination. The Repurchase Notice shall set forth the number and amount of Available Securities to be acquired from each Holder, the aggregate consideration to be paid for such securities and the time and place for the closing of such purchase.
(c) CHS OPTION. If for any reason the Company does not elect to purchase all of the Available Securities pursuant to the Repurchase Option, CHS may elect (in its sole discretion) to exercise the Repurchase Option for all (but not less than all) of the Available Securities which the Company has not elected to purchase (the "SECURITIES AVAILABLE FOR CHS"). Within sixty (60) days following Termination, CHS may elect to purchase all (but not less than all) of the Securities Available for CHS by giving written notice to Executive as to the number and amount of securities being purchased by CHS from each Holder (the "SUPPLEMENTAL REPURCHASE NOTICE").
(d) REPURCHASE PRICE. Upon exercise of the Repurchase Option, the purchase price for the Available Securities (the "REPURCHASE PRICE") shall be as follows:
(i) if the Repurchase Option is triggered by termination of Executive's employment by Beacon Operating by reason of Executive's death, Executive's Disability, termination of Executive's employment by Beacon Operating without Cause or the Executive's Retirement, the Repurchase Price shall be the greater of (A) the Original Cost (in the case of Executive Shares and Options) or Outstanding Indebtedness (in the case of Subordinated Notes, if any) or (B) the Fair Market Value of the Available Securities as of the date of Termination; or
(ii) if the Repurchase Option is triggered by termination of Executive's employment by Beacon Operating for Cause or Resignation of the Executive (other than upon Retirement), the Repurchase Price shall be the lesser of (A) the Original Cost (in the case of Executive Shares and Options) or Outstanding Indebtedness (in the case of Subordinated Notes, if any) and (B) the Fair Market Value of the Available Securities as of the date of Termination.
Notwithstanding anything to the contrary herein, if the aggregate consideration for the Available Securities is finally determined to be different than the aggregate consideration set forth in the Repurchase Notice or the Supplemental Repurchase Notice, then neither the Company nor CHS shall have any obligation to purchase the Available Securities that were the subject of such notice.
(e) CLOSING. If and only if the Company and CHS collectively have
elected to purchase all (but not less than all) of the Available Securities, the
purchase of Available Securities pursuant to this Section 3 shall be consummated
at the Company's principal office at 10:00 a.m., on the thirtieth (30th) day
next following the final determination of the Repurchase Price as provided in
Section 3(d) or on such earlier day as designated by CHS or the Company, as the
case may be, in its sole discretion, upon not less than ten (10) days prior
notice to Executive. If such date is a Saturday, Sunday or legal holiday, the
closing shall occur at the same time and place on the next succeeding business
day. Subject to Section 4
hereof, at the option of the Company and/or CHS, the Person exercising the Repurchase Option shall pay for the Available Securities to be purchased pursuant to the Repurchase Option by (i) delivery of a cashier's check or wire transfer of immediately available funds, (ii) delivery of a non-negotiable junior subordinated promissory note (the "REPURCHASE NOTE") in the form of EXHIBIT B attached hereto, the principal amount of which shall bear interest at the rate of eight percent (8%) per annum, with interest and a pro rata portion of principal payable quarterly over a two-year period following delivery of the Repurchase Note, and with such additional terms (including subordination provisions) as shall be required by the senior lenders to the Company and/or its Subsidiaries and/or (iii) by set off against any and all obligations due and owing the Company and/or its Subsidiaries from the Executive, or any combination of the foregoing. The purchasers of Executive Securities to be purchased pursuant to the Repurchase Option hereunder shall be entitled to receive customary representations and warranties as to ownership, title, authority to sell and the like from the Holders regarding such sale and to receive such other evidence, including applicable inheritance and estate tax waivers, as may reasonably be necessary to effect the purchase of the Executive Securities to be purchased pursuant to the Repurchase Option. Notwithstanding anything to the contrary herein contained, if the Company and CHS collectively have elected to purchase less than all of the Available Securities, then the Company and CHS shall be deemed to have elected not to purchase any of the Available Securities pursuant to the Repurchase Option.
(f) FAILURE TO DELIVER SHARES. If Executive or any other Holder of
Executive Securities whose Executive Securities are to be purchased pursuant to
Section 3 or 5 fails to deliver them on the scheduled closing date of such
purchase, the Company, CHS or their respective designees (as the case may be)
may elect to deposit the consideration representing the purchase price of the
Executive Securities with the Company's attorney (or any other third party,
including a bank or a financial institution), as escrowee. In the event of the
foregoing election, the Executive Securities shall be deemed for all purposes
(including the right to vote and receive payment for dividends) to have been
Transferred to the purchasers thereof and the Company shall issue new
certificates representing the Executive Securities to the Company, CHS or their
respective designees, as the case may be, and the certificates or instruments
registered in the name of the Person obligated to sell such Executive Securities
shall be deemed to have been canceled and to represent solely a right to receive
payment of the purchase price, without interest, from the escrow funds. If,
prior to the third (3rd) anniversary of the scheduled closing date for the
purchase pursuant to Section 3 or 5, the proceeds of sale have not been claimed
by the Executive or other seller of the Executive Securities, the escrow deposit
(and any interest earned thereon) shall be returned to the Person originally
depositing the same, and the transferors whose Executive Securities were so
purchased shall look solely to the purchasers thereof for payment of the
purchase price. The escrowee shall not be liable for any action or inaction
taken by it in good faith.
(g) TERMINATION OF REPURCHASE OPTION. The rights of the Company and/or CHS to purchase Executive Securities pursuant to Section 3 shall terminate upon the earliest to occur of (i) the consummation of a Sale of the Company (ii) the consummation of a Public Offering, and (iii) termination of Executive's employment upon Retirement.
4. MANNER OF PAYMENT AND RESTRICTION ON THE COMPANY'S RIGHT TO PURCHASE.
(a) GENERAL RESTRICTION. Notwithstanding anything to the contrary contained in this Agreement: (i) the Company shall not be obligated (including if it has given a Repurchase Notice) to purchase such Executive Securities as the Company may then be prohibited by law or bona fide contract from purchasing, including, without limitation, the Delaware General Corporation Law (the "DELAWARE ACT") and covenants contained in the Credit Agreement and any other loan agreements or other bona fide agreements to which the Company or any Subsidiary is then a party; and (ii) the Company shall not be obligated (including if it has given a Repurchase Notice) to purchase Executive Securities if any loan or other bona fide agreement to which any Subsidiary of the Company is a party or is bound would prohibit
the Subsidiaries from paying to the Company dividends or distributions sufficient to permit the Company to pay the entire purchase price for such Executive Securities.
(b) PAYMENT LIMITATION. Notwithstanding anything to the contrary contained in this Agreement or in any Repurchase Note delivered pursuant to the terms hereof, the Company's obligation to make a payment pursuant to a Repurchase Note delivered pursuant to Section 3(e) of this Agreement shall be suspended to the extent and for so long as (i) the making of such payment, together with the making of all other payments to be made during such fiscal year on account of the Company's purchases of Executive Securities pursuant to this Agreement and securities purchased pursuant to any other agreements with shareholders of the Company, would result in a violation of the Delaware Act or a breach of any covenant contained in any loan or other bona fide agreement to which the Company or any of its Subsidiaries is a party, or (ii) the Company's Subsidiaries are unable to pay to the Company dividends or other distributions sufficient to permit the Company to pay the entire purchase price for such Executive Securities in cash as a result of applicable law or any covenant contained in any bona fide agreement to which any of such Subsidiaries are a party. If any portion of the Company's obligation to Executive or any of Executive's transferees has been tolled for a period in excess of three (3) years from the original closing date, Executive (or such transferee), by written notice delivered to the Company, may elect to rescind the sale of that portion of the Executive Securities, the proceeds of sale of which are represented by unpaid notes made by the Company which are owed to Executive or such transferee. If payments are suspended pursuant to this Section 4(b), at such time as the Company is able to resume making payments without violation of the Delaware Act, applicable law or a covenant in any bona fide agreement to which the Company or any of its Subsidiaries is a party, the Company shall first make payments of arrearage owed to the former shareholders on a proportional (to the amount of arrearage) basis, and shall then make regularly scheduled payments.
5. RESTRICTIONS ON TRANSFER OF EXECUTIVE SECURITIES. This Section 5 shall apply to any proposed Transfer of Executive Securities. Notwithstanding anything to the contrary contained herein, a Transfer of Executive Securities shall not be valid or have any force or effect unless (a) such Transfer is made in accordance with the provisions of this Agreement, (b) such Transfer would not result in a violation of any applicable federal or state securities law, and (c) in the reasonable determination of the Board, the intended transferee of such Transfer is not engaged in the Business, has not been engaged in the Business in the immediately preceding two (2) years, and is not preparing to engage in the Business.
(a) TRANSFER OF EXECUTIVE SECURITIES. No Holder shall Transfer any
interest in any Executive Securities except pursuant to an Exempt Transaction or
pursuant to this Section 5. No Holder shall consummate any such Transfer (except
pursuant to an Exempt Transaction or pursuant to Section 5(c)) until sixty-one
(61) days following the latest of the delivery to the Company and CHS of the
Offer Notice (as defined below), unless all rights provided in Section 5(b) have
been exercised or waived, and the parties to the Transfer have been finally
determined pursuant to such exercises or waivers prior to the expiration of such
sixty-one (61) day period (the "ELECTION PERIOD"). Notwithstanding anything to
the contrary herein contained, except pursuant to an Exempt Transaction, neither
Executive nor any of his Permitted Transferees shall Transfer any interest in
Executive Securities (i) unless Executive or such Permitted Transferee(s) has
received a bona fide written offer to purchase such Executive Securities, (ii)
until one hundred twenty (120) days following Executive's Termination and (iii)
in any event without the prior written consent of a majority of the members of
the Board (which approval shall not be unreasonably withheld).
(b) FIRST REFUSAL RIGHT. If any Holder desires to Transfer any Executive
Securities other than in an Exempt Transaction or a transaction pursuant to
Section 5(c), such Holder (the "TRANSFERRING HOLDER") shall deliver a written
notice (the "OFFER NOTICE") to the Company and CHS. The Offer Notice shall
disclose in reasonable detail the identity of the proposed transferee(s)
(including, without limitation,
all parties holding controlling interests in such proposed transferee), the proposed number, amount and type of Executive Securities to be transferred and the proposed terms and conditions of the Transfer and any other material information reasonably requested by the Board and CHS and shall include a true and correct copy of the written offer to purchase Executive Securities received by him. The delivery by the Transferring Holder of the Offer Notice shall create the following two (2) options:
(i) First, the Board, acting in good faith, may elect (in its
sole discretion) to cause the Company to purchase all or any portion of the
Executive Securities specified in the Offer Notice at the price and on the
terms specified therein (provided, however, that any promissory note given
by the Company pursuant to the terms of this Section 5 shall be
subordinated to indebtedness owed to financial institutions on terms
reasonably acceptable to such financial institutions and that the Company
shall be entitled set off against the purchase price any and all
obligations due and owing the Company or any of its Affiliates from
Executive) by delivering written notice of such election to the
Transferring Holder as soon as practical, but in any event within thirty
(30) days following the delivery of the Offer Notice (the "COMPANY OFFER
PERIOD").
(ii) If the Company has not elected to purchase all of the Executive Securities within the Company Offer Period, then CHS may elect (in its sole discretion) to purchase all (but not less than all) of the Executive Securities not elected to be purchased by the Company at the price and on the terms specified in the Offer Notice by delivering written notice of such election to the Transferring Holder as soon as practical, but in any event within sixty (60) days following the delivery of the Offer Notice.
If the Company and/or CHS have elected to purchase all (but not less than all) of the Executive Securities offered by the Transferring Holder, the Transfer of such Executive Securities to the Company and/or CHS, as the case may be, shall be consummated as soon as practical after the delivery of the election notices, but in any event within thirty (30) days following the expiration of the Election Period. The purchasers of Executive Securities offered in the Offer Notice hereunder shall be entitled to receive customary representations and warranties as to ownership, title, authority to sell and the like from the Holder regarding such sale and to receive such other evidence, including applicable inheritance and estate tax waivers, as may reasonably be necessary to effect the purchase of the Executive Securities offered in the Offer Notice. Notwithstanding anything to the contrary herein contained, if the Company and CHS collectively have elected to purchase less than all of the Executive Securities offered by the Transferring Holder, then the Company and CHS shall be deemed to have elected not to purchase any of the Executive Securities offered by the Transferring Holder pursuant to this Section 5.
(c) TRANSFER SUBSEQUENT TO EXPIRATION OF ELECTION PERIOD. If the Company and CHS have not collectively elected to purchase all Executive Securities being offered, such Transferring Holder may, within ninety (90) days following the expiration of the Election Period and subject to the provisions of this Section 5 other than Section 5(b), Transfer such Executive Securities referred to in the Offer Notice to the party or parties named therein at a price no less than the price specified in the Offer Notice and on other terms and conditions offered in the Offer Notice. Executive Securities Transferred pursuant to the previous sentence shall thereafter continue to be subject to all restrictions on Transfer and other provisions of this Agreement, including, without limitation, the provisions of this Section 5 with respect to further Transfers of the Executive Securities and a transferee, as a condition of any such Transfer, shall agree in writing to be bound by the provisions of this Agreement. Any Executive Securities not transferred within such sixty (60) day period shall be subject to the provisions of this Section 5 with respect to any subsequent Transfer.
(d) PERMITTED TRANSFERS. Anything contained in this Agreement to the contrary notwithstanding, Executive Securities may be Transferred without first complying with the provisions of
Section 5 other than as provided in this paragraph (d): (i) by Executive or a Permitted Transferee to CHS (it being agreed and understood that CHS shall not be a Holder as a result of such Transfer of Securities), (ii) by Executive to any member of such Executive's Family Group, (iii) by a Permitted Transferee to Executive who Transferred such Executive Securities to such Permitted Transferee, (iv) to the personal representative of Executive or a Permitted Transferee who is deceased or adjudicated incompetent, (v) by the personal representative of Executive or a Permitted Transferee who is deceased or adjudicated incompetent to any member of such Executive's or Permitted Transferee's Family Group, (vi) upon termination of a trust or custodianship which is a Permitted Transferee of a Holder, by the trustee of such trust or custodian of such custodianship to the person or persons who, in accordance with the provisions of such trust or custodianship, are entitled to receive the Executive Securities held in trust or custody, or (vii) the pledge by Executive to the Company of the Executive Securities pursuant to a pledge agreement (collectively, the "PERMITTED TRANSFEREES"); provided that (A) the restrictions contained in this Section 5 shall continue to be applicable to the Executive Securities after any such Transfer, and (B) the Permitted Transferees of such Executive Securities shall have agreed in writing to be bound by all of the provisions of this Agreement affecting the Executive Securities so transferred.
(e) CONSIDERATION FOR TRANSFER. Notwithstanding anything to the contrary
herein contained, except as may be required by Section 4 hereof, where a
Transfer is made for consideration, in no event shall any such Transfer by
Executive of Executive Securities be made for any consideration other than (i)
United States dollars payable in full upon consummation of such Transfer and/or
(ii) a promissory note with all amounts owed thereunder payable in United States
dollars.
(f) DURATION OF SECTION 5. Notwithstanding anything to the contrary contained in this Agreement, the provisions of this Section 5 shall terminate upon the consummation of a Public Offering or Sale of the Company.
6. CERTAIN RESTRICTIONS AFTER A PUBLIC OFFERING.
(a) The Holders may not, at any time during the first three years after the Initial Public Offering, Transfer a number of Shares that -- when added to the aggregate number of Shares previously Transferred by the Holders after the Initial Public Offering -- would exceed the then current Maximum Number. The preceding sentence does not restrict Transfers to Permitted Transferees (and such Transfers are not counted for purposes of such sentence). "MAXIMUM NUMBER" means, as of a particular time, the product of (i) the CHS Fraction (determined as of such time) and (ii) the number of Shares held by the Holders (as a group) immediately after the Initial Public Offering. "CHS FRACTION" means, as of a particular time, a fraction, the numerator of which is the aggregate number of Shares sold by CHS on or before that time but after the Initial Public Offering, and the denominator of which is the number of Shares held by CHS immediately after the Initial Public Offering.
(b) This Section 6 does not require the Company (or any successor of the
Company): (i) to register or qualify any securities, (ii) to list any securities
for trading on any market or take any steps to engage in any Public Offering, or
(iii) to take any steps to cause Rule 144 to be available (including disclosing
the current public information described in section (c) of Rule 144). The
Transfer restriction imposed by this Section 6 is in addition to, and without
limitation of, any restrictions imposed by any lockup, standstill or other
agreement contemplated by Section 13. If there is any inconsistency between this
Section 6 and any registration rights granted to any Holder, this Section 6
controls.
7. SALE OF THE COMPANY.
(a) If the holder(s) of a majority of the Shares then outstanding and (if necessary under applicable law) the Board approve a Sale of the Company (an "APPROVED SALE") (and if the Sale of the
Company is to an entity that is Controlled by CHS, the consideration for such Sale of the Company is fair to the Company and the holders of Shares as determined pursuant to the same mechanism used to determine Fair Market Value under Section 1), each Holder shall consent to and raise no objections against the Approved Sale, and if the Approved Sale is structured as a sale of Shares, each Holder shall, if requested by the holder(s) of a majority of the Shares then outstanding, sell (or otherwise Transfer) that percentage of his Executive Securities, on terms and conditions approved by the Board (if necessary under applicable law) and the holder(s) of a majority of the Shares then outstanding, as shall equal the percentage of Shares and other securities owned by CHS that are to be included in such transaction. Each Holder shall take all actions reasonably necessary or reasonably desirable (as determined by the holder(s) of a majority of the Shares then outstanding) in connection with the consummation of the Approved Sale. Without limiting the foregoing, (i) if the Approved Sale is structured as a merger, consolidation, joint venture or similar transaction, each Holder shall vote in favor of such transaction and waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation, and (ii) if the Approved Sale is structured as a sale or exchange of Shares, each Holder shall agree to sell or exchange all of the Shares and Options held by such Holder on the terms and conditions approved by the Board and the holders of a majority of the Shares then outstanding. The Company shall use reasonable efforts to notify Executive in writing not less than thirty (30) days prior to the proposed consummation of an Approved Sale (or, Participation Sale as described in Section 7(b) below); PROVIDED that such Executive agrees that he or she will not, directly or indirectly (without the prior written consent of the Company), disclose to any other Person (other than to such Executive's legal counsel in confidence, as otherwise necessary to protect such Executive's rights under this Agreement or as otherwise required by law) any information related to such potential Sale of the Company.
(b) If CHS proposes to sell to a purchaser or related group of purchasers such number of Shares as equals or exceeds 50% of the Shares then held by CHS (whether in a single transaction or a series of related transactions) (a "PARTICIPATION SALE"), Executive may elect to participate in the contemplated transaction by delivering written notice to the Company and CHS within ten (10) days following the receipt by Executive of notice of such transaction. Executive shall be entitled to sell, at the same price and on the same terms as CHS, a number of Shares equal to the product of (1) the number of Shares owned by Executive on a Fully-Diluted Basis multiplied by (2) the quotient of (x) the number of Shares to be sold by CHS in such transaction divided by (y) the aggregate number of Shares held by CHS at such time, on a Fully-Diluted Basis. Notwithstanding anything to the contrary herein contained, this Section 7(b) shall not apply to (x) any sale to any officer, director, employee, agent, or lender to the Company, Beacon Operating or any of its Subsidiaries, or (y) any sale or other Transfer to any successor CHS approved fund or to any Affiliate of CHS, provided any such successor CHS approved fund or Affiliate of CHS agrees to the provisions of this Section 7(b).
(c) If a Holder is required or elects to participate in an Approved Sale or a Participation Sale pursuant to Subsection (a) or (b) above: (i) upon the consummation of the Approved Sale or the Participation Sale, as the case may be, all of the Holders of Shares similarly situated shall receive the same form and amount of consideration per Share, or if any Holders are given an option as to the form and amount of consideration to be received, all such Holders shall be given the same option; (ii) upon the consummation of the Approved Sale or the Participation Sale, as the case may be, all of the holders of Subordinated Notes similarly situated shall receive the same form and amount of consideration in relation to the face amount of Subordinated Notes held by such holders, or if any such holders are given an option as to the form and amount of consideration to be received, all holders shall be given the same option; and (iii) all Holders of then currently exercisable Options shall be given an opportunity to either (A) exercise such rights prior to the consummation of the Approved Sale or the Participation Sale, as the case may be, and participate in such sale as Holders, or (B) upon the consummation of the Approved Sale or the Participation Sale, as the case may be, receive in exchange for such rights consideration equal to the amount determined by multiplying (1) the same amount of consideration per Share received by the
Holders in connection with the Approved Sale or the Participation Sale, as the case may be, less the exercise price per share of such rights to acquire Shares, by (2) the number of Shares represented by such rights. Without limiting the foregoing, any Holder participating in a transaction pursuant to this Section 7 shall be required to make such representations, warranties and covenants, and grant such indemnification, as may be required by the purchaser of the Shares and which have been made by CHS or the holders of a majority of the outstanding Shares, as the case may be. Notwithstanding anything to the contrary contained herein, nothing in this Agreement is intended to accelerate the vesting of any Options.
(d) If, in connection with an Approved Sale or a Participation Sale, the Board or the holders of a majority of the outstanding Shares of the Company enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the SEC under the 1933 Act may be available with respect to the consideration proposed to be received by Holders, each Holder shall, acting together with other Holders, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501 under the 1933 Act) reasonably acceptable to the Company. If Executive appoints a purchaser representative designated by the Company, the Company shall pay the fees of such purchaser representative, but if Executive declines to appoint the purchaser representative designated by the Company, Executive shall appoint another purchaser representative (reasonably acceptable to the Company), and Executive shall be responsible for the fees of the purchaser representative so appointed.
(e) Each Holder shall bear such Holder's pro rata share (based upon the number of Shares sold on a Fully-Diluted Basis) of the costs of any sale of Executive Securities pursuant to an Approved Sale or a Participation Sale to the extent such costs are not otherwise paid by the Company or the acquiring party; provided, however, that all Holders are treated on an equal basis. Costs incurred by a Holder on such Holder's own behalf shall not be considered costs of the transaction hereunder.
(f) Notwithstanding anything to the contrary contained in this
Agreement: (i) the provisions of Section 7 shall terminate upon the consummation
of a Sale of the Company or a Public Offering; and (ii) the provisions of this
Section 7 shall not apply to any Public Offering.
8. LIMITED PREEMPTIVE RIGHTS.
(a) Except for the issuance of Shares or Options (i) in connection with or to facilitate the acquisition of another Person's business by the Company or any of its Subsidiaries or Affiliates (whether by acquisition of stock or assets, or by merger, consolidation or other similar transaction), the acquisition of any stock or assets of any Person or the formation of a joint venture, (ii) pursuant to a Public Offering, (iii) to current or future officers, employees, directors, agents or consultants of the Company or its Subsidiaries, to Affiliates of the Company (or any of their respective officers, directors, employees or agents) or (iv) to the Company's or any Subsidiary's lenders in connection with the incurrence, renewal or maintenance of indebtedness (including funded indebtedness), if the Company authorizes the issuance and sale of any Shares (other than as a dividend on the outstanding Shares) or any Options (pursuant to the exercise of warrants or otherwise) the Company shall first offer to sell to Executive a portion of such Shares or Options equal to the percentage determined by dividing (1) the number of Shares held by Executive immediately prior to the proposed issuance of such securities, on a Fully-Diluted Basis, by (2) the aggregate number of Shares outstanding at such time, on a Fully-Diluted Basis. Executive, if he is exercising his preemptive rights pursuant to this Section 8, shall, as a condition to such exercise, also be required to purchase the same proportionate amount of any other securities that the purchasers of such Shares or Options purchase in connection with the issuance of the securities subject to the preemptive rights. Notwithstanding anything in this Section 8 to the contrary, if preemptive rights are exercised pursuant to this Section and pursuant to the preemptive rights granted under Executive Securities Agreements with other executives of the Company or its Affiliates and the Chief Executive Securities Agreements with the Company's Chief Executive Officer for an aggregate number of Shares or Options
which is greater than 100% of the Shares or Options to be issued and sold by the Company, then the number of Shares that each executive, including without limitation Executive, shall be entitled to purchase pursuant to such agreements shall be reduced, on a pro rata basis among all such executives exercising preemptive rights under such agreements, to the extent necessary such that the number of Shares and Options purchased pursuant to the preemptive rights exercised under such agreements equal the number of Shares and Options to be issued and sold by the Company.
(b) Executive shall exercise Executive's preemptive rights hereunder within fifteen (15) days following the receipt of written notice from the Company describing in reasonable detail the purchase price, the payment terms for the Shares or Options, the period in which the preemptive right hereunder is to be exercised, and Executive's percentage allotment. Executive exercising the Executive's preemptive right shall execute all documentation, and take all actions, as may be reasonably requested by the Company in connection therewith.
(c) Upon the expiration of the offering period described above, the Company shall be entitled to sell such Shares or Options which Executive has not elected to purchase during the one hundred eighty (180) day period following such expiration, on terms and conditions no more favorable to the purchasers thereof than those offered to Executive. Any Shares or Options offered or sold by the Company following such one hundred eighty (180) day period shall be re-offered to Executive pursuant to the terms of this Section 8.
(d) The rights of the Executive under this Section 8 shall terminate upon the earlier of (i) consummation of a Sale of the Company, (ii) the consummation of a Public Offering, or (iii) the termination of Executive's employment with the Company or any of its Subsidiaries.
9. ADDITIONAL RESTRICTIONS ON TRANSFER.
(a) LEGEND. All certificates evidencing Executive Shares which are subject to this Agreement shall bear the following legend:
"The shares represented hereby have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be sold or transferred in the absence of an effective registration statement under the Act or an exemption from registration thereunder. The shares represented hereby are also subject to additional restrictions on transfer, certain repurchase options and certain other agreements set forth in an Executive Securities Agreement among Beacon Roofing Supply, Inc. ("the Company"), the original holder hereof and Code, Hennessy & Simmons III, L.P. dated as of October 20, 2003, and the Company reserves the right to refuse the transfer of this security until the conditions therein have been fulfilled with respect to such transfer. A copy of such agreement may be obtained by the holder hereof at the Company's principal place of business without charge."
If Executive Shares remain restricted following a Public Offering and the above legend thereby becomes inappropriate in whole or in part, a new, appropriate legend shall be set forth on such certificates.
(b) OPINION OF COUNSEL. Executive may not Transfer any Executive Shares without first delivering to the Company, if requested by the Company, an opinion of counsel (reasonably acceptable in form and substance to the Company) that neither registration nor qualification under the 1933 Act and applicable state securities laws is required in connection with such Transfer.
10. NOTICES. Any notice provided for in this Agreement must be in writing and must be either personally delivered, or sent by confirmed facsimile (provided, however, that notices delivered by facsimile shall be effective only if such notice is also delivered by hand, or mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier (charges prepaid), on or before two (2) business days after its delivery by facsimile) or by reputable overnight courier service (charges prepaid) to the recipient at the address indicated below:
TO THE COMPANY:
Beacon Roofing Supply, Inc.
c/o Code, Hennessy & Simmons III, L.P.
10 South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Brian Simmons and Peter M. Gotsch
Fax: (312) 876-3854
With a copy (which shall not constitute notice to the Company) to:
Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606
Attention: S. Michael Peck, Esq. and Stephen R. Otis, Esq.
Fax: (312) 258-5600
TO EXECUTIVE:
Robert R. Buck
5650 Wm. H. Harrison Lane
Cincinnati, Ohio 45243
With a copy (which shall not constitute notice to Executive) to:
John S. Stith
Frost Brown Todd LLC
2200 PNC Center
Cincinnati, Ohio 45202
Fax: (513) 651-6981
TO CHS:
Code, Hennessy & Simmons III, L.P.
10 South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Brian Simmons and Peter M. Gotsch
Fax: (312) 876-3854
With a copy (which shall not constitute notice to CHS) to:
Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606
Attention: S. Michael Peck, Esq. and Stephen R. Otis, Esq.
Fax: (312) 258-5600
and/or such other address and/or to the attention of such other person as the
recipient party shall have designated by notice given in accordance with this
Section 10. Any notice under this Agreement shall be deemed to have been given:
(i) if delivered in person, at the time delivered; (ii) if sent by confirmed
facsimile, at the time sent; or (iii) if sent by overnight courier, one business
day after being given to the courier.
11. RESTRICTIVE COVENANTS.
(a) NON-COMPETE. During the Restricted Period, Executive must not directly or indirectly: (i) engage in the Business anywhere in the Territory other than on the Company Group's behalf; (ii) solicit any actual (as opposed to merely prospective) customer of the Company Group, with whom Executive has had direct contact while employed by the Company, to purchase other than from the Company Group any goods or services sold by the Company Group; or (iii) solicit the employment (or solicit to retain the services) of any employee, sales representative or sales agent of the Company Group. Nothing in this Agreement, however, prevents Executive from owning less than five percent (5 %) of any class of publicly traded securities so long as such investment is passive and Executive has no other involvement with the issuer of such securities. To "ENGAGE" in a business in the Territory means (x) to render services in (or with respect to) the Territory for that business, or (y) to own, manage, operate or control (or participate in the ownership, management, operation or control of) an enterprise engaged in that business in the Territory. "RESTRICTED PERIOD" means the period beginning on the date hereof and ending eighteen (18) months after the last day on which Executive or any of his Permitted Transferees (taken as a group) owns any Executive Securities, except that the Restricted Period shall in no event end later than eighteen (18) months after the last day of Executive's employment by the Company. "TERRITORY" means the state of Texas and all states in the United States east of the Mississippi River. "BUSINESS" means the wholesale distribution of (i) commercial roofing products, (ii) residential roofing products or (iii) any related products, including shingles, sheet metal, lumber, water proofing products, siding, windows or insulation.
(b) CONFIDENTIALITY. During the Confidentiality Period: (i) Executive must maintain all Confidential Information in confidence and must not disclose any Confidential Information to anyone outside of the Company Group; and (ii) Executive must not use any Confidential Information for the benefit of Executive or any third party. Nothing in this Agreement, however, prohibits Executive: (1) from disclosing any Confidential Information (or taking any other action) in furtherance of Executive's duties to the Company Group while employed by the Company; or (2) from disclosing Confidential Information to the extent required by law (after giving prompt notice to the Company in order that the Company Group may attempt to obtain a protective order or other assurance that confidential treatment will be accorded such information). Upon the Company's request at any time, Executive must immediately deliver to the Company all tangible items in Executive's possession or control that are or that contain Confidential Information, without keeping any copies. For purposes of this Agreement, "CONFIDENTIAL INFORMATION" means information regarding the Company Group that is not generally available to the public, including (to the extent that it is not so generally available): (1) information regarding the Company Group's business, operations, financial condition, customers, vendors, sales
representatives and other employees; (2) projections, budgets and business plans
regarding the Company Group; (3) information regarding the Company Group's
planned or pending acquisitions, divestitures or other business combinations;
(4) the Company Group's trade secrets and proprietary information; and (5) the
Company Group's technical information, discoveries, inventions, improvements,
techniques, processes, business methods, equipment, algorithms, software
programs, software source documents and formulae. For purposes of the preceding
sentence, information is not treated as being generally available to the public
if it is made public by Executive in violation of this Agreement.
"CONFIDENTIALITY PERIOD" means the period beginning on the date hereof and
ending three years after the last day on which Executive or any of his
transferees (taken as a group) owns any Executive Securities, except that the
Restricted Period shall in no event end later than three years after the last
day of Executive's employment by the Company.
12. AMENDMENT AND TERMINATION.
(a) This Agreement shall be terminated upon the mutual agreement of the Company, CHS and Executive provided, however, that the representations and warranties of the parties hereto contained in Sections 2(b) and 2(c) of this Agreement and the obligations of Executive referred to in Section 11 of this Agreement shall survive termination of this Agreement. The rights and obligations of the parties shall survive termination of the Agreement to the extent that any performance is required after such termination.
(b) This Agreement may be amended by the written consent of the Company, CHS and Executive.
13. PIGGYBACK REGISTRATION.
(a) If at any time the Company proposes to file a registration statement (other than on Form S-8 or any successor form) with the SEC registering any Shares owned by CHS, the Company must notify Executive of the proposed registration. Subject to the last sentence of this Section 13(a), any Holder may (within ten days after the Company gives that notice) give notice to the Company requesting that the Company include in the registration any or all of the Holder's Shares (provided that the Holder's notice must specify a whole number of Shares that the Holder requests to be included), in which case the Company must (subject to the remainder of this Section 13) include those Shares in the registration statement and use reasonable efforts to have the registration statement declared effective. The Company, at its sole option, may elect not to proceed with any registration statement that is the subject of such a notice by a Holder. Notwithstanding any provision to the contrary herein, if at the time of the proposed registration CHS holds any Shares, then (i) no Holder may request to have included -- and no Holder is entitled without the consent of CHS to have included -- in the registration a greater percentage of such Holder's Shares than the percentage of CHS's Shares that are being included in the registration, and (ii) if CHS so requests, then each Holder shall request that the same percentage of such Holder's Shares be included in the registration as the percentage of CHS's Shares that are being included in that registration.
(b) If any underwriter advises the Company (or, if the offering is not underwritten, the Company reasonably determines) that the number of Shares requested to be included in the registration would adversely affect the offering (including the pricing thereof or the ability to conduct the offering in an orderly fashion), then the Company may reduce the number of any Holder's Shares that are included in the registration to such number as will not adversely affect the offering (provided that no
such cutback shall cause the percentage of such Holder's Shares included in the registration to be less than the percentage of Shares of CHS included in the registration.
(c) The Company must use reasonable efforts to furnish to each Holder whose Shares are included in the registration such number of copies of any prospectus as the Holder reasonably requests in order to effect the offer and sale of those Shares pursuant to the registration statement.
(d) Nothing in this Section 13, however, requires the Company: (i) to cause (or to use any efforts to cause) the registration statement to remain current (including the filing of necessary supplements or post-effective amendments, or preparing any amendments or supplements to any prospectus) at any time after the initial effective date of the registration statement; or (ii) to register or qualify any securities (or to use any efforts to cause any securities to be registered or qualified) under any state or foreign securities law in any jurisdiction where securities of the Company would not otherwise be sold in the offering.
(e) A "CHANGE NOTICE") means a notice by the Company to a Holder (whose Shares are included in the registration statement) that an event has occurred that makes (or may make) a prospectus related to the registration statement Misleading. A "Change Notice" need not identify the event. If the Company gives a Holder a Change Notice, then that Holder must, upon the receipt of such notice, immediately discontinue any offers or sales of the Shares until that Holder subsequently receives either (i) copies of a supplemented or amended prospectus prepared by the Company to address the event that triggered the Change Notice, or (ii) a written statement by the Company informing that Holder that use of the prospectus current at the time of receipt of the Change Notice (the "OLD PROSPECTUS") may be resumed. Each Holder must, upon the Company's request, deliver to the Company all copies, other than permanent file copies then in the Holder's possession, of the Old Prospectus. As used herein, "MISLEADING" means, with respect to a prospectus, that such prospectus (x) contains an untrue statement of material fact, (y) omits to state a material fact required to be stated therein, or (z) omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(f) Each Holder must notify the Company immediately upon learning of any inaccuracy, omission or change in information previously furnished by the Holder to the Company or of the occurrence of any event, in each case which causes or will cause any prospectus relating to the registration to be Misleading with respect to the Holder. Each Holder must promptly furnish to the Company any additional information required to correct and update any previously furnished information or required so that the prospectus will not be Misleading with respect to the Holder.
(g) If the Company or CHS are selling any Shares pursuant to the registration statement through underwriters, then each Holder whose Shares are included in the registration must, at the request of the Company or CHS, (1) sell the Holder's Shares that are so included through those underwriters and (2) complete, sign and (to the extent applicable) comply with all questionnaires, powers of attorney, indemnities, underwriting agreements, standstill agreements, and other documents and agreements that (A) are customarily required in connection with underwriting arrangements of the type through which the Company or Fund are selling Shares and (B) have been completed,
signed and (to the extent applicable as of the time of such request) complied with by CHS if CHS is a selling shareholder pursuant to the Registration Statement.
(h) The Company must, subject to applicable law, pay all expenses incurred in connection with the registration, including all SEC registration fees, state securities filing fees, printing expenses (except the printing of any documents pertaining solely to the sale of Shares by a Holder), the fees and expenses of the Company's legal counsel, accountants and other advisers, and fees and disbursements of experts used by the Company in connection with the registration. Notwithstanding the foregoing, each Holder must bear (1) the underwriting and brokerage discounts and commissions on the sale of the Holder's Shares, (2) the transfer taxes on the sale of those Shares, and (3) the fees and expenses of Holder's own legal counsel, accountants and other advisers.
(i) If requested by the Company or its underwriters, each Holder must not effect any public sale or distribution of securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the 7 day period before and the 180 day period starting on the effective date of any registration statement under the Securities Act for any Public Offering of the Company's securities. This Section 13(i) does not, however, apply to securities included in the registration statement and sold in accordance with this Section 13 (except this Section 13(i))
14. GENERAL PROVISIONS.
(a) SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, and this Agreement shall (subject to Section 14(c) hereof) be reformed, construed and enforced in such jurisdiction so as to best give effect to the intent of the parties under this Agreement.
(b) REMEDIES. If Executive breaches any of the provisions of this Agreement (including the provisions of Section 11), then the Company shall be entitled, in addition to any other remedies that it may have, to specific, injunctive or other equitable relief (without the requirement of posting of a bond or other security) in order to enforce such provision.
(c) SCOPE OF COVENANTS. Executive acknowledges that the territorial, time and activity limitations set forth in Section 11 (or the lack thereof, as the case may be) are reasonable and are properly required for the protection of the Company. If any such territorial, time or activity limitation (or the lack thereof) is determined to be unreasonable by a court or other tribunal, the parties agree to the reduction of such territorial, time or activity limitations (including the imposition of such a limitation if it is missing) to such an area, period or scope of activity as said court or tribunal shall deem reasonable under the circumstances. Also, if the Company seeks partial enforcement of Section 11 as to only a territory, time and scope of activity which is reasonable, then the Company shall be entitled to such reasonable partial enforcement. If such reduction or (if the Company seeks partial enforcement) such partial enforcement is not possible, then the unenforceable provision or portion thereof shall be severed as provided in Section 14(a).
(d) COMPLETE AGREEMENT. This Agreement, the Employment Agreement, the Special Purchase Option Agreement of even date herewith between the Company and Executive, and any and all documents executed by Executive on the date hereof in connection with the transactions contemplated by the foregoing together embody the complete agreement and understanding among the parties with respect
to the subject matter hereof and thereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof or thereof in any way.
(e) COUNTERPARTS. This Agreement may be executed in separate counterparts (including by facsimile), each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
(f) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company, CHS and their respective legal representatives, heirs, successors and assigns (including subsequent holders of Executive Securities); provided that the rights and obligations of Executive under this Agreement shall not be assignable except in connection with a permitted transfer of Executive Securities hereunder.
(g) CHOICE OF LAW. This Agreement shall be governed and construed in accordance with the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
(h) CONSENT TO JURISDICTION. The parties irrevocably consent and submit to the non-exclusive jurisdiction of any local, state or federal court within the Applicable County for the enforcement of this Agreement. The parties irrevocably waive (with respect to any such court) any objection they may have to venue in the defense of an inconvenient forum to the maintenance of such actions or proceedings to enforce this Agreement.
(i) REMEDIES. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs caused by any breach of any provision of this Agreement and to exercise all other rights existing in such party's favor. In the event of a dispute hereunder, the prevailing party's reasonable attorneys' fees and costs shall be reimbursed by the opposing party or parties in such dispute within fourteen (14) days following a judgment by a court or tribunal of competent jurisdiction over such exercise or enforcement. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.
(j) WAIVER. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
(k) BUSINESS DAYS. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday.
(l) CONSTRUCTION. As used in this Agreement, the terms "INCLUDING" "INCLUDES" and "INCLUDE" and terms of like import shall be construed broadly as if followed by the words "without limitation." The parties hereto jointly participated in the negotiation and drafting of this Agreement. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their collective mutual intent, this Agreement shall be construed as if drafted jointly by the parties hereto, and no rule of strict construction shall be applied against any Person.
(m) GENDER. As used in this Agreement, the masculine, feminine or neuter gender shall be deemed to include the others whenever the context so indicates or requires.
(n) HEADINGS. The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
BEACON ROOFING SUPPLY, INC.
By: /s/ Peter M. Gotsch
----------------------------------
Peter M. Gotsch, Vice President
|
CODE, HENNESSY & SIMMONS III, L.P.
By: CHS Management III, L.P.,
its general partner
By: CODE, HENNESSY & SIMMONS, L.L.C.,
its general partner
By: /s/ Peter M. Gotsch
----------------------------------
Peter M. Gotsch, Member
|
EXECUTIVE
/s/ Robert R. Buck ------------------------------------ Robert R. Buck |
EXHIBIT A
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Executive Securities Agreement and that I know its contents. I am aware that by its provisions, my spouse agrees, among other things, to a right of first refusal, to the granting of rights to purchase and to the imposition of certain restrictions on the transfer of the shares of the Company, including any marital property interest or community interest therein that I may have from time to time, which rights and restrictions may survive my spouse's death. I hereby consent to such rights and restrictions, approve of the provisions of the Agreement, and agree that I will bequeath any interest which I may have in said shares or any of them, including my community interest, if any, or permit any such interest to be purchased, in a manner consistent with the provisions of this Agreement. I direct that any residuary clause in my will shall not be deemed to apply to my community interest (if any) in such shares except to the extent consistent with the provisions of this Agreement.
I further agree that in the event of a dissolution of the marriage between myself and my spouse, in connection with which I secure or am awarded Executive Securities of the Company, or any interest therein through property settlement agreement or otherwise, I shall receive and hold said Executive Securities subject to all the provisions and restrictions contained in the foregoing Agreement, including any option of the Company or CHS to purchase such shares or interest from me.
I also acknowledge that I have been advised to obtain independent counsel to represent my interests with respect to this Agreement but that I have declined to do so and hereby expressly waive my right to such independent counsel.
/s/ Susan G. Buck -------------------------- [Name] |
Exhibit B to
Executive Securities Agreement
[Repurchase Note]
THIS SUBORDINATED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY JURISDICTION AND MAY NOT BE OFFERED SOLD, TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH LAWS, THE AVAILABILITY OF WHICH MUST BE ESTABLISHED TO THE SATISFACTION OF THE MAKER OF THIS NOTE.
THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND TO THE EXTENT SET FORTH IN [Describe subordination agreement required by lender in connection with issuance of Note].
[Insert OID language, if necessary.]
SUBORDINATED PROMISSORY NOTE
$_________ [PLACE]
[DATE]
FOR VALUE RECEIVED, the undersigned, _______________________ (the
|
"Maker"), hereby promises to pay to_______________ (the "Payee"), in lawful money of the United States of America, the principal sum of ___________ Dollars ($_________), which principal sum shall be due and payable as hereinafter provided with interest thereon as set forth below.
This subordinated promissory note ("Note") is issued and delivered by Maker pursuant, and otherwise subject, to the terms and conditions of that certain Executive Securities Agreement, dated as of October 20, 2003 (the "Executive Securities Agreement"), by and among Maker, Payee and another party.
1. PRINCIPAL AND INTEREST PAYMENTS. The principal amount of this Note shall be due and payable in eight equal quarterly payments commencing on [insert date which is three months from the date of issuance of the Note] and payable on the ___ day of each __________, __________ and ___________ thereafter(1), with a final payment on the second anniversary of the date of this Note. This Note shall bear interest from the date hereof on the unpaid principal amount outstanding from time to time at the rate of eight percent (8%) per annum. Accrued interest on the outstanding principal balance hereof shall be payable quarterly in arrears on the same dates on which principal payments are made. In no event shall the amount of interest due or payable hereunder exceed the maximum amount of interest allowed by applicable law.
2. SUBORDINATION. The holder of this Note by its acceptance
hereof acknowledges and agrees that payment of the principal and interest that
may become due and payable under this Note is expressly subordinated in right
and priority of payment pursuant to the terms of that certain Subordination
Agreement dated as of __________ (the "Subordination Agreement") between the
Maker, Payee and [Insert names of lenders to Company and/or its Subsidiaries].
[Subordination provisions to be added as required by the lenders to the Company
and its Subsidiaries such that amounts due hereunder are subordinated to
indebtedness owed to financial institutions in a manner acceptable to such
lenders].
3. PAYMENT. Maker shall make each payment to the Payee
hereunder, by wire transfer of immediately available funds, not later than 5:00
p.m. (Eastern Standard Time) on the day when due in lawful money of the United
States of America.
4. BUSINESS DAY. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or bank holiday under the laws of the United States of America (any other day being a "Business Day"), such payment may be made on the next succeeding Business Day.
5. PREPAYMENT. Maker shall have the right to prepay the principal amount of this Note, in whole or in part, at any time or from time to time, without premium or penalty, but with interest on the portion of the principal amount so prepaid accrued to the date of prepayment.
6. EVENTS OF DEFAULT. It shall constitute an "Event of Default" hereunder if (x) Maker shall fail to pay any payment of principal when due or any payment of interest within fifteen (15) days following the date when such interest payment is due, PROVIDED, HOWEVER, that the foregoing clause shall not apply in the event that Maker does not make all or any portion of such payment of principal or interest in accordance with or pursuant to the provisions of this Note or the Subordination Agreement; or (y) Maker shall have entered against it by a court with competent jurisdiction, a decree or order for relief in respect to Maker in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar official shall be appointed for Maker or for any substantial part of Maker's property, or the winding up or liquidation of Maker's affairs shall have been ordered; or Maker shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of any order for such relief in an involuntary case under any such law, or any such involuntary case shall commence, and not be dismissed within sixty (60) days, or Maker shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for Maker or for any substantial part of Maker's property, or make any general assignment for the benefit of creditors. If an Event of Default shall occur hereunder, Payee, at its option, upon written notice to Maker, may declare the unpaid principal balance, together with accrued interest thereon, immediately due and payable. If this Note is divided into several promissory notes of Maker, an Event of Default may not be declared hereunder unless declared by holders of a majority of the principal amount of such notes.
7. GOVERNING LAW. This Note shall be governed by and construed in accordance with the substantive laws of the State of Delaware without regard to the principles of conflicts of law thereof.
8. CONSENT TO JURISDICTION. The parties irrevocably consent and submit to the nonexclusive jurisdiction of any local, state or federal court within the Applicable County for the enforcement of this Note. The parties irrevocably waive (with respect to any such court) any objection they may have to venue in the defense of an inconvenient forum to the maintenance of such actions or proceedings to enforce this Note. As used herein, "APPLICABLE COUNTY" means Suffolk County, Massachusetts; provided, however, that when and if Robert Buck relocates his offices to a location
outside of the greater Boston metropolitan area in accordance with Section 5(b) of the Employment Agreement, then the Applicable County shall be (at all times thereafter) the county in which such relocated office is situated immediately after such relocation. As used herein, "EMPLOYMENT AGREEMENT" means the Employment Agreement dated as of October 20, 2003 between Beacon Sales Acquisition, Inc. and Robert Buck.
9. WAIVER. Maker hereby waives presentment for payment or acceptance, demand and protest, and notice of protest, dishonor and nonpayment of this Note and agrees that Payee shall not be required to initiate any suit or exhaust its remedies against the undersigned or any other person or parties in order to enforce payment of this Note.
10. COSTS. Maker agrees to pay all reasonable costs and expenses, including reasonable attorneys' fees and expenses, expended or incurred by Payee in connection with the enforcement of this Note.
11. MISCELLANEOUS PROVISIONS. If any terms or provisions of this Note are deemed invalid, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note may not be changed orally, but only by an agreement in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.
[Insert other provisions as required by lenders]
* * * * *
In Witness Whereof, this Note has been executed as of the day and year first written above.
[MAKER]
Exhibit 10.6
AMENDMENT TO EXECUTIVE SECURITIES AGREEMENT
This Amendment to Executive Securities Agreement ("AMENDMENT") is entered into and effective as of January 28, 2004 by and among Beacon Roofing Supply, Inc., a Delaware corporation (the "COMPANY"), Robert R. Buck ("EXECUTIVE") and Code, Hennessy & Simmons III, L.P., a Delaware limited partnership ("CHS").
R E C I T A L S:
A. The Company, CHS and Executive are parties to that certain Executive Securities Agreement dated as of October 20, 2004 (the "ORIGINAL AGREEMENT").
B. The parties hereto desire to amend the Original Agreement, on the terms set forth herein.
A G R E E M E N T S:
The parties hereto agree as follows:
1. Section 2(a) of the Original Agreement is hereby deleted in its entirety, and the following is inserted in its stead:
"CLOSING. Executive shall purchase from the Company, and the Company shall sell to Executive, no later than January 28, 2004, 15.724 Class A Shares at a price of $15,900.00 per Class A Share. The aggregate purchase price for such Class A Shares is Two Hundred Fifty Thousand Dollars ($250,000) (the "ORIGINAL SUBSCRIPTION PRICE"). The Original Subscription Price shall be paid to the Company as follows: at the closing for such purchase, Executive shall pay to the Company $250,000 in cash, by cashiers check or by wire transfer in immediately available funds."
2. Section 2(d)(iv) of the Original Agreement is hereby deleted in its entirety, and the following is inserted in its stead:
"Within fifteen (15) days after the payment of the purchase price for the purchase of shares contemplated by Section 2(a), Executive shall file (or cause to be filed) an election with the Internal Revenue Service under Section 83(b) of the Internal Revenue Code and the regulations promulgated thereunder, with respect to such purchase, in form and substance reasonably satisfactory to the Company."
3. Section 14(d) of the Original Agreement is hereby amended by inserting the phrase "(in each case as amended and/or restated from time to time)" after the phrase "contemplated by the foregoing."
4. Exhibit B to the Original Agreement (the form of Subordinated Promissory Note) is hereby amended by adding, at the end of the second grammatical paragraph thereof (which paragraph includes the definition of "Executive Securities Agreement"), the phrase "as amended from time to time".
5. The parties hereby ratify and confirm, in all respects, the Original Agreement, as amended by this Amendment.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Executive Securities Agreement as of the date first written above.
BEACON ROOFING SUPPLY, INC.
By: /s/ Peter M. Gotsch
--------------------------------------
Peter M. Gotsch, Vice President
|
CODE, HENNESSY & SIMMONS III, L.P.
By: CHS Management III, L.P.,
its general partner
By: CODE, HENNESSY & SIMMONS, L.L.C.,
its general partner
By: /s/ Peter M. Gotsch
--------------------------------------
Peter M. Gotsch, Member
|
EXECUTIVE
/s/ Robert R. Buck ------------------------------------------ Robert R. Buck |
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Amendment to Executive Securities Agreement and that I know its contents. I am aware that it amends the Executive Securities Agreement among my spouse (Robert R Buck), CHS and the Company (as so amended, the "Agreement"). I understand that, by the provisions of the Agreement, my spouse agrees, among other things, to a right of first refusal, to the granting of rights to purchase and to the imposition of certain restrictions on the transfer of the shares of the Company, including any marital property interest or community interest therein that I may have from time to time, which rights and restrictions may survive my spouse's death. I hereby consent to the rights and restrictions, approve of the provisions of the Amendment and the Agreement, and agree that I will bequeath any interest which I may have in said shares or any of them, including my community interest, if any, or permit any such interest to be purchased, in a manner consistent with the provisions of the Agreement. I direct that any residuary clause in my will shall not be deemed to apply to my community interest (if any) in such shares except to the extent consistent with the provisions of the Agreement.
I further agree that in the event of a dissolution of the marriage between myself and my spouse, in connection with which I secure or am awarded Executive Securities of the Company, or any interest therein through property settlement agreement or otherwise, I shall receive and hold said Executive Securities subject to all the provisions and restrictions contained in the Agreement, including any option of the Company or CHS to purchase such shares or interest from me.
I also acknowledge that I have been advised to obtain independent counsel to represent my interests with respect to the Agreement and this Amendment but that I have declined to do so.
Date: January 28, 2004 /s/ Susan G. Buck -------------------------- Susan G. Buck |
Exhibit 10.7
Execution Version
EXECUTIVE SECURITIES AGREEMENT
This Executive Securities Agreement ("AGREEMENT") is made as of August 21, 1997 by and among Beacon Holding Corporation, a Delaware corporation (the "COMPANY"), David Grace ("EXECUTIVE") and Code, Hennessy & Simmons III, L.P., a Delaware limited partnership ("CHS").
R E C I T A L:
The Company, CHS and Executive desire to enter into an agreement pursuant to which (a) Executive shall purchase, and the Company shall sell, a combination of (i) shares of Class A Common Stock, $.01 par value, of the Company and (ii) Subordinated Notes (as herein defined) of the Company and (b) the manner and terms by which the Company's equity and subordinated debt may be transferred.
A G R E E M E N T S:
The parties hereto agree as follows:
1. Definitions.
(a) For purposes of this Agreement, the following terms shall have the following meanings unless the context indicates otherwise:
"AFFILIATE" of a Person means any other Person controlling, controlled by or under common control with such Person and any partner of such Person if such Person is a partnership. An "Affiliate", with respect to the Company includes each of the Company's direct or indirect subsidiaries.
"BEACON OPERATING" means Beacon Sales Acquisition, Inc., a Delaware corporation.
"BOARD" means the board of directors of the Company.
"CAUSE" means any of the following, as determined by the Board in its reasonable judgment: (i) Executive's failure or refusal to perform such duties and responsibilities as are requested by the Board or the President of the Company or the Board of Directors or President of Beacon Operating or any other Subsidiary of Beacon Operating with which Executive is employed, (ii) Executive's failure to observe all material policies of the Company, Beacon Operating and their Affiliates generally applicable to executives of such Persons, (iii) Executive's gross negligence or willful misconduct in the performance of Executive's duties, (iv) the commission by Executive of any act of fraud or embezzlement against the Company, Beacon Operating or any of their Affiliates, or the commission of any felony or act involving dishonesty or moral turpitude, (v) Executive's unauthorized dissemination of information, observations and data concerning the business plans, financial data, referral sources, customers, suppliers, manufacturing procedures and techniques, trade secrets or acquisition strategies of the Company, Beacon Operating or any Subsidiaries, or any Confidential Information or (vi) Executive's failure (as determined by the President of Beacon Operating or the Company in his sole discretion) or refusal to perform duties and responsibilities which are commensurate with Executive's position with Beacon Operating or the Company.
"CLASS A SHARES" means shares of Class A Common Stock, $.01 par value per share, of the Company.
"CLASS B SHARES" means shares of Class B Common Stock, $.01 par value per share, of the Company.
"CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
"CREDIT AGREEMENT" means (i) that certain Credit Agreement dated August 21, 1997 among Beacon Sales Acquisition, Inc., Beacon Holding Corporation and NationsCredit Commercial Corporation, as Agent ("NationsCredit"), and (ii) any replacement credit or loan agreement between the Company and/or Beacon Operating and any new or replacement lender.
"DISABILITY" means Executive is unable, by reason of accident or illness (including mental illness), to perform his duties with Beacon Operating and its Subsidiaries for ninety (90) consecutive days and from which Executive is not expected to recover in the reasonably near future, all as determined upon examination by a physician acceptable to both Executive (or Executive's personal representative) and the Company and retained by the Company. Executive shall cooperate fully with such physician. If such physician determines that Executive is so disabled, the physician shall deliver to the Company a certificate certifying both that Executive is disabled and the date upon which the condition of disability commenced. The determination of the physician shall be conclusive and binding on both parties.
"EXECUTIVE SECURITIES" means (i) all Executive Shares, (ii) all
Subordinated Notes acquired by the Executive, (iii) all vested Options
issued to Executive, and (iv) all securities of the Company issued or
issuable with respect to the securities referred to in clauses (i),
(ii), and (iii) above by way of a stock split, stock dividend or other
recapitalization. Executive Securities shall continue to be Executive
Securities in the hands of any holder other than Executive (other than
the Company, its Subsidiaries or CHS and except for transferees in a
Public Sale or a Sale of the Company), and, except as otherwise
provided in this Agreement, each such other Holder shall succeed to all
rights and obligations attributable to Executive as a Holder hereunder.
"EXECUTIVE SHARES" means all Shares acquired by Executive pursuant to this Agreement or any other agreement, option plan or other arrangement with the Company or any Subsidiary, whether on or following the date of this Agreement, and all Shares of the Company issued or issuable with respect to such Shares by way of a stock split, stock dividend or other recapitalization.
"EXEMPT TRANSACTION" means any transfer of Executive Securities pursuant to Section 3, 4, 6(d) or 8 of this Agreement.
"FAIR MARKET VALUE" of any security of the Company means:
(i) the average of the closing prices of the sales of such security on all securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any particular day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such particular day, or, if on any particular day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m., New York time, or, if on any particular day such security is not quoted in the NASDAQ System, the average of the
highest bid and lowest asked prices on such particular day in the domestic over-the-counter market as reported by the National Quotation Bureau Incorporated, or any similar successor organization, in each such case averaged over a period of twenty-one (21) business days ending on the day as of which the Fair Market Value is being determined; or
(ii) with respect to any security which is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market for the entire twenty-one (21) day averaging period specified above, the fair value of such security as determined by a majority of the members of the Board.
With respect to Options, "Fair Market Value" means the amount determined pursuant to the preceding sentence less the exercise price for such Option. The fair value of Executive Shares shall be determined by the Board (or by representatives engaged by the Board) using the same methodology used by CHS to establish the purchase price for the assets of Beacon Sales Company, Incorporated purchased by Beacon Operating on the date hereof (i.e. a multiple of earnings before interest, taxes, depreciation and amortization minus normal capital expenditures, less debt and other appropriate items). In determining the fair value of securities, the Board shall not apply a discount for minority interest or lack of liquidity.
"FAMILY GROUP" means the spouse and immediate descendants (whether natural or adopted) of Executive (collectively, "RELATIVES"), any custodian of a custodianship for and on behalf of one or more Relatives or Executive and any trustee of a trust solely for the benefit of one or more Relatives.
"FULLY-DILUTED BASIS" shall mean the number of Shares which would be outstanding, as of the date of computation, if all convertible obligations, options and warrants and like rights and instruments, to acquire Shares had been converted or exercised.
"HOLDER" means any holder of Executive Securities (including, without limitation, Executive and Executive's Permitted Transferees).
"INDEPENDENT THIRD PARTY" means any Person who, immediately prior to the contemplated transaction, does not directly or indirectly beneficially own in excess of five percent (5%) of the Shares on a Fully-Diluted Basis, who is not an Affiliate of any five percent (5%) owner of such Shares and who is not the spouse or descendant (by birth or adoption) of any five percent (5%) owner.
"INTELLECTUAL PROPERTY" means all discoveries, inventions, improvements, computer programs, formulas, ideas, devices, writings or other intellectual property (including any notes, records, reports, sketches, plans, memoranda and other tangible information relating to such Intellectual Property), whether or not subject to protection under the patent or copyright laws, which Executive shall conceive solely or jointly with others, in the course of, or within the scope of employment, or which relates directly to the business of the Company, Beacon Operating and its Subsidiaries or their actual or anticipated research and development, or which was conceived or created using the Company's Beacon Operating's and its Subsidiaries' materials or facilities, whether during or after working hours.
"NEW ENGLAND REGION" means Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.
"1933 ACT" means the Securities Act of 1933, as amended from time to time, or any successor thereto.
"1934 ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto.
"OPEN MARKET TRANSACTION" means any Transfer of Executive Securities in the open market following a Public Sale.
"OPTIONS" means (i) all warrants, options or other rights to subscribe for purchase or otherwise acquire Executive Shares and (ii) all or any securities convertible into or exchangeable for Executive Shares.
"ORIGINAL COST" means $1,000 per Class A Share (such amount to be equitably adjusted, upward or downward, for stock splits, stock dividends and recapitalizations), provided that the Original Cost of Executive Shares purchased pursuant to the exercise of Options shall be the exercise price, if any, actually paid therefor, and if such Options have not been exercised, the Original Cost of such Options shall be the greater of $0.01 per Option or the cash price actually paid therefor.
"OUTSTANDING INDEBTEDNESS" means, as of the date of determination, the outstanding principal balance of, and all accrued and unpaid interest under, the applicable Subordinated Note(s).
"PERSON" means an individual, a partnership, a limited partnership, a corporation, a limited liability company or partnership, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or the United States of America or any other nation, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government.
"PUBLIC OFFERING" means a public offering of Shares (or the securities of any successor to the Company) or any shares of capital stock of a subsidiary pursuant to an effective registration statement under the 1933 Act.
"PUBLIC SALE" means any sale pursuant to a Public Offering or any sale to the public pursuant to Rule 144 (as defined below).
"RESIGNATION" means voluntary termination by Executive of his employment with Beacon Operating and the Subsidiaries.
"RETIREMENT" means the voluntary termination of Executive's employment with Beacon Operating and its Subsidiaries when Executive is at least 65 years old, which termination is in accordance with Beacon Operating's and the Subsidiaries' established retirement policies.
"SALE OF THE COMPANY" means the sale (in a single transaction or in a series of related transactions) of the Company to any Independent Third Party or group of Independent Third Parties pursuant to which such party or parties acquire (i) Shares (whether by merger, consolidation, sale or transfer of shares, reorganization, recapitalization or otherwise) possessing the voting power under normal circumstances to elect a majority of the members of the Board of Directors of the Company or (ii) all or substantially all of the assets of the Company and its Subsidiaries, determined on a consolidated basis.
"SHARES" means Class A Shares or Class B Shares (now or hereafter issued), and any shares issued in respect of such shares pursuant to a dividend, stock split reclassification or like action, or pursuant to an exchange (including a merger).
"SUBORDINATED NOTES" means the 12% Junior Subordinated Promissory Notes issued from time to time by the Company or assumed by the Company from time to time.
"SUBSIDIARY" means any Person of which the Company or Beacon Operating owns securities having a majority of the voting power in electing the board of directors directly or through one or more Subsidiaries (or, in the case of a partnership, limited liability company or other similar entity, securities conveying, directly or indirectly, a majority of the economic interests in such partnership or entity). In the case of the Company, the term Subsidiary or Subsidiaries shall include Beacon Operating.
"TRANSFER" shall mean any transfer, sale, assignment, pledge, encumbrance or other disposition (irrespective of whether any of the foregoing are effected, with or without consideration, voluntarily or involuntarily, by operation of law or otherwise, or whether INTER VIVOS or upon death).
(b) OTHER DEFINITIONS. Other defined terms are contained in the body of this Agreement.
2. Purchase and Sale of Executive Shares and Subordinated Notes.
(a) CLOSING. Executive hereby purchases from the Company, and the Company hereby sells to Executive, (i) 45 Class A Shares at a price of $1,000 per Class A Share, (ii) a Subordinated Note in the original principal amount of $135,000 at face value (the aggregate purchase price of $180,000 for the Class A Shares and Subordinated Notes being referred to herein as the "ORIGINAL SUBSCRIPTION PRICE"). The Company hereby acknowledges payment by Executive of the Original Subscription Price by delivery of immediately available funds in the aggregate amount of the Original Subscription Price.
(b) EXECUTIVE REPRESENTATIONS AND WARRANTIES. In connection with the purchase and sale of Executive Securities pursuant to this Agreement, Executive represents and warrants to the Company, and agrees and acknowledges that:
(i) The Executive Securities to be acquired by Executive pursuant to this Agreement are and shall be acquired for Executive's own account, for investment purposes only and not with a present view to, or intention of, distribution or resale thereof in violation of the 1933 Act or any state securities laws and that, irrespective of any other provisions of this Agreement, the Executive Securities shall be Transferred only in compliance with all applicable federal and state securities laws, including, without limitation, the 1933 Act.
(ii) The Executive Securities are not registered under the 1933 Act and must be held by Executive until such Executive Securities are registered under the 1933 Act or an exemption from such registration is available; the Company shall have no obligation to take any actions that may be necessary to make available any exemption from registration under the 1933 Act; and the Company shall place "stop transfer" restrictions on the party responsible for recording Transfers of Executive Securities in violation of the foregoing provisions of this clause (ii).
(iii) Executive is familiar with Rule 144 ("RULE 144") adopted by the Securities and Exchange Commission ("SEC") which establishes guidelines governing, among other things, the resale of "restricted securities" (securities, such as Executive Securities, which are acquired from the issuer of such securities in a transaction not involving any Public Offering).
(iv) Rule 144 is not presently available for
Transfers of the Executive Securities because, among other
things, the Company is not presently required to file the
reports required to be filed by Section 15(d) of the 1934 Act,
and does not have a class of securities registered pursuant to
Section 12 of that statute; and, even if the Company were
required to file reports under the 1934 Act, and had filed all
reports required to be filed, reliance on Rule 144 to Transfer
securities is subject to other restrictions and limitations,
as set forth in Rule 144.
(v) In connection with any Transfer of Executive Securities under Rule 144 or pursuant to any other exemption, Executive may, at the option of the Company, be required to deliver to the Company an opinion from counsel for Executive (reasonably acceptable to the Company) and/or receive an opinion from counsel for the Company, to the effect that all applicable federal and state securities law requirements have been met.
(vi) Executive has been an executive employee of Beacon Sales Company, Incorporated, a Massachusetts corporation and is an executive employee of Beacon Operating.
(vii) Executive is able to evaluate the risks and merits of the investment in the Executive Securities and of making an informed investment decision with respect thereto.
(viii) Executive is able to bear the economic risk of Executive's investment in the Executive Securities for an indefinite period of time because the Executive Securities have not been registered under the 1933 Act and, therefore, cannot be sold unless subsequently registered under the 1933 Act or unless an exemption from such registration is available.
(ix) Executive has reviewed the financial and other information with respect to the Company, Beacon Operating and the Subsidiaries contained in the materials attached hereto as Exhibit A, and all such other documents and information made available to, or requested by, Executive, and Executive has had the opportunity to ask questions and receive answers concerning all such materials and the terms and conditions of the offering of the Executive Securities. Executive has had full access to such other information and materials concerning the Company as Executive has requested. The Company has answered all inquiries that Executive has made to the Company relating to the Company and the sale of the Executive Securities hereunder.
(x) The execution, delivery and performance of this Agreement by Executive does not and shall not conflict with, violate or cause a breach of any agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which Executive is subject.
(xi) The Executive has not granted any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement.
(xii) Executive has the legal capacity to execute and perform this Agreement. This Agreement has been duly executed and delivered by Executive, and constitutes a valid and legally binding obligation of Executive, enforceable against him in accordance with its terms (except to the extent that enforcement may be affected by laws relating to bankruptcy, reorganization, insolvency and creditors' rights and by the availability of injunctive relief, specific performance and other equitable remedies). Executive's spouse has the legal capacity to execute and deliver the Spousal Consent attached to this Agreement (the "SPOUSAL CONSENT") and to deliver the Spousal Consent and such consent has been validly executed and delivered.
(c) COMPANY REPRESENTATIONS AND WARRANTIES. In connection with the purchase and sale of Executive Securities pursuant to this Agreement, the Company represents and warrants to Executive that:
(i) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has full power and authority to enter into and perform its obligations under this Agreement. The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations hereunder have been duly authorized and approved by all requisite action. This Agreement has been duly executed and delivered by a duly authorized officer of the Company.
(ii) The execution, delivery and performance of this Agreement by the Company does not and shall not conflict with, violate or cause a breach of any of the terms or provisions of the Certificate of Incorporation of the Company or its by-laws, or of any agreement, contract or instrument to which the Company is a party, or any judgment, order or decree to which the Company is subject.
(iii) On the date of this Agreement and after giving effect to the transactions contemplated by (1) this Agreement, (2) other Executive Securities Agreements with terms similar hereto (together with this Agreement, the "EXECUTIVE SECURITIES AGREEMENTS"), (3) the Chief Executive Securities Agreement dated of even date herewith among the Company, CHS and Andrew R. Logie, (4) the Investor Securities Agreement dated of even date herewith among the Company, CHS, and certain investors and (5) certain other agreements with NationsCredit Commercial Corporation (the "Agent"), (A) the number of all Class A Shares issued and outstanding shall be 2,000, (B) the number of all Class B Shares issued and outstanding shall be zero, (C) the face value of all Subordinated Notes issued and outstanding shall be $6,000,000 and (D) the Company shall have issued to Agent, the Company's senior lender, a warrant to purchase 162 shares of Class B common stock of the Company (representing 7.5% of the outstanding common stock of the Company). All Shares heretofore issued and delivered by the Company to any Holder have been, and all Shares to be issued by the Company to any Holder pursuant to this Agreement, when issued and delivered, shall be, duly authorized, validly issued, fully paid and non-assessable. The Executive Securities issued pursuant to this Agreement are subject to dilution by future issuances of securities of the Company including by issuance of common stock to lenders pursuant to warrants.
(d) ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. As an additional inducement to the Company to issue Executive Shares to Executive, Executive acknowledges and agrees that:
(i) Neither the issuance of Executive Shares to Executive nor any provision contained herein shall entitle Executive to remain in the employment of the Company or any of its Subsidiaries or affect the right of the Company or any such Subsidiary to terminate Executive's employment at any time for any reason.
(ii) The Company shall have no duty or obligation to disclose to Executive, and Executive shall have no right to be advised of, any material information regarding the Company and its Subsidiaries at any time prior to, upon or in connection with the repurchase of Executive Shares upon the termination of Executive's employment with the Company and its Subsidiaries or as otherwise provided under this Agreement.
(iii) Shares issued by the Company pursuant to a stock dividend, stock split, reclassification or like action, or pursuant to the exercise of a right granted by the Company to all holders of Shares to purchase Shares on a proportionate basis, shall be Transferred only, and for all purposes be treated, in the same manner as, and be subject to the same options with respect to, the Shares which were split or reclassified or with respect to which a stock dividend was paid or rights to purchase Shares on a proportionate basis were granted. In the event of a merger of the Company where this Agreement does not terminate, partnership units, membership units or shares of common stock (and/or securities convertible into such units or shares) which are issued in exchange for Shares shall thereafter be deemed to be Shares subject to the terms of this Agreement.
(iv) Any Person to whom Executive Securities are to be Transferred (except pursuant to a Public Offering) shall execute and deliver, as a condition to such Transfer, whatever documents are deemed reasonably necessary by the Company, in consultation with its counsel, to evidence such party's joinder in, acceptance of, and agreement with, the obligations with respect to the Executive Securities contained in this Agreement.
(v) Within thirty (30) days from the date hereof, Executive shall make an election with the Internal Revenue Service under Section 83(b) of the Internal Revenue Code and the regulations promulgated thereunder in form and substance reasonably satisfactory to the Company.
(vi) Except with the prior written consent of CHS, Executive shall not grant any proxy or become party to any voting trust or other agreement with respect to the Executive Securities or any interest therein.
(vii) Pursuant to a management agreement of even date herewith, Beacon Operating and its Subsidiaries will pay to an Affiliate of CHS management fees in the amount of $300,000 per annum (payable monthly) plus reasonable out of pocket expenses.
3. Repurchase Option.
(a) GENERAL. Upon the termination of Executive's employment with Beacon Operating for any reason ("TERMINATION"), all Executive Securities issued to Executive, whether held by Executive or one or more of Executive's transferees (collectively, the "AVAILABLE SECURITIES"), shall be subject to repurchase by CHS and the Company pursuant to the terms and conditions set forth in this Section 3 (the "REPURCHASE OPTION").
(b) COMPANY OPTION. The Board, acting in good faith, may elect (in its sole discretion) to cause the Company to purchase all or any portion of the Available Securities pursuant to the Repurchase Option by delivering written notice (the "REPURCHASE NOTICE") to CHS and Executive within thirty (30) days following Termination. The Repurchase Notice shall set forth the number and amount of Available Securities to be acquired from each Holder, the aggregate consideration to be paid for such securities and the time and place for the closing of such purchase.
(c) CHS OPTION. If for any reason the Company does not elect to purchase all of the Available Securities pursuant to the Repurchase Option, CHS may elect (in its sole discretion) to exercise the Repurchase Option for all (but not less than all) of the Available Securities which the Company has not elected to purchase (the "SECURITIES AVAILABLE FOR CHS"). Within sixty (60) days following Termination, CHS may elect to purchase all (but not less than all) of the Securities Available for CHS by giving written notice to Executive as to the number and amount of securities being purchased by CHS from each Holder (the "SUPPLEMENTAL REPURCHASE NOTICE").
(d) REPURCHASE PRICE. Upon exercise of the Repurchase Option, the purchase price for the Available Securities (the "REPURCHASE PRICE") shall be as follows:
(i) if the Repurchase Option is triggered by termination of Executive's employment by reason of Executive's death, Executive's Disability or termination of Executive's employment by Beacon Operating without Cause, the Repurchase Price shall be the Fair Market Value of the Available Securities as of the date of Termination;
(ii) subject to SUBSECTION 3(d)(iii) below, if the Repurchase Option is triggered by termination of Executive's employment by Beacon Operating for Cause or Resignation of the Executive (other than upon Retirement), the Repurchase Price of the Available Securities shall be the lesser of (A) the Original Cost (in the case of Executive Shares and Options) and the Outstanding Indebtedness (in the case of Subordinated Notes constituting Available Securities) and (B) the Fair Market Value of the Available Securities; and
(iii) in the event of Resignation of Executive following the fourth anniversary of the date hereof (and provided Executive has been continuously employed by Beacon Operating and the Subsidiaries through such date of Resignation) (such Resignation a "VESTED RESIGNATION"), the Repurchase Price of the Available Securities shall be (i) the Fair Market Value for the Vested Executive Securities (as defined below) as of the date of Termination, and (ii) the purchase price determined pursuant to subsection 3(d)(ii) for all Available Securities which are not Vested Executive Securities. As used herein, the term "Vested Executive Securities" shall mean the percentage of Executive Securities held by the Executive vested at the time of his Resignation, determined as follows:
If the Executive's Resignation the Percentage Date is on or after the: and before the: of Vesting is: ------------------------------ --------------- -------------- Fourth Anniversary Fifth Anniversary 33.3% Fifth Anniversary Sixth Anniversary 66.6% Sixth Anniversary any time thereafter 100% |
The purchase price for the Available Securities under this Section 3(d) shall be computed as of the date of Termination, and shall be determined by the Board within sixty (60) days after Termination and such determination shall be final and binding, absent fraud and manifest error. In connection with the
determination of the purchase price of Available Securities, the Board shall prepare and present to Executive a reasonably detailed written statement reflecting the calculation of the Repurchase Price including the methodology used to calculate such Repurchase Price.
(e) CLOSING. If and only if the Company and CHS collectively have
elected to purchase all (but not less than all) of the Available
Securities, the purchase of Available Securities pursuant to this
Section 3 shall be consummated at the Company's principal office at
10:00 a.m., on the thirtieth (30th) day next following the final
determination of the Repurchase Price as provided in Section 3(d) or on
such earlier day as designated by CHS or the Company, as the case may
be, in its sole discretion, upon not less than ten (10) days prior
notice to Executive. If such date is a Saturday, Sunday or legal
holiday, the closing shall occur at the same time and place on the next
succeeding business day. Subject to Section 5 hereof, at the option of
the Company and/or CHS, the Person exercising the Repurchase Option
shall pay for the Available Securities to be purchased pursuant to the
Repurchase Option by (i) delivery of a cashier's check or wire transfer
of immediately available funds, (ii) delivery of a non-negotiable
junior subordinated promissory note (the "REPURCHASE NOTE") in the form
of Exhibit B attached hereto, the principal amount of which shall bear
interest at the rate of eight percent (8%) per annum, with interest and
a pro rata portion of principal payable quarterly over a three-year
period following delivery of the Repurchase Note, and with such
additional terms (including subordination provisions) as shall be
required by the senior lenders to the Company and/or its Subsidiaries
and/or (iii) by set off against any and all obligations due and owing
the Company and/or its Subsidiaries from the Executive. Notwithstanding
the terms described in the immediately preceding sentence, in the event
of exercise of a Repurchase Option upon a Vested Resignation, the
Repurchase Note issued in connection therewith (the "Resignation
Repurchase Note") shall provide for payment of the entire principal
amount thereof on the earlier of (i) the tenth (10th) anniversary of
the date of issuance of the Note, or (ii) a Sale of the Company.
Interest under the Resignation Repurchase Note shall be payable
annually on each anniversary date thereof. The purchasers of Executive
Securities to be purchased pursuant to the Repurchase Option hereunder
shall be entitled to receive customary representations and warranties
as to ownership, title, authority to sell and the like from the Holders
regarding such sale and to receive such other evidence, including
applicable inheritance and estate tax waivers, as may reasonably be
necessary to effect the purchase of the Executive Securities to be
purchased pursuant to the Repurchase Option. Notwithstanding anything
to the contrary herein contained, if the Company and CHS collectively
have elected to purchase less than all of the Available Securities,
then the Company and CHS shall be deemed to have elected not to
purchase any of the Available Securities pursuant to the Repurchase
Option.
(g) FAILURE TO DELIVER SHARES. If Executive or any other Holder of Executive Securities whose Executive Securities are to be purchased pursuant to Section 3, 4 or 6 fails to deliver them on the scheduled closing date of such purchase, the Company or CHS (as the case may be) may elect to deposit the consideration representing the purchase price of the Executive Securities with the Company's attorney (or any other third party, including a bank or a financial institution), as escrowee. In the event of the foregoing election, the Executive Securities shall be deemed for all purposes (including the right to vote and receive payment for dividends) to have been Transferred to the purchasers thereof and the Company shall issue new certificates representing the Executive Securities to the Company, CHS or their respective designees, as the case may be, and the certificates or instruments registered in the name of the Person obligated to sell such Executive Securities shall be deemed to have been canceled and to represent solely a right to receive payment of the purchase price, without interest, from the escrow funds. If, prior to the third (3rd) anniversary of the scheduled closing date for the purchase pursuant to Sections 3, 4 or 6, the proceeds of sale have not been claimed by the Executive or other seller of the Executive Securities, the escrow deposit (and any interest earned thereon) shall be returned to the Person
originally depositing the same, and the transferors whose Executive Securities were so purchased shall look solely to the purchasers thereof for payment of the purchase price. The escrowee shall not be liable for any action or inaction taken by it in good faith.
(h) TERMINATION OF REPURCHASE OPTION. The rights of the Company and/or CHS to purchase Executive Securities pursuant to Section 3 shall terminate upon the earliest to occur of (i) the consummation of a Sale of the Company (ii) the consummation of a Public Offering, and (iii) termination of Executive's employment upon Retirement.
4. PUT.
(a) GENERALLY. Upon the occurrence of a termination of Executive's employment with Beacon Operating as a result of Executive's death or Disability or as a result of termination by Beacon Operating of Executive's employment without Cause (other than a termination which otherwise does not constitute a breach of Executive's employment arrangements) (a "PUT EVENT"), Executive may require the Company to repurchase all (but not less than all) of the Executive Securities owned by the Executive as of the date of such termination, pursuant to the terms and conditions in this Section 4 (the "PUT").
(b) PUT NOTICE. Upon the occurrence of a Put Event, Executive (or his personal representative, if Executive is deceased or incompetent) may exercise the Put by delivering written notice (the "PUT NOTICE") to the Company within fifteen (15) days following the occurrence of the Put Event.
(c) PUT PRICE. Upon the exercise of the Put, the purchase price
for the Executive Securities (the "PUT PRICE") shall be the Fair Market
Value of such securities computed as of the date of the Put Event. The
Board shall calculate the Put Price within thirty (30) days following
delivery of a Put Notice (provided, however, that Fair Market Value
shall be determined in accordance with the definition thereof in
Section 1).
(d) MANNER OF PAYMENT. Subject to Section 5, the Put Price payable in connection with the exercise of a Put Option shall, at the option of the Company, be paid on the Put Closing Date (as defined herein) by (i) delivery of cashier's check or wire transfer of immediately available funds, (ii) by delivery of a Repurchase Note, and/or (iii) by set off against any and all obligations due and owing the Company or any of its Affiliates from the Executive. In the event of exercise of the Put in case of Executive's death or Disability, the Company will use its best efforts to pay to Executive (or his personal representative) at the Closing thereof, as payment of a portion or the full amount (as the case may be) of the Put Price, an amount equal to the lesser of the Original Cost and the original principal amount of the Available Securities or the Fair Market Value of the Available Securities.
(e) CLOSING. The closing of the purchase of Executive Securities pursuant to the Put (the "PUT CLOSING") shall take place on the date (the "PUT CLOSING DATE") designated by the Company in a written notice to Executive, which date shall be not more than thirty (30) days after final determination of the Put Price as provided in Section 4(c).
(f) TERMINATION OF RIGHT. The right of Executive to require the Company to repurchase Executive Securities pursuant to this paragraph 4 will terminate upon the earlier of (i) consummation of a Sale of the Company and (ii) consummation of a Public Offering.
5. Manner of Payment and Restriction on the Company's Right to Purchase.
(a) GENERAL RESTRICTION. Notwithstanding anything to the contrary contained in this Agreement, the Company shall not be obligated to purchase, pursuant to Section 4 or otherwise, such Executive Securities as the Company may then be prohibited by law or bona fide contract from purchasing, including, without limitation, the Delaware General Corporation Law (the "DELAWARE ACT") and covenants contained in the Credit Agreement and any other loan agreements or other bona fide agreements to which the Company or any Subsidiary is then a party. For the purposes of this Agreement, the Company shall not be obligated to purchase Executive Securities if any loan or other bona fide agreement to which any Subsidiary of the Company is a party or is bound would prohibit the Subsidiaries from paying to the Company dividends or distributions sufficient to permit the Company to pay the entire purchase price for such Executive Securities. To the extent such Executive Securities cannot be repurchased pursuant to applicable contracts or law, the option contained in Section 4 shall be of no force and effect and shall be null and void. Notwithstanding the immediately preceding sentence, in the event of a Termination of Executive's employment by Beacon Operating without Cause, upon written election of Executive, delivered to the Company within thirty (30) days following such Termination, the period for exercise of the Put Option shall be tolled and shall be exercisable only on the first date (the "Exercise Date") on which payments under, and incurrence of indebtedness (and issuance of a Repurchase Note) pursuant to, the Put Option are permitted under the terms of the Credit Agreement and such payments and indebtedness are sufficient to satisfy the Put Price in full. If the Put Option is exercised pursuant to the preceding sentence, the Put Price shall be paid pursuant to subsection 4(d), but subject to subsection 5(b). If tolled, the option in Section 4 shall be exercisable as if the Executive had been terminated without Cause on the Exercise Date and shall be exercisable in accordance with Section 4.
(b) PAYMENT LIMITATION. Notwithstanding anything to the contrary
contained in this Agreement or in any Repurchase Note delivered
pursuant to the terms hereof, the Company's obligation to make a
payment pursuant to a Repurchase Note delivered pursuant to Section
3(e) or 4(d) of this Agreement shall be suspended to the extent and for
so long as (x) the making of such payment, together with the making of
all other payments to be made during such fiscal year on account of the
Company's purchases of Executive Securities pursuant to this Agreement
and securities purchased pursuant to any other agreements with
shareholders of the Company, would result in a violation of the
Delaware Act or a breach of any covenant contained in any loan or other
bona fide agreement to which the Company or any of its Subsidiaries is
a party, or (y) the Company's Subsidiaries are unable to pay to the
Company dividends or other distributions sufficient to permit the
Company to pay the entire purchase price for such Executive Securities
in cash as a result of applicable law or any covenant contained in any
bona fide agreement to which any of such Subsidiaries are a party. If
any portion of the Company's obligation to Executive or any of
Executive's transferees has been tolled for a period in excess of three
(3) years from the original closing date, Executive (or such
transferee), by written notice delivered to the Company, may elect to
rescind the sale of that portion of the Executive Securities, the
proceeds of sale of which are represented by unpaid notes made by the
Company which are owed to Executive or such transferee. If payments are
suspended pursuant to this Section 5(b), at such time as the Company is
able to resume making payments without violation of the Delaware Act,
applicable law or a covenant in any bona fide agreement to which the
Company or any of its Subsidiaries is a party, the Company shall first
make payments of arrearage owed to the former shareholders on a
proportional (to the amount of arrearage) basis, and shall then make
regularly scheduled payments.
6. RESTRICTIONS ON TRANSFER OF EXECUTIVE SECURITIES. This Section 6 shall apply to any proposed Transfer of Executive Securities. Notwithstanding anything to the contrary contained herein, a Transfer of Executive Securities shall not be valid or have any force or effect unless (i) such Transfer is
made in accordance with the provisions of this Agreement, (ii) such Transfer would not result in a violation of any applicable federal or state securities law, and (iii) the intended transferee of such Transfer is not engaged in a Competitive Business, has not been engaged in a Competitive Business in the immediately preceding two years, and is not developing a Competitive Business.
(a) TRANSFER OF EXECUTIVE SECURITIES. No Holder shall Transfer any interest in any Executive Securities except pursuant to an Exempt Transaction or pursuant to this Section 6. No Holder shall consummate any such Transfer (except pursuant to an Exempt Transaction or pursuant to Section 6(c)) until sixty-one (61) days following the latest of the delivery to the Company and CHS of the Offer Notice (as defined below), unless all rights provided in Section 6(b) have been exercised or waived, and the parties to the Transfer have been finally determined pursuant to such exercises or waivers prior to the expiration of such sixty-one (61) day period (the "ELECTION PERIOD"). Notwithstanding anything to the contrary herein contained, except pursuant to an Exempt Transaction, neither Executive nor any of his Permitted Transferees shall Transfer any interest in Executive Securities (i) unless Executive or such Permitted Transferee(s) has received a bona fide written offer to purchase such Executive Securities, (ii) until one hundred twenty (120) days following Executive's Termination and (iii) in any event without the prior written consent of a majority of the members of the Board (which approval may be withheld for any reason or no reason).
(b) FIRST REFUSAL RIGHT. If any Holder desires to Transfer any Executive Securities other than in an Exempt Transaction or a transaction pursuant to Section 6(c), such Holder (the "TRANSFERRING HOLDER") shall deliver a written notice (the "OFFER NOTICE") to the Company and CHS. The Offer Notice shall disclose in reasonable detail the identity of the proposed transferee(s) (including, without limitation, all parties holding controlling interests in such proposed transferee), the proposed number, amount and type of Executive Securities to be transferred and the proposed terms and conditions of the Transfer and any other material information reasonably requested by the Board or CHS and shall include a true and correct copy of the written offer to purchase Executive Securities received by him. The delivery by the Transferring Holder of the Offer Notice shall create the following two (2) options:
(i) First, the Board, acting in good faith, may elect (in its sole discretion) to cause the Company to purchase all or any portion of the Executive Securities specified in the Offer Notice at the price and on the terms specified therein (provided, however, that any promissory note given by the Company pursuant to the terms of this Section 6 shall be subordinated to indebtedness owed to financial institutions on terms reasonably acceptable to such financial institutions and that the Company shall be entitled set off against the purchase price any and all obligations due and owing the Company or any of its Affiliates from the Executive) by delivering written notice of such election to the Transferring Holder as soon as practical, but in any event within thirty (30) days following the delivery of the Offer Notice (the "COMPANY OFFER PERIOD").
(ii) If the Company has not elected to purchase
all of the Executive Securities within the Company Offer
Period, then CHS may elect (in its sole discretion) to
purchase all (but not less than all) of the Executive
Securities not elected to be purchased by the Company at the
price and on the terms specified in the Offer Notice by
delivering written notice of such election to the Transferring
Holder as soon as practical, but in any event within sixty
(60) days following the delivery of the Offer Notice.
If the Company and/or CHS have elected to purchase all (but not less than all) of the Executive Securities offered by the Transferring Holder, the Transfer of such Executive Securities to the Company and/or
CHS, as the case may be, shall be consummated as soon as practical after the delivery of the election notices, but in any event within thirty (30) days following the expiration of the Election Period. The purchasers of Executive Securities offered in the Offer Notice hereunder shall be entitled to receive customary representations and warranties as to ownership, title, authority to sell and the like from the Holder regarding such sale and to receive such other evidence, including applicable inheritance and estate tax waivers, as may reasonably be necessary to effect the purchase of the Executive Securities offered in the Offer Notice. Notwithstanding anything to the contrary herein contained, if the Company and CHS collectively have elected to purchase less than all of the Executive Securities offered by the Transferring Holder, then the Company and CHS shall be deemed to have elected not to purchase any of the Executive Securities offered by the Transferring Holder pursuant to this Section 6.
(c) TRANSFER SUBSEQUENT TO EXPIRATION OF ELECTION PERIOD. If the
Company and CHS have not collectively elected to purchase all Executive
Securities being offered, such Transferring Holder may, within sixty
(60) days following the expiration of the Election Period and subject
to the provisions of this Section 6 other than Section 6(b), Transfer
such Executive Securities referred to in the Offer Notice to the party
or parties named therein at a price no less than the price specified in
the Offer Notice and on other terms and conditions offered in the Offer
Notice. Executive Securities Transferred pursuant to the previous
sentence shall thereafter continue to be subject to all restrictions on
Transfer and other provisions of this Agreement, including, without
limitation, the provisions of this Section 6 with respect to further
Transfers of the Executive Securities and a transferee, as a condition
of any such Transfer, shall agree in writing to be bound by the
provisions of this Agreement. Any Executive Securities not transferred
within such sixty (60) day period shall be subject to the provisions of
this Section 6 with respect to any subsequent Transfer.
(d) PERMITTED TRANSFERS. Anything contained in this Agreement to the contrary notwithstanding, Executive Securities may be Transferred without first complying with the provisions of Section 6 other than as provided in this paragraph (d): (i) by Executive or a Permitted Transferee to CHS (it being agreed and understood that CHS shall not be a Holder as a result of such Transfer of Securities), (ii) by Executive to any member of such Executive's Family Group, (iii) by a Permitted Transferee to Executive who Transferred such Executive Securities to such Permitted Transferee, (iv) to the personal representative of Executive or a Permitted Transferee who is deceased or adjudicated incompetent, (v) by the personal representative of Executive or a Permitted Transferee who is deceased or adjudicated incompetent to any member of such Executive's or Permitted Transferee's Family Group, (vi) upon termination of a trust or custodianship which is a Permitted Transferee of a Holder, by the trustee of such trust or custodian of such custodianship to the person or persons who, in accordance with the provisions of such trust or custodianship, are entitled to receive the Executive Securities held in trust or custody, or (vii) the pledge by Executive to the Company of the Executive Securities pursuant to a pledge agreement (collectively, the "PERMITTED TRANSFEREES"); provided that (A) the restrictions contained in this Section 6 shall continue to be applicable to the Executive Securities after any such Transfer, and (B) the Permitted Transferees of such Executive Securities shall have agreed in writing to be bound by all of the provisions of this Agreement affecting the Executive Securities so transferred.
(e) CONSIDERATION FOR TRANSFER. Notwithstanding anything to the contrary herein contained, except as may be required by Section 5 hereof, where a Transfer is made for consideration, in no event shall any such Transfer by Executive of Executive Securities be made for any consideration other than (i) United States dollars payable in full upon consummation of such Transfer and/or (ii) a promissory note with all amounts owed thereunder payable in United States dollars.
(f) DURATION OF SECTION 6. Notwithstanding anything to the contrary contained in this Agreement, the provisions of this Section 6 shall terminate upon the consummation of a Public Offering or Sale of the Company.
7. TRANSFER OF SHARES IN OPEN MARKET TRANSACTIONS. This Section 7 shall apply to any proposed Transfer of Shares by any Holder in an Open Market Transaction during all such times as CHS owns in the aggregate greater than thirty percent (30%) of the Shares. During each calendar quarter during which sales of Shares are permitted to be made in accordance with agreements ("STANDSTILL AGREEMENTS") with the underwriters engaged in connection with a Public Sale, and during each calendar quarter following the termination of the Standstill Agreements, any such Holder that desires to Transfer Shares may sell such number of Shares as equals his pro rata share of one percent (1.0%) of the then outstanding Shares (or such lesser percentage or number as may be permitted by the Standstill Agreements). Fifteen (15) business days prior to the beginning of each calendar quarter during which sales of Shares are permitted under the Standstill Agreements, and fifteen (15) days prior to each calendar quarter after the termination of the Standstill Agreements, each such Holder that desires to Transfer Shares shall deliver a written notice to the Company setting forth the number of Shares that such Holder desires to sell (up to such Holder's pro rata share of the aggregate quarterly maximum specified above) in Open Market Transactions during the succeeding quarter. If such Holder that is Transferring does not elect to sell his pro rata share, the Company may allocate the right to sell such unused pro rata share to any stockholder of the Company. Within three (3) business days following the beginning of each applicable quarter, the Company shall deliver a written notice to such Holder that is Transferring setting forth the amount of Shares permitted to be sold (as determined in accordance with this Section 7) by such Holder during such applicable calendar quarter in Open Market Transactions. The Company may, in its discretion, from time to time increase the aggregate amount of Shares which may be sold in any calendar quarter in Open Market Transactions. Any Shares sold in an Open Market Transaction shall cease to be bound by the terms and provisions of this Agreement.
8. Sale of the Company.
(a) If the holder(s) of a majority of the Shares then outstanding
and (if necessary under applicable law) the Board approve a Sale of the
Company (an "APPROVED SALE") (and if the Sale of the Company is to an
entity that is Controlled by CHS, the consideration for such Sale of
the Company is fair to the Company and the holders of Shares as
determined pursuant to the same mechanism used to determine Fair Market
Value under Section 1), each Holder shall consent to and raise no
objections against the Approved Sale, and if the Approved Sale is
structured as a sale of Shares, each Holder shall, if requested by the
holder(s) of a majority of the Shares then outstanding, sell (or
otherwise Transfer) that percentage of his Executive Securities, on
terms and conditions approved by the Board (if necessary under
applicable law) and the holder(s) of a majority of the Shares then
outstanding, as shall equal the percentage of Shares and other
securities owned by CHS that are to be included in such transaction.
Each Holder shall take all actions reasonably necessary or reasonably
desirable (as determined by the holder(s) of a majority of the Shares
then outstanding) in connection with the consummation of the Approved
Sale. Without limiting the foregoing, (i) if the Approved Sale is
structured as a merger, consolidation, joint venture or similar
transaction, each Holder shall vote in favor of such transaction and
waive any dissenters' rights, appraisal rights or similar rights in
connection with such merger or consolidation, and (ii) if the Approved
Sale is structured as a sale or exchange of Shares, each Holder shall
agree to sell or exchange all of the Shares and Options held by such
Holder on the terms and conditions approved by the Board and the
holders of a majority of the Shares then outstanding. The Company shall
use best efforts to notify Executive in writing not less than thirty
(30) days prior to the proposed consummation of an Approved Sale (or,
Participation Sale as described in Section 8(b) below); PROVIDED that
such Executive agrees that he or she will not,
directly or indirectly (without the prior written consent of the Company), disclose to any other Person (other than to such Executive's legal counsel in confidence, as otherwise necessary to protect such Executive's rights under this Agreement or as otherwise required by law) any information related to such potential Sale of the Company.
(b) If CHS proposes to sell to a purchaser or related group of purchasers such number of Shares as equals or exceeds 50% of the then outstanding Shares determined on a Fully-Diluted Basis (whether in one transaction or a series of transactions) (a "PARTICIPATION SALE"), Executive may elect to participate in the contemplated transaction by delivering written notice to the Company and CHS within ten (10) days following the receipt by Executive of notice of such transaction. Executive shall be entitled to sell, at the same price and on the same terms as CHS, a number of Shares equal to the product of (1) the number of Shares owned by Executive on a Fully-Diluted Basis multiplied by (2) the quotient of (x) the number of Shares to be sold by CHS in such transaction divided by (y) the aggregate number of Shares held by CHS at such time, on a Fully-Diluted Basis. Notwithstanding anything to the contrary herein contained, this Section 8(b) shall not apply to (x) any sale to any officer, director, employee, agent, or lender to the Company, Beacon Operating or any of its Subsidiaries, or (y) any sale or other Transfer to any successor CHS approved fund or to any affiliate of CHS.
(c) If a Holder is required or elects to participate in an
Approved Sale or a Participation Sale pursuant to Subsection (a) or (b)
above: (i) upon the consummation of the Approved Sale or the
Participation Sale, as the case may be, all of the Holders of Shares
similarly situated shall receive the same form and amount of
consideration per Share, or if any Holders are given an option as to
the form and amount of consideration to be received, all such Holders
shall be given the same option; (ii) upon the consummation of the
Approved Sale or the Participation Sale, as the case may be, all of the
holders of Subordinated Notes similarly situated shall receive the same
form and amount of consideration in relation to the face amount of
Subordinated Notes held by such holders, or if any such holders are
given an option as to the form and amount of consideration to be
received, all holders shall be given the same option; and (iii) all
Holders of then currently exercisable Options shall be given an
opportunity to either (A) exercise such rights prior to the
consummation of the Approved Sale or the Participation Sale, as the
case may be, and participate in such sale as Holders, or (B) upon the
consummation of the Approved Sale or the Participation Sale, as the
case may be, receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of
consideration per Share received by the Holders in connection with the
Approved Sale or the Participation Sale, as the case may be, less the
exercise price per share of such rights to acquire Shares, by (2) the
number of Shares represented by such rights. Without limiting the
foregoing, any Holder participating in a transaction pursuant to this
Section 8 shall be required to make such representations, warranties
and covenants, and grant such indemnification, as may be required by
the purchaser of the Shares and which have been made by CHS or the
holders of a majority of the outstanding Shares, as the case may be.
(d) If the Board or the holders of a majority of the outstanding Shares of the Company enter into any negotiation or transaction for which Rule 506 (or any similar rule then in effect) promulgated by the SEC under the 1933 Act may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), each Holder shall, acting together with other Holders, at the request of the Company, appoint a purchaser representative (as such term is defined in Rule 501 under the 1933 Act) reasonably acceptable to the Company. If Executive appoints a purchaser representative designated by the Company, the Company shall pay the fees of such purchaser representative, but if Executive declines to appoint the purchaser representative designated by the Company, Executive shall appoint another purchaser
representative (reasonably acceptable to the Company), and Executive shall be responsible for the fees of the purchaser representative so appointed.
(e) Each Holder shall bear such Holder's pro-rata share (based upon the number of Shares sold on a Fully-Diluted Basis) of the costs of any sale of Executive Securities pursuant to an Approved Sale or a Participation Sale to the extent such costs are not otherwise paid by the Company or the acquiring party; provided, however, that all Holders are treated on an equal basis. Costs incurred by a Holder on such Holder's own behalf shall not be considered costs of the transaction hereunder.
(f) Notwithstanding anything to the contrary contained in this Agreement, the provisions of Section 8 shall terminate upon the consummation of a Sale of the Company or a Public Offering.
9. Limited Preemptive Rights.
(a) Except for the issuance of Shares or Options (A) in connection
with the acquisition of another Person's's business by the Company or
any of its Subsidiaries or Affiliates (whether by acquisition of stock
or assets, or by merger, consolidation or other similar transaction),
the acquisition of any stock or assets of any Person or the formation
of a joint venture, (B) pursuant to a Public Offering, (C) to current
or future officers, employees, directors, agents or consultants of the
Company or its Subsidiaries, to Affiliates of the Company (or any of
their respective officers, directors, employees or agents) or to
holders of the existing securities of the Company, or (D) to the
Company's or any Subsidiary's lenders in connection with the
incurrence, renewal or maintenance of indebtedness (including funded
indebtedness), if the Company authorizes the issuance and sale of any
Shares (other than as a dividend on the outstanding Shares) or any
Options (pursuant to the exercise of warrants or otherwise) the Company
shall first offer to sell to Executive a portion of such Shares or
Options equal to the percentage determined by dividing (1) the number
of Shares held by Executive immediately prior to the proposed issuance
of such securities, on a Fully-Diluted Basis, by (2) the aggregate
number of Shares outstanding at such time, on a Fully-Diluted Basis.
Executive, if he is exercising his pre-emptive rights pursuant to this
Section 9, shall, as a condition to such exercise, also be required to
purchase the same proportionate amount of any other securities that the
purchasers of such Shares or Options purchase in connection with the
issuance of the securities subject to the preemptive rights.
Notwithstanding anything in this Section 9 to the contrary, if
preemptive rights are exercised pursuant to this Section and pursuant
to the preemptive rights granted under the Executive Securities
Agreements and the Chief Executive Securities Agreements for an
aggregate number of Shares or Options which is greater than 100% of the
Shares or Options to be issued and sold by the Company, then the number
of Shares that each executive, including without limitation the
Executive, shall be entitled to purchase pursuant to such agreements
shall be reduced, on a pro rata basis among all such executives
exercising preemptive rights under such agreements, to the extent
necessary such that the number of Shares and Options purchased pursuant
to the preemptive rights exercised under such agreements equal the
number of Shares and Options to be issued and sold by the Company.
(b) Executive shall exercise Executive's pre-emptive rights hereunder within fifteen (15) days following the receipt of written notice from the Company describing in reasonable detail the purchase price, the payment terms for the Shares or Options, the period in which the pre-emptive right hereunder is to be exercised, and Executive's percentage allotment. The Executive exercising the Executive's pre-emptive right shall execute all documentation, and take all actions, as may be reasonably requested by the Company in connection therewith.
(c) Upon the expiration of the offering period described above, the Company shall be entitled to sell such Shares or Options which Executive has not elected to purchase during the sixty (60) day period following such expiration, on terms and conditions no more favorable to the purchasers thereof than those offered to Executive. Any Shares or Options offered or sold by the Company following such one hundred eighty (180) day period shall be reoffered to Executive pursuant to the terms of this Section 9.
(d) The rights of the Executive under this Section 9 shall terminate upon the earlier of (i) consummation of a Sale of the Company, (ii) the consummation of a Public Offering, or (iii) termination of Executive's employment with the Company or any of its Subsidiaries.
10. Additional Restrictions on Transfer.
(a) LEGEND. All certificates evidencing Executive Shares which are subject to this Agreement shall bear the following legend:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SHARES REPRESENTED HEREBY ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE SECURITIES AGREEMENT BETWEEN BEACON HOLDING CORPORATION ("THE COMPANY") AND THE ORIGINAL HOLDER HEREOF DATED AS OF AUGUST 21, 1997 AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF THIS SECURITY UNTIL THE CONDITIONS THEREIN HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
If Executive Shares remain restricted following a Public Offering and the above legend thereby becomes inappropriate in whole or in part, a new, appropriate legend shall be set forth on such certificates.
(b) OPINION OF COUNSEL. Executive may not Transfer any Executive Shares without first delivering to the Company, if reasonably requested by the Company, an opinion of counsel (reasonably acceptable in form and substance to the Company) that neither registration nor qualification under the 1933 Act and applicable state securities laws is required in connection with such Transfer.
11. NOTICES. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by confirmed facsimile (provided, however, that notices delivered by facsimile shall only be effective if such notice is also delivered by hand, or mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier (charges prepaid), on or before two (2) business days after its delivery by facsimile) or by reputable overnight courier service (charges prepaid) to the recipient at the address indicated below:
TO THE COMPANY:
Beacon Holding Corporation
c/o Code, Hennessy & Simmons III, L.P.
10 South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Brian Simmons and Peter M. Gotsch
WITH A COPY (WHICH SHALL NOT CONSTITUTE
NOTICE TO THE COMPANY) TO:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: S. Michael Peck, Esq. and James R. Cruger, Esq.
TO EXECUTIVE:
David Grace
34 Holly Street
Gloucester, MA 01930
WITH A COPY (WHICH SHALL NOT CONSTITUTE
NOTICE TO THE EXECUTIVE) TO:
Sherburne, Powers & Needham, P.C.
One Beacon Street
Boston, MA 02108
Attention: William Machen, Esq. and Theodore Hanselman, Esq.
TO CHS:
Code, Hennessy & Simmons III, L.P.
10 South Wacker Drive
Suite 3175
Chicago, Illinois 60606
Attention: Brian Simmons and Peter M. Gotsch
WITH A COPY (WHICH SHALL NOT CONSTITUTE
NOTICE TO CHS) TO:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: S. Michael Peck, Esq. and James R. Cruger, Esq.
and/or such other address and/or to the attention of such other person as the
recipient party shall have designated by notice given in accordance with this
Section 11. Any notice under this Agreement shall be deemed to have been given,
(a) if delivered in person or sent by confirmed facsimile or overnight courier,
one business (1) day following delivery to recipient, facsimile transmission or delivery to the courier (as the case may be), or (b) if mailed, three (3) business days following deposit in the U.S. mail.
12. RESTRICTIVE COVENANTS. In the event of termination of
Executive's employment with Beacon Operating ("Termination") as a result of
Resignation or termination for Cause, Executive shall not, for a period of six
(6) months from the date of termination, engage or participate (whether as
employee, shareholder, officer, director, partner, member, consultant, advisor,
principal or otherwise) in any Competitive Business (as defined herein). As used
herein, Competitive Business means any Person which engages in the wholesale
distribution of products similar to those sold by Beacon Operating at the time
of termination of such Executive's employment in the states in the New England
Region in which Beacon Operating or the Subsidiaries are then conducting
business. In addition, for a period of six months following Termination,
Executive shall not disclose or use any confidential, proprietary or trade
secret information of Beacon Operating ("Confidential Information"). Such
information includes information about Beacon Operating's products, including
specifications, materials, costs and designs; information concerning Beacon
Operating's management, financial condition, financial operation, purchasing
activities, sales activities, marketing activities and business plans;
information concerning Beacon Operating's actual or potential customers,
including their identities, the quantity of products purchased from Beacon
Operating and the prices paid; and all other types and categories of information
which are generally understood by employees in the roofing products industry to
be trade secret information. In addition, for a period of six months following
Termination, Executive shall not hire or offer to hire any of Beacon Operating's
officers, employees or agents or entice them to discontinue their relationship
with Beacon Operating, or divert or attempt to divert from Beacon Operating any
business by influencing or attempting to influence any customer or supplier of
Beacon Operating. Executive agrees that these obligations may be enforced by
equitable remedies, including injunction.
13. Amendment and Termination.
(a) This Agreement shall be terminated: (i) upon the mutual
agreement of the Company (with the approval of the Board) CHS and
holders of at least seventy percent of the Executive Securities or (ii)
upon the consummation of a Sale of the Company (other than as a result
of a sale in a Public Offering) provided, however, that the
representations and warranties of the parties hereto contained in
Section 2(b) and 2(c) of this Agreement shall survive termination of
this Agreement, and the obligations of Executive set forth in Section
12 of this Agreement, shall survive termination for the periods
expressly set forth therein. The rights and obligations of the parties
shall survive termination of the Agreement to the extent that any
performance is required after such termination.
(b) This Agreement may be amended by the written consent of CHS and Executive; provided that in no event shall any such amendment materially and adversely affect the rights of any one Holder without the prior written consent of such Holder unless such amendment materially and adversely affects the rights of all Holders.
14. General Provisions.
(a) SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction so as to best give effect to the intent of the parties under this Agreement.
(b) COMPLETE AGREEMENT. This Agreement and the Subordinated Note executed concurrently herewith, together embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.
(c) COUNTERPARTS. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
(d) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company, CHS and their respective legal representatives, heirs, successors and assigns (including subsequent holders of Executive Securities); provided that the rights and obligations of Executive under this Agreement shall not be assignable except in connection with a permitted transfer of Executive Securities hereunder.
(e) CHOICE OF LAW. This Agreement shall be governed and construed in accordance with the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Illinois.
(f) CONSENT TO JURISDICTION. Executive irrevocably consents and submits to the exclusive jurisdiction of any local, state or federal court within the County of Cook in the State of Illinois for enforcement by the Company or CHS of this Agreement. The Company and CHS irrevocably consent and submit to the exclusive jurisdiction of any local, state or federal court within the County of Cook in the State of Illinois for enforcement by Executive of this Agreement. Executive, the Company and CHS irrevocably waive any objection they may have to venue in the defense of an inconvenient forum to the maintenance of such actions or proceedings to enforce this Agreement.
(g) REMEDIES. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs caused by any breach of any provision of this Agreement and to exercise all other rights existing in such party's favor. In the event of a dispute hereunder, the prevailing party's reasonable attorney's fees and costs shall be reimbursed by the opposing party or parties in such dispute within fourteen days following a judgment by a court or tribunal of competent jurisdiction over such exercise or enforcement. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.
(h) WAIVER. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
(i) BUSINESS DAYS. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday.
(j) NO STRICT CONSTRUCTION. The parties hereto jointly participated in the negotiation and drafting of this Agreement. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their collective mutual intent, this Agreement shall be construed as if drafted jointly by the parties hereto, and no rule of strict construction shall be applied against any Person.
(k) GENDER. As used in this Agreement, the masculine, feminine or neuter gender shall be deemed to include the others whenever the context so indicates or requires.
(l) HEADINGS. The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Executive Securities Agreement on the date first written above.
BEACON HOLDING CORPORATION
By: /s/ Marcus George
-----------------------------
Its: Vice President
-----------------------------
|
CODE, HENNESSY & SIMMONS III, L.P.
By: /s/ Peter M. Gotsch ----------------------------- Its: Principal ----------------------------- |
EXECUTIVE
/s/ David Grace ----------------------------- Name: David Grace ----------------------------- |
SPOUSAL CONSENT
I acknowledge that I have read the foregoing Executive Securities Agreement and that I know its contents. I am aware that by its provisions, my spouse agrees, among other things, to a right of first refusal, to the granting of rights to purchase and to the imposition of certain restrictions on the transfer of the shares of the Company, including my community interest therein (if any), which rights and restrictions may survive my spouse's death. I hereby consent to such rights and restrictions, approve of the provisions of the Agreement, and agree that I will bequeath any interest which I may have in said shares or any of them, including my community interest, if any, or permit any such interest to be purchased, in a manner consistent with the provisions of this Agreement. I direct that any residuary clause in my will shall not be deemed to apply to my community interest (if any) in such shares except to the extent consistent with the provisions of this Agreement.
I further agree that in the event of a dissolution of the marriage between myself and my spouse, in connection with which I secure or am awarded Executive Securities of the Company, or any interest therein through property settlement agreement or otherwise, I shall receive and hold said Executive Securities subject to all the provisions and restrictions contained in the foregoing Agreement, including any option of the Company or CHS to purchase such shares or interest from me.
I also acknowledge that I have been advised to obtain independent counsel to represent my interests with respect to this Agreement but that I have declined to do so and hereby expressly waive my right to such independent counsel.
/s/ Jennifer L. Grace -------------------------- Name: |
Exhibit 10.8
BEACON ROOFING SUPPLY, INC. 1998 STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF SEPTEMBER 29, 2000)
1. PURPOSE. The purpose of this Beacon Roofing Supply, Inc. 1998 Stock Plan ("Plan") is to attract and retain outstanding individuals as key employees and directors of Beacon Sales Acquisition, Inc. d/b/a Beacon Sales Company, Incorporated, a Delaware corporation ("Company") and its subsidiaries (Company and its subsidiaries, collectively or individually, "Employer"), and to provide incentives for such key employees and directors to expand and improve the profits and achieve the objectives of the Employer by providing to such individuals opportunities to acquire (i) junior subordinated promissory notes issued by Holding ("Notes") and (ii) shares of Class A Common Stock of Holding ("Shares") through awards and the exercise of options (awards of Notes or Shares under the Plan being referred to herein as "Note Awards" or "Share Awards", respectively), and in each case thereby provide such individuals with a greater proprietary interest in and closer identity with the Employer and its financial success. The Company is a direct subsidiary of Beacon Roofing Supply, Inc. ("Holding"), a Delaware corporation formerly known as Beacon Holding Corporation. Options granted under this Plan may be either nonqualified stock options or incentive stock options ("Incentive Options") (nonqualified stock options and Incentive Options being referred to herein, collectively or individually, as "Options"). Options granted under this Plan and designated as Inventive Options by the Committee (as herein defined) are intended to be "incentive stock options" within the meaning of that term in section 422 of the Internal Revenue Code of 1986, as amended ("Code"). The provisions of this Plan with respect to Inventive Options and of each Incentive Option granted hereunder shall be interpreted in a manner consistent with that section and all valid regulations issued thereunder. Incentive Options may not be granted under the Plan to directors, except to those directors who are also employees of the Employer at the time of the grant.
2. ADMINISTRATION. This Plan will be administered by the Board of Directors of Holding (the "Board") or a committee thereof designated by the Board (the Board or such committee hereinafter referred to as the "Committee"). The Committee shall interpret the Plan and shall prescribe, amend and rescind rules and regulations relating thereto and make all other determinations necessary or advisable for the administration of the Plan. Any such action shall be final and conclusive on all persons having any interest in the Note Awards, Share Awards, Options or Shares to which such action relates. A majority of the members of the Committee shall constitute a quorum and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under this Plan may be made without notice of meeting of the Committee by a unanimous written consent of the Committee.
The Committee shall determine, within the limits of the express provisions of this Plan, those key employees and directors to whom, and the time or times at which, Note Awards, Share Awards, and Options shall be granted to such key employees or directors. The Committee shall determine the terms and conditions of each Note Award. The Committee shall determine the number of Shares to be subject to each Share Award and Option, whether an Option will be a nonqualified stock option or an Incentive Option, the duration of each Option, the time or times within which (during the term of the Option) all or portions of each Option may be exercised, the restrictions applicable to each Share Award and Option, and whether cash, Shares or other property may be accepted in full or partial payment upon exercise of an Option. The Committee may require, as a condition to the effectiveness of any Note Award or Stock Award, that the
recipient pay consideration for the Notes or Shares that are the subject thereof, in an amount and on other terms determined by the Committee. In making any of the foregoing determinations, the Committee may take into account the nature of the services rendered by the Participants (as herein defined), their present and potential contributions to the Employer's success and such other factors as the Committee in its discretion shall deem relevant.
3. PARTICIPANTS. The "Participants" in the Plan will consist of such key employees and directors of the Employer as the Committee in its sole discretion from time to time designates within the limits of this Plan. The Committee's designation of a Participant at any time shall not require the Committee to designate such person at any other time. The Committee shall consider such factors as it deems pertinent in selecting Participants and in determining the terms of their respective Note Awards, Share Awards, and Options, including without limitation: (i) the financial condition of the Employer, (ii) the anticipated profits of the current or future years, (iii) the contributions of Participants to the profitability and the development of the Employer, both present and future and (iv) other compensation provided to Participants.
4. Terms and Conditions of Awards.
a. NOTE AWARDS.
Note Awards granted under this Plan shall be subject to such terms and conditions as the Committee shall from time to time in its sole discretion determine (whether or not applicable to Note Awards granted to any other Participant), including, without limitation, the term, interest rate, payment provisions, subordination, such provisions as may be appropriate to comply with federal or state securities laws, and undertakings or conditions as to the Participant's employment, in addition to those specifically provided for under this Plan.
b. SHARE AWARDS.
Share Awards granted under this Plan shall be in such form and upon such terms and conditions as the Committee shall from time to time determine, subject to the provisions of this Plan. Share Awards may be subject to other provisions (whether or not applicable to the Share Awards granted to any other Participant) as the Committee, in its sole discretion determines appropriate, including, without limitation, restrictions on resale or other disposition, vesting schedules with respect to the ownership of Shares, such provisions as may be appropriate to comply with federal or state securities laws and stock exchange requirements and undertakings or conditions as to the Participant's employment, in addition to those specifically provided for under this Plan.
5. TERMS AND CONDITIONS OF OPTIONS. The Options granted under this Plan shall be in such form and upon such terms and conditions as the Committee shall from time to time determine, subject to the provisions of this Plan, including the following:
a. OPTION PRICE
The Option price shall in no event be less than One Hundred Percent (100%) of the fair market value of the Shares subject to such Option at the time such Option is granted. In the case of an Incentive Option granted to a Participant who at the time of grant owns (directly or indirectly) stock of Holding or of its parent or its subsidiaries possessing more than Ten Percent (10%) of the total combined voting power of all classes of stock of such corporations ("10% Owner"), the Option price shall be at least One Hundred Ten Percent (110%) of such fair market value of the Shares subject to such Incentive Option at the time such Incentive Option is granted.
b. OPTION TERM
Each Option granted under this Plan shall be for such period as the
Committee shall determine, which period may include, without
limitation, early termination of the Option upon consummation of a
merger involving the Company or a sale of a substantial portion of
the Company's Common Stock, or the Participant's termination of
employment or cessation as a director. No Incentive Option, however,
may be for a period more than ten (10) years from the date the
Incentive Option is granted; provided, however, for a 10% Owner, no
Incentive Option may be for a period more than five (5) years from
the date the Incentive Option is granted. Notwithstanding anything
to the contrary herein contained, in no event will a Participant who
ceases to be employed by the Employer for any reason have the right
to exercise his or her Options at any time following the date which
is thirty (30) days after the date of termination of such
Participant's employment with Employer, provided, however, that a
Participant who ceases to be employed by the Employer because of
death or disability shall have ninety (90) days after the date of
such termination of employment with Employer to exercise his or her
Options. Options which are not exercised by a Participant prior to
the date which is thirty (30) days after the date of termination of
Participant's employment with Employer (or the date which is ninety
(90) days following the date of termination of such Participant's
employment because of death or disability) shall automatically
expire and be null and void on such thirtieth (30th) or ninetieth
(90th) day following such termination, as the case may be.
c. METHOD OF EXERCISE
Options may be exercised by giving written notice to the Treasurer of Holding, stating the number of Shares with respect to which the Option is being exercised and tendering payment therefor. In the discretion of the Committee, payment for Shares may be made in cash, other Shares, retention of Shares which would otherwise be issued upon Option exercise, a combination of the foregoing or by any other means which the Committee determines. Upon receipt of the payment, Holding shall deliver to the person exercising such Option a certificate or certificates for such Shares. It shall be a condition to the performance of Holding's obligation to issue or transfer Shares upon exercise of an Option that
the person exercising the Option pay, or make provision satisfactory to the Employer for the payment of, any taxes (other than stock transfer taxes) which the Employer is obligated to collect with respect to the issue or transfer of Shares upon such exercise.
The Committee may establish a program through which Participants in the Plan may borrow funds with which to purchase Shares pursuant to the exercise of an Option. Eligibility of any Participant for such borrowing will be determined solely at the discretion of the Committee. Any such loan shall bear interest at a rate determined by the Committee.
The Committee may determine to grant additional options to those Participants in the Plan who exercise their Options with Shares.
d. VALUE OF SHARES
The aggregate fair market value (determined at the time the Incentive Options are granted) of the Shares with respect to which Incentive Options are exercisable for the first time by a Participant during any calendar year shall not exceed one hundred thousand dollars ($100,000).
Options may be subject to other provisions (whether or not applicable to the Options granted to any other Participant) as the Committee, in its sole discretion determines appropriate, including, without limitation, restrictions on resale or other disposition, installment exercise limitations, such provisions as may be appropriate to comply with federal or state securities laws and stock exchange requirements and undertakings or conditions as to the Participant's employment, in addition to those specifically provided for under this Plan.
6. SHARES AND NOTES.
a. The total number of Shares allocated to this Plan and available to designated Participants under this Plan is Four Hundred Sixty-Five (465) Shares except as such number of Shares shall be adjusted in accordance with the provisions of Section 9. The maximum number of Shares available to any one Participant under this Plan through Share Awards and Options is One Hundred Ninety-Two and Nineteen One-Hundredths (192.19) Shares in any one calendar year. Each Share Award and Option when granted shall state the number of Shares to which it pertains. Such Shares may be either authorized but unissued Shares or treasury Shares. If any Option granted under this Plan expires unexercised, or is terminated or ceases to be exercisable for any other reason without having been fully exercised prior to the end of the period during which Options may be granted under this Plan, or if any Option is canceled, the Shares theretofore subject to such Option or to the unexercised portion of such Option shall again become available for new Share Awards and Options to be granted under this Plan to any eligible person (including the holder of such former Option). Shares reacquired or Shares which were never issued due to a forfeiture under any Share Award shall again become available for new Share Awards and Options to be granted under this Plan to any eligible person (including the holder of such former Share Award) to the extent permitted by Rule 16b-3 promulgated under
Section 16 of the Securities Exchange Act of 1934, as amended ("Exchange Act") or any successor provision ("Rule 16b-3").
b. The total original principal amount of Notes allocated to this Plan and available to designated Participants under this Plan is $2,000,000. The maximum original principal amount of Notes available to any one Participant under this Plan through Note Awards is $1,599,000 in any one calendar year.
7. EVIDENCE OF GRANT.
a. NOTE AWARDS.
Note Awards granted pursuant to this Plan shall be authorized by the
Committee and shall be evidenced by notices ("Note Award Notices")
in such form as the Committee shall from time to time determine.
Such Note Award Notices shall state: (i) the amount of the principal
sum owed on the note; (ii) the due date or dates for payment of the
principal sum, (iii) the rate of interest payable on the unpaid
principal balance, (iv) the due date or dates for payment of
interest, (v) the restrictions applicable to the Notes awarded, and
(vi) such other information as the Committee deems appropriate or
necessary. The terms and conditions of each Note Award Notice shall
be consistent with the provisions of this Plan and will be
applicable only to the Note Award that it announces.
b. SHARE AWARDS
Share Awards granted pursuant to this Plan shall be authorized by the Committee and shall be evidenced by notices ("Share Award Notices") in such form as the Committee shall from time to time determine. Such Share Award Notices shall state: (i) the number of Shares awarded, (ii) the restrictions applicable to the Shares awarded and (iii) such other information as the Committee deems appropriate or necessary. The terms and conditions of each Share Award Notice must be consistent with the provisions of this Plan and will be applicable only to the Share Award that it announces.
c. OPTIONS
Options granted pursuant to this Plan shall be authorized by the Committee and shall be evidenced by notices ("Option Notices") in such form as the Committee shall from time to time determine. Such Option Notices shall state: (i) the number of Shares with respect to which the Option is granted, (ii) the type of Option - nonqualified stock option or Incentive Option, (iii) the Option price, (iv) the Option exercise schedule, (v) the Option term, (vi) the method of exercising such Option and (vii) such other information as the Committee deems appropriate or necessary. The terms and conditions of each Option Notice must be consistent with the provisions of this Plan and will be applicable only to the grant that it announces.
8. NON-ASSIGNABILITY OF OPTIONS. Options granted to a Participant pursuant to this Plan shall be exercisable during the lifetime of a Participant only by the Participant provided, however, that the Committee in its discretion may permit Participants in the Plan not subject to Section 16 of the Exchange Act to transfer nonqualified stock options to (i) family members, (ii) custodianships under the Uniform Transfers to Minors Act or any similar statute, (iii) trusts for the benefit of any family member, (iv) trusts by such Participant for the Participant's primary benefit and (v) upon termination of a custodianship under the Uniform Transfers to Minors Act or similar statute or the termination of a trust, by the custodian or trustee thereof, to the person or persons who, in accordance with the terms of such custodianship or trust are entitled to receive Options held in custody or trust.
9. ADJUSTMENTS.
a. CAPITAL ADJUSTMENTS
If the Shares should, as a result of any stock dividend, stock split, other subdivision or combination of Shares, or any reclassification, recapitalization or otherwise, be increased or decreased, the number of Shares covered by each outstanding Share Award and Option, the Option price under each outstanding Option and the total number of Shares reserved for issuance under this Plan may be adjusted to prevent the dilution or enlargement of rights in the manner as determined by the Committee in its sole discretion to reflect such action. Any new Shares or other securities issued with respect to Shares shall be deemed Shares.
b. SALE OR REORGANIZATION
In the event Holding is merged or consolidated with another corporation, or in the event the property or stock of Holding is acquired by another corporation or entity, or in the event of a reorganization or liquidation of Holding, or in the event of any extraordinary transaction (including a sale of assets or stock) involving the Company, its subsidiaries, or their respective assets (each of the above being an "Extraordinary Transaction"), the board of directors of any corporation assuming the obligations of Holding hereunder or the Committee, as applicable, shall have the right to provide for the continuation of Share Awards or Options granted under the Plan or for other adjustments as determined by the board of directors of such corporation assuming the obligations of Holding hereunder or the Committee, as applicable, in its sole discretion. Without limiting the foregoing, in the event of an Extraordinary Transaction, the board of directors of any corporation assuming the obligations of Holding hereunder or the Committee, as applicable, shall have the right to require (i) that a cash payment in lieu of the Option be paid in an amount equal to the difference between the fair market value of the Shares, as determined by the board of directors of any corporation assuming the obligations of Holding hereunder or the Committee, as applicable, and the Option price described in the Option grant; (ii) that the Option be converted into other property or (iii) the exercise of the Option within a specified
period following written notice and if the Option is not exercised in accordance therewith, such Option will be terminated without any further rights thereunder.
10. LEGAL AND OTHER REQUIREMENTS. Each Share Award and Option granted under this Plan shall be subject to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the Shares issuable or transferable upon the Share Award or exercise of the Option upon any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with the granting of such Share Award, or Option, or the issuance, transfer or purchase of Shares thereunder, then such Share Award shall not be made and such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. Each Note Award granted under this Plan shall be subject to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the Notes issuable under the Note Award upon any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with the granting of such Note Award, or the issuance, transfer or purchase of Notes thereunder, then such Note Award shall not be made in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. Holding shall not be obligated to sell or issue any Shares or Notes in any manner in contravention of the Securities Act of 1933, as amended, or any other applicable securities law. Each Participant shall agree to such terms and conditions in connection with a Note Award or a Share Award or the exercise of an Option, including restrictions on the disposition of Shares or Notes acquired pursuant to the Share Award or Note Award or upon exercise of the Option, as the Committee may deem appropriate. Shares and Notes acquired pursuant to a Share Award or Note Award or upon exercise of an Option may be legended as the Committee shall deem appropriate to reflect the restrictions imposed by the Committee, this Plan or by securities laws generally. A Participant shall have no rights as a stockholder with respect to any Shares covered by Options granted to or Options exercised by, the Participant until the date of delivery of a stock certificate to the Participant for such Shares. No adjustment with respect to any Shares covered by Options other than pursuant to Section 9 hereof shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is delivered. To the extent deemed appropriate by the Committee, this Plan is intended to comply with Rule 16b-3 with respect to persons subject to Section 16 of the Exchange Act and any provision which would prevent compliance with Rule 16b-3 shall be deemed invalid to the extent permitted by law and deemed appropriate by the Committee.
11. RESTRICTION ON SALE OF SHARES. Without prior written notice to Holding, no Shares acquired by a Participant upon exercise of an Incentive Option granted hereunder shall be disposed of by the Participant within two (2) years from the date such Incentive Option was granted, nor within one (1) year after the transfer of such Shares to the Participant; provided, however, that a transfer to a trustee, receiver, or other fiduciary in any insolvency proceeding, as described in section 422(c)(3) of the Code, shall not be deemed to be such a disposition.
12. TAX WITHHOLDING. The Employer shall comply with the obligations imposed on the Employer under applicable tax withholding laws, if any, with respect to Note Awards, Share
Awards, and Options granted hereunder, and shall be entitled to do any act or thing to effectuate any such required compliance, including, without limitation, withholding from amounts payable by the Employer to a Participant and including making demand on a Participant for the amounts required to be withheld.
If the Committee so permits, a Participant, or upon the Participant's death, the Participant's beneficiary, may satisfy, in whole or in part, the obligation to pay the Employer any amount required to be withheld under the applicable federal, state and local income tax laws in connection with a Share Award or exercise of an Option under this Plan by either: (a) having the Employer withhold from the Shares to be acquired pursuant to the Share Award or upon the exercise of the Option, or (b) delivering to the Employer either previously acquired Shares or Shares acquired pursuant to the Share Award or upon the exercise of the Option which the Participant or beneficiary was unconditionally obligated to deliver to the Employer. The Shares withheld or delivered shall be valued at their fair market value as of the date the amount of tax to be withheld is determined. The fair market value of Shares shall be determined in accordance with procedures established by the Committee. Any amounts required to be withheld in excess of the value of Shares withheld or delivered shall be paid in cash or withheld from other compensation paid by Employer.
13. NO CONTRACT OF EMPLOY. Neither the adoption of this Plan nor the grant of any Note Awards, Share Awards, or Options, nor ownership of Shares shall be deemed to obligate the Employer to continue the appointment, employment or engagement of any eligible person for any particular period.
14. INDEMNIFICATION OF COMMITTEE. The members of the Committee shall be indemnified by Holding to the fullest extent permitted by Delaware law, Holding's certificate of incorporation and Holding's by-laws.
15. AMENDMENT; TERMINATION. Prior to June 1, 2000, this Plan was known as the Beacon Holding Corporation 1998 Stock Plan, and was amended as of June 1, 2000. The Plan as so amended and restated constituted effective as of June 1, 2000, an amendment, restatement, and continuation of the Plan as in effect immediately prior to June 1, 2000. The Plan was later amended and restated as of September 2000 (to increase the number of Shares under the Plan to 465). This document as so amended and restated constitutes effective as of September 29, 2000, an amendment, restatement, and continuation of the Plan as in effect immediately prior to September 29, 2000. Holding may amend and/or restate this Plan from time to time or terminate this Plan at any time, but no such action shall reduce the number of Shares subject to the then outstanding Share Awards or Options granted to any Participant or adversely to the Participant change the terms and conditions of outstanding Note Awards, Share Awards, or Options without the Participant's consent; provided, however, that, to the extent deemed appropriate by the Committee, shareholder approval shall be necessary to adopt any amendment if the adoption of such amendment without shareholder approval would cause this Plan to no longer comply with Rule 16b-3 or any successor rule or regulatory requirement. No Note Award, Share Award, or Option may be granted after ten (10) years from the original effective date of adoption of this Plan.
16. DELAWARE LAW TO GOVERN. This Plan shall be governed by and construed in accordance with the laws of the State of Delaware.
17. EFFECTIVE DATE. The Plan initially became effective on December 31, 1998. The Plan was approved by a majority of the shareholders of Holding on December 31, 1998.
Exhibit 10.10
AMENDED AND RESTATED SPECIAL PURCHASE OPTION AGREEMENT
This Amended and Restated Special Purchase Option Agreement (the "AGREEMENT") is dated and effective as of January 28, 2004, by and between Beacon Roofing Supply, Inc., a Delaware corporation (the "COMPANY"), and Robert R. Buck ("EXECUTIVE").
RECITALS
A. Executive is the President and Chief Executive Officer of the Company and of Beacon Sales Acquisition, Inc. d/b/a Beacon Sales Company, a Delaware corporation ("BEACON"), a subsidiary of the Company. Executive has entered into an Employment Agreement with Beacon dated as of October 20, 2003 (as amended from time to time, the "EMPLOYMENT AGREEMENT").
B. In order to provide Executive with a further incentive to develop a greater interest and closer identity with the Company and its subsidiaries, the Company desires to offer Executive the opportunity to purchase shares of the Company's Class A Common Stock (the "SHARES") in accordance with and subject to the terms of this Agreement.
NOW, THEREFORE IT IS AGREED:
1. OPTION GRANT. On the date hereof, the Company hereby grants to Executive the option (the "SPECIAL OPTION") to purchase all or any part of Eighty-Nine and 724/1000ths (89.724) Shares at a price of Fifteen Thousand Nine Hundred Dollars ($15,900.00) per Share.
2. TERM. The term of the Special Option shall expire at the close of regular business hours at the Company's chief executive offices on October 20, 2013. Notwithstanding anything to the contrary herein, Executive shall not have the right to exercise the Special Option at any time after (and the Special Option shall terminate upon) the earlier occurrence of (a) the time that Executive ceases to serve the Company Group as an employee for any reason whatsoever, except Retirement or termination without Cause, (b) the date that is 90 days after the termination without Cause of Executive's employment with the Company Group, (c) the consummation of a Sale of the Company, or (d) the consummation of a Qualified Public Offering. As used herein, "EXECUTIVE SECURITIES AGREEMENT" means the Executive Securities Agreement dated as of October 20, 2003 among Executive, the Company, and Code, Hennessy & Simmons III, L.P, as amended from time to time. As used herein, the terms "CAUSE", "COMPANY GROUP", "DISABILITY", "SALE OF THE COMPANY", "PUBLIC OFFERING", "RESIGNATION" and "RETIREMENT" have the meanings given to them in the Executive Securities Agreement. For greater certainty, for purposes of this Agreement, none of the following shall constitute a termination without Cause: (i) Resignation by the Executive, (ii) Retirement; or (iii) termination for Disability. As used herein, a "QUALIFIED PUBLIC OFFERING" means a Public Offering with aggregate proceeds (net of any underwriting commissions) to the issuer and/or selling stockholders (as the case may be) of at least $50 million dollars ($50,000,000).
3. VESTING. The Special Option may be exercised at any time only to the extent that the unexercised portion thereof is then vested. The Special Option shall vest as to 44.862 Shares on October 20, 2005, and as to another 44.862 Shares on October 20, 2006; provided, however, that the Special Option shall vest as to all of the Shares that it covers upon the earlier occurrence of (A) the consummation of a Sale of the Company, or (B) the consummation of a Qualified Public Offering. The Company shall give Executive notice of any Sale of the Company or Qualified Public Offering that occurs during the term of this Option and an opportunity to exercise the Special Option at the closing of any such Sale of the Company or Qualified Public Offering.
4. EXERCISE. The Special Option may be exercised in full or in part at any time or from time to time, in a single or multiple exercises, subject to Sections 2 and 3 hereof. In order to exercise the Special Option, Executive must: (a) give written notice (in a form substantially similar to SCHEDULE 1 attached hereto) to the Company at its address set forth in SCHEDULE 1, stating the number of Shares with respect to which the Special Option is being exercised, and (b) tender payment for the full exercise price of such Shares ($15,900.00 times the number of Shares as to which the Special Option is exercised) in cash, by certified or cashier's check, or by wire transfer of immediately available funds unless, at the time of exercise, the Company agrees to accept other Shares, retention of Shares which would otherwise be issued upon exercise or a combination of the foregoing, or such other arrangements as the Company, in its sole discretion, determines.
5. RESTRICTIONS ON TRANSFER. Executive acknowledges and agrees that any Shares issued pursuant to the Special Option are subject to the terms and conditions of the Executive Securities Agreement.
6. REPRESENTATIONS AND WARRANTIES OF EXECUTIVE. Upon the exercise of the Special Option, Executive shall be treated as representing , warranting and acknowledging that each of his representations, warranties and acknowledgements set forth in Section 2(b) of the Executive Securities Agreement (except for those set forth in clauses (iii) or (iv) of Section 2(b) of the Executive Securities Agreement, to the extent that a Public Offering has previously occurred and those representations and warranties are not then applicable) are true and correct as of the date of such exercise.
7. SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction so as to best give effect to the intent of the parties under this Agreement.
8. COUNTERPARTS. This Agreement may be executed in separate counterparts (by facsimile or otherwise), each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
9. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company and its subsidiaries and their respective heirs, legal representatives, successors and assigns; provided that the rights and obligations of Executive under this Agreement shall not be assignable.
10. CHOICE OF LAW. This Agreement shall be governed and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of Delaware.
11. CONSENT TO JURISDICTION. The parties irrevocably consent and submit to the nonexclusive jurisdiction of any local, state or federal court within the Applicable County for the enforcement of this Agreement. The parties irrevocably waive (with respect to any such court) any objection they may have to venue in the defense of an inconvenient forum to the maintenance of such actions or proceedings to enforce this Agreement. As used herein, "APPLICABLE COUNTY" means Suffolk County, Massachusetts; provided, however, that when and if Executive relocates his offices to a location outside of the greater Boston metropolitan area in accordance with Section 5(b) of the Employment Agreement, then the
Applicable County shall be (at all times thereafter) the county in which such relocated office is situated immediately after such relocation.
12. WAIVER. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
13. HEADINGS. The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
14. PRIOR AGREEMENT; AMENDMENTS. This Agreement amends, restates and supersedes in its entirety that certain Special Purchase Option Agreement (the "PRIOR AGREEMENT") dated as of October 20, 2003 between the parties. Within five business days after the date hereof, Executive shall return to the Company all originals of the Prior Agreement in his possession. This Agreement shall not be amended or modified unless pursuant to an agreement in writing signed by the Company and Executive.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Special Purchase Option Agreement as of the date first written above.
OPTIONOR:
BEACON ROOFING SUPPLY, INC.
By: /s/ Peter M. Gotsch
-----------------------------
Peter M. Gotsch, Vice President
|
EXECUTIVE:
/s/ Robert R. Buck ----------------------------- Robert R. Buck |
SCHEDULE 1
Beacon Roofing Supply, Inc.
[Street address of chief executive offices of the Company]
[City, State and Zip Code of chief executive offices of the Company]
Attn: Treasurer
NOTICE OF EXERCISE OF SPECIAL PURCHASE OPTION
I hereby give notice of my election to exercise, to the extent stated
below, the special purchase option ("Option") granted to me on January 28, 2004
to purchase 89.724 shares of Class A Common Stock, $.01 par value per share of
Beacon Roofing Supply, Inc. ("Shares") at a price of Fifteen Thousand Nine
Hundred Dollars ($15,900.00) per Share, pursuant to that certain Amended and
Restated Special Purchase Option Agreement dated as of January 12, 2004 by and
between the undersigned and Beacon Roofing Supply, Inc. I hereby elect to
exercise such Option to the extent of __________ Shares. Payment in the amount
of $__________ equal to the full exercise price of such Shares [is enclosed]
[has been transferred by wire transfer of immediately available funds to the
Company's account No. ____ at _____].
Exhibit 10.11
EXECUTION COPY
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
DATED AS OF MARCH 12, 2004
AMONG
BEACON SALES ACQUISITION, INC.,
AS BORROWER,
THE DOMESTIC SUBSIDIARIES OF BEACON SALES
ACQUISITION, INC. NAMED HEREIN,
AS DOMESTIC SUBSIDIARY GUARANTORS,
GENERAL ELECTRIC CAPITAL CORPORATION,
AS AGENT, L/C ISSUER AND A LENDER,
AND
THE FINANCIAL INSTITUTION(S) LISTED
ON THE SIGNATURE PAGES HEREOF,
AS LENDERS,
AND
GECC CAPITAL MARKETS GROUP, INC.,
AS LEAD ARRANGER
AND
FLEET CAPITAL CORPORATION,
AS SYNDICATION AGENT
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS.......................................................................1
1.1 CERTAIN DEFINED TERMS.................................................................................1
SECTION 2. LOANS AND COLLATERAL...................................................................................1
2.1 LOANS.................................................................................................1
2.2 INTEREST.............................................................................................12
2.3 FEES.................................................................................................14
2.4 PAYMENTS AND PREPAYMENTS.............................................................................15
2.5 APPLICATION OF PREPAYMENT PROCEEDS...................................................................17
2.6 TERM OF THIS AGREEMENT...............................................................................17
2.7 STATEMENTS...........................................................................................18
2.8 GRANT OF SECURITY INTEREST...........................................................................18
2.9 YIELD PROTECTION.....................................................................................19
2.10 TAXES................................................................................................19
2.11 REQUIRED TERMINATION AND PREPAYMENT..................................................................21
2.12 OPTIONAL PREPAYMENT/REPLACEMENT OF LENDERS...........................................................21
2.13 COMPENSATION.........................................................................................22
2.14 BOOKING OF LIBOR LOANS...............................................................................22
2.15 ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS........................................................22
SECTION 3. CONDITIONS TO LOANS...................................................................................22
SECTION 4. OBLIGORS' REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS...........................................23
4.1 ORGANIZATION, POWERS, CAPITALIZATION.................................................................23
4.2 AUTHORIZATION OF BORROWING, NO CONFLICT..............................................................23
4.3 FINANCIAL CONDITION..................................................................................23
4.4 INDEBTEDNESS AND LIABILITIES.........................................................................24
4.5 ACCOUNT WARRANTIES AND COVENANTS.....................................................................24
4.6 NAMES AND LOCATIONS..................................................................................25
4.7 TITLE TO PROPERTIES; LIENS...........................................................................25
4.8 LITIGATION; ADVERSE FACTS............................................................................25
4.9 PAYMENT OF TAXES.....................................................................................26
4.10 PERFORMANCE OF AGREEMENTS............................................................................26
4.11 EMPLOYEE BENEFIT PLANS...............................................................................26
4.12 INTELLECTUAL PROPERTY................................................................................26
4.13 BROKER'S FEES........................................................................................26
4.14 ENVIRONMENTAL MATTERS................................................................................27
4.15 SOLVENCY.............................................................................................27
4.16 DISCLOSURE...........................................................................................28
4.17 INSURANCE............................................................................................28
4.18 COMPLIANCE WITH LAWS.................................................................................28
|
4.19 BANK ACCOUNTS........................................................................................29 4.20 EMPLOYEE MATTERS.....................................................................................29 4.21 GOVERNMENTAL REGULATION..............................................................................29 4.22 ACCESS TO ACCOUNTANTS AND MANAGEMENT.................................................................29 4.23 INSPECTION...........................................................................................29 4.24 COLLATERAL RECORDS...................................................................................29 4.25 COLLECTION OF ACCOUNTS AND PAYMENTS..................................................................29 SECTION 5. REPORTING AND OTHER AFFIRMATIVE COVENANTS.............................................................30 5.1 FINANCIAL STATEMENTS AND OTHER REPORTS...............................................................30 5.2 ENDORSEMENT..........................................................................................30 5.3 MAINTENANCE OF PROPERTIES............................................................................31 5.4 COMPLIANCE WITH LAWS.................................................................................31 5.5 FURTHER ASSURANCES...................................................................................31 5.6 MORTGAGES; TITLE INSURANCE; SURVEYS..................................................................31 5.7 USE OF PROCEEDS AND MARGIN SECURITY..................................................................32 5.8 BAILEE...............................................................................................32 5.9 THIRD PARTY INVENTORY................................................................................32 5.10 ENVIRONMENTAL MATTERS................................................................................32 5.11 CURRENCY RATE AGREEMENT..............................................................................33 SECTION 6. FINANCIAL COVENANTS...................................................................................33 SECTION 7. NEGATIVE COVENANTS....................................................................................33 7.1 INDEBTEDNESS AND LIABILITIES.........................................................................33 7.2 CONTINGENT OBLIGATIONS...............................................................................35 7.3 TRANSFERS, LIENS AND RELATED MATTERS.................................................................36 7.4 INVESTMENTS AND LOANS................................................................................37 7.5 RESTRICTED JUNIOR PAYMENTS...........................................................................37 7.6 RESTRICTION ON FUNDAMENTAL CHANGES...................................................................38 7.7 CHANGES RELATING TO INDEBTEDNESS.....................................................................41 7.8 TRANSACTIONS WITH AFFILIATES.........................................................................41 7.9 CONDUCT OF BUSINESS..................................................................................42 7.10 TAX CONSOLIDATIONS...................................................................................42 7.11 SUBSIDIARIES.........................................................................................42 7.12 FISCAL YEAR; TAX DESIGNATION.........................................................................42 7.13 PRESS RELEASE; PUBLIC OFFERING MATERIALS.............................................................42 7.14 BANK ACCOUNTS........................................................................................42 7.15 IRS FORM 8821........................................................................................42 7.16 HAZARDOUS MATERIALS..................................................................................42 7.17 CIGNA IMPRESS ACCOUNT................................................................................43 SECTION 8. DEFAULT, RIGHTS AND REMEDIES..........................................................................43 8.1 EVENT OF DEFAULT.....................................................................................43 8.2 SUSPENSION OF COMMITMENTS............................................................................46 8.3 ACCELERATION.........................................................................................46 8.4 REMEDIES.............................................................................................46 |
8.5 APPOINTMENT OF ATTORNEY-IN-FACT......................................................................47 8.6 LIMITATION ON DUTY OF AGENT WITH RESPECT TO COLLATERAL...............................................47 8.7 APPLICATION OF PROCEEDS..............................................................................47 8.8 LICENSE OF INTELLECTUAL PROPERTY.....................................................................48 8.9 WAIVERS; NON-EXCLUSIVE REMEDIES......................................................................48 SECTION 9. AGENT.................................................................................................48 9.1 AGENT................................................................................................48 9.2 NOTICE OF DEFAULT....................................................................................53 9.3 ACTION BY AGENT......................................................................................53 9.4 AMENDMENTS, WAIVERS AND CONSENTS.....................................................................53 9.5 ASSIGNMENTS AND PARTICIPATIONS IN LOANS..............................................................54 9.6 SET OFF AND SHARING OF PAYMENTS......................................................................56 9.7 DISBURSEMENT OF FUNDS................................................................................57 9.8 SETTLEMENTS, PAYMENTS AND INFORMATION................................................................57 9.9 DISCRETIONARY ADVANCES...............................................................................59 SECTION 10. MISCELLANEOUS........................................................................................59 10.1 EXPENSES AND ATTORNEYS' FEES.........................................................................59 10.2 INDEMNITY............................................................................................60 10.3 NOTICES..............................................................................................60 10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND CERTAIN AGREEMENTS....................................62 10.5 INDULGENCE NOT WAIVER................................................................................62 10.6 MARSHALING; PAYMENTS SET ASIDE.......................................................................62 10.7 ENTIRE AGREEMENT.....................................................................................62 10.8 SEVERABILITY.........................................................................................62 10.9 LENDERS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS..................................62 10.10 HEADINGS.............................................................................................63 10.11 APPLICABLE LAW.......................................................................................63 10.12 SUCCESSORS AND ASSIGNS...............................................................................63 10.13 NO FIDUCIARY RELATIONSHIP; NO DUTY; LIMITATION OF LIABILITIES........................................63 10.14 CONSENT TO JURISDICTION..............................................................................63 10.15 WAIVER OF JURY TRIAL.................................................................................64 10.16 CONSTRUCTION.........................................................................................64 10.17 COUNTERPARTS; EFFECTIVENESS..........................................................................65 10.18 CONFIDENTIALITY......................................................................................65 10.19 SYNDICATION AGENT....................................................................................65 SECTION 11. DEFINITIONS AND ACCOUNTING TERMS.....................................................................65 11.1 CERTAIN DEFINED TERMS................................................................................65 11.2 ACCOUNTING TERMS.....................................................................................82 11.3 OTHER DEFINITIONAL PROVISIONS........................................................................83 SECTION 12. GUARANTY.............................................................................................83 12.1 GUARANTY.............................................................................................83 12.2 WAIVERS BY DOMESTIC SUBSIDIARY GUARANTORS............................................................84 12.3 BENEFIT OF GUARANTY..................................................................................84 |
12.4 WAIVER OF SUBROGATION, ETC...........................................................................84 12.5 ELECTION OF REMEDIES.................................................................................85 12.6 LIMITATION...........................................................................................85 12.7 CONTRIBUTION WITH RESPECT TO GUARANTY OBLIGATIONS....................................................86 12.8 LIABILITY CUMULATIVE.................................................................................86 SECTION 13. RESTATEMENT OF ORIGINAL LOAN AGREEMENT...............................................................87 |
INDEX OF DEFINED TERMS
Defined Term Defined in Section ------------ ------------------ Accounting Changes Section 11.2 Accounts Section 11.1 Acquisition Pro Forma Section 7.6 Acquisition Projections Section 7.6 Additional Mortgaged Property Section 11.1 Advance Section 11.1 Affected Lender Section 2.11 Affiliate Section 11.1 Agency Assignment Agreement Recitals Agent Section 11.1 Agent's Account Section 11.1 Agreement Section 11.1 Asset Disposition Section 11.1 Assignment and Acceptance Agreement Section 11.1 Beacon Canada Section 11.1 Beacon Canada Accounts Section 11.1 Beacon Canada Consolidating Borrowing Base Section 11.1 Beacon Canada Holdings Recitals Best Distribution Section 11.1 Best Purchase Agreements Section 11.1 Best Seller Notes Section 11.1 Best Subordination Agreement Section 11.1 Blocked Accounts Section 4.25 Borrower Recitals Borrowing Base Section 2.1(B)(2) Borrowing Base Certificate Section 11.1 Business Day Section 11.1 C$ or C Dollars Section 11.1 Canadian Collateral Section 11.1 Canadian Facility Agent Section 11.1 Canadian Facility Credit Agreement Section 11.1 Canadian Facility Intercreditor Agreement Section 11.1 Canadian Facility Lenders Section 11.1 Canadian Facility Loan Documents Section 11.1 Canadian Facility Revolving Loan Commitment Section 11.1 Canadian Facility Revolving Loans Section 11.1 Capital Expenditures Section 11.1 Capital Lease Section 11.1 Capitalization/Acquisition Documents Section 11.1 Cash Equivalents Section 11.1 Certificate of Exemption Section 2.9(C) Closing Date Section 11.1 CHS Section 11.1 |
Defined Term Defined in Section ------------ ------------------ CIGNA Impress Account Section 11.1 Collateral Section 2.7 Collecting Banks Section 4.25 Commitment(s) Section 11.1 Compliance Certificate Section 11.1 Consolidated Borrowing Base Section 2.1(B) Consolidating Borrowing Base Section 2.1(B) Contingent Obligation Section 11.1 Credit Memoranda Reserve Section 2.1(B) Currency Rate Agreement Section 5.11 Daily Interest Amount Section 9.8(A)(3) Daily Interest Rate Section 9.8(A)(3) Daily Loan Balance Section 9.8(A)(3) Default Section 11.1 Defaulted Amount Section 11.1 Defaulting Lender Section 11.1 Default Rate Section 2.2(A) Dilution Reserve Section 2.1(B) Discretionary Advances Section 9.9 EBITDA Section 11.1 Eligible Accounts Section 2.1(D) Eligible Assignee Section 11.1 Eligible Inventory Section 2.1(D) Employee Benefit Plan Section 11.1 Environmental Claims Section 11.1 Environmental Laws Section 11.1 Environmental Liabilities Section 11.1 Environmental Permits Section 11.1 Equipment Section 11.1 ERISA Section 11.1 ERISA Affiliate Section 11.1 Equity Documents Section 11.1 Event of Default Section 8.1 Excess Availability Section 11.1 Excess Cash Flow Section 11.1 Excess Interest Section 2.2(C) Existing Agent Recitals Existing Lenders Recitals Existing Loan Agreement Recitals Existing Obligations Section 11.1 Federal Funds Effective Rate Section 11.1 Fiscal Year Section 11.1 Fixed Charge Coverage Section 11.1 Fixed Charges Section 11.1 |
Defined Term Defined in Section ------------ ------------------ Fleet Preamble Foreign Lender Section 2.9(C) Funding Date Section 11.1 GAAP Section 11.1 GE Capital Preamble Hazardous Material Section 11.1 Holdings Section 11.1 Holdings' Accountants Section 11.1 Indebtedness Section 11.1 Indemnified Liabilities Section 10.2 Indemnitees Section 10.2 Intellectual Property Section 11.1 Index Rate Section 11.1 Index Rate Loans Section 11.1 Interest Expense Section 11.1 Interest Period Section 11.1 Interest Rate Section 2.2(A) Interest Rate Agreement Section 11.1 Interest Ratio Section 9.8(A)(3) Interest Settlement Date Section 9.8(A)(4) Inventory Section 11.1 Inventory Advance Rate Percentage Section 2.1(B) Investor Subordinated Notes Section 11.1 Investor Subordination Agreement Section 11.1 IRC Section 11.1 IRS Section 7.15 L/C Issuer Section 11.1 Lender(s) Recitals Letter of Credit Section 2.1(H) Letter of Credit Obligations Section 11.1 Letter of Non-Exemption Section 2.9(C) Liabilities Section 11.1 LIBOR Section 11.1 LIBOR Loans Section 11.1 Lien Section 11.1 Loan or Loans Section 11.1 Loan Documents Section 11.1 Loan Party Section 11.1 Loan Year Section 11.1 London Banking Day Section 11.1 Material Adverse Effect Section 11.1 Master Documentary Agreement Section 11.1 Master Standby Agreement Section 11.1 Maximum Rate Section 2.1(C) |
Defined Term Defined in Section ------------ ------------------ Maximum Revolving Loan Amount Section 2.1(B)(1) Moody's Section 11.1 Mortgage Section 11.1 Mortgage Policies Section 5.6(A) Mortgaged Property Section 11.1 Notes Section 11.1 Notice of Borrowing Section 11.1 Obligations Section 11.1 Obligor Preamble Operating Cash Flow Section 11.1 Orderly Liquidation Value Section 2.1(B) Papillon Section 11.1 Papillon Investment Section 11.1 Permitted Acquisition Section 7.6 Permitted Encumbrances Section 11.1 Person Section 11.1 Pro Forma Section 11.1 Pro Forma EBITDA Section 7.6 Pro Rata Share Section 11.1 Projections Section 11.1 Quality Recitals Real Estate Section 11.1 Register Section 9.5(E) Related Fund Section 9.5(D) Related Transaction Section 11.1 Related Transactions Documents Section 11.1 Release Section 11.1 Replacement Lender Section 2.11 Requisite Lenders Section 11.1 Reserves Section 11.1 Restricted Junior Payment Section 11.1 Revolving Advance Section 11.1 Revolving Loan Section 11.1 Revolving Loan Commitment Section 11.1 Revolving Note Section 11.1 RFC Preamble Seasonal Inventory Advance Rate Percentage Section 2.1(B) Scheduled Installment Section 2.1(A) Senior Indebtedness Section 11.1 Senior Subordinated Loan Documents Section 11.1 Senior Subordination Agreement Section 11.1 Subordinated Loan Documents Section 11.1 Settlement Date Section 9.8(A)(2) Subsidiary Section 11.1 |
Defined Term Defined in Section ------------ ------------------ Syndication Agent Section 11.1 Target Section 7.6 Tax Liabilities Section 2.9(A) Term Loans Section 11.1 Term Loan A Section 11.1 Term Loan A Commitment Section 11.1 Term Loan B Section 11.1 Term Loan B Commitment Section 11.1 Term Notes Section 11.1 Termination Date Section 2.6 Total Loan Commitment Section 11.1 UCC Section 11.1 Unused Line Fee Margin Section 11.1 |
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AGREEMENT is dated as of March 12, 2004 and entered into among BEACON SALES ACQUISITION, INC., a Delaware corporation ("Borrower"); each of Quality Roofing Supply Company, Inc., a Delaware corporation ("Quality"), Beacon Canada, Inc., a Delaware corporation ("Beacon Canada Holdings"), Best Distributing Co., a North Carolina corporation ("Best Distribution"), The Roof Center, Inc., a Delaware corporation ("RFC"), and West End Lumber Company, Inc., a Delaware corporation ("West End") (each individually a "Domestic Subsidiary Guarantor" and collectively "Domestic Subsidiary Guarantors" and, together with Borrower and each other domestic Subsidiary of Borrower which hereafter becomes a party to this Agreement with the consent of Agent, each individually an "Obligor" and collectively "Obligors"); the financial institution(s) listed on the signature pages hereof, and their respective successors and Eligible Assignees (each individually a "Lender" and collectively "Lenders"); GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, "GE Capital"), for itself as a Lender, as the initial L/C Issuer and as Agent; and FLEET CAPITAL CORPORATION ("Fleet"), as Syndication Agent.
WHEREAS, Obligors, Heller Financial, Inc., a Delaware corporation, as agent ("Existing Agent"), and the lenders signatory thereto (the "Existing Lenders"), are parties to that certain Amended and Restated Loan and Security Agreement dated as of June 8, 2001 (as heretofor amended, modified and supplemented, the "Existing Loan Agreement"); and
WHEREAS, immediately prior to entering into this Agreement, Existing Agent assigned all of its, rights, duties and obligations as Agent under the Existing Loan Agreement and the other Loan Documents to Agent pursuant to that certain Agency Assignment Agreement of even date herewith between Existing Agent and Agent (the "Agency Assignment Agreement"); and
WHEREAS, the parties hereto desire to restate and to further amend the provisions of the Existing Loan Agreement for the purposes of (i) restating the terms of the Existing Obligations and the security interests granted under the Existing Loan Agreement and (ii) providing funding for the repayment of certain indebtedness of Borrower and for working capital and other general corporate purposes;
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Obligors, Agent and Lenders agree as follows:
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS
1.1 CERTAIN DEFINED TERMS. The capitalized terms not otherwise defined in this Agreement and the accounting terms used in this Agreement shall have the meanings set forth in SECTION 11 of this Agreement:
SECTION 2. LOANS AND COLLATERAL
2.1 LOANS.
(A) TERM LOANS
(1) TERM LOAN A. Each Lender, severally, agrees to lend to Borrower, on the Closing Date, its Pro Rata Share of the Term Loan A Commitment which is in the aggregate amount of $15,000,000. The Term Loan A shall be funded in one drawing. Amounts borrowed under this SUBSECTION 2.1(A)(1) and repaid may not be reborrowed. Borrower shall make principal payments in the amount of the applicable Scheduled Installment of the Term Loan A (or such lesser principal amount as shall then be outstanding) on the dates set forth below.
"Scheduled Installment" of the Term Loan A means, for each date set forth below, the amount set forth opposite such date.
DATE SCHEDULED INSTALLMENT ---- --------------------- June 30, 2004 $ 250,000 September 30, 2004 $ 250,000 December 31, 2004 $ 250,000 March 31, 2005 $ 250,000 June 30, 2005 $ 250,000 September 30, 2005 $ 250,000 December 31, 2005 $ 250,000 March 31, 2006 $ 250,000 June 30, 2006 $ 250,000 September 30, 2006 $ 250,000 December 31, 2006 $ 12,500,000 |
(2) TERM LOAN B. Each Lender, severally, agrees to lend to Borrower on the Closing Date its Pro Rata Share of the Term Loan B Commitment which is in the aggregate amount of $15,000,000. The Term Loan B shall be funded in one drawing. Amounts borrowed under this SUBSECTION 2.1(A)(2) and repaid may not be reborrowed. Borrower shall make principal payments in the amounts of the applicable Scheduled Installments of Term Loan B (or such lesser principal amount of Term Loan B as shall then be outstanding) on the dates set forth below.
"Scheduled Installment" of Term Loan B means, for each date set forth below, the amount set forth opposite such date.
DATE SCHEDULED INSTALLMENT ---- --------------------- June 30, 2004 $ 1,250,000 September 30, 2004 $ 1,250,000 December 31, 2004 $ 1,250,000 March 31, 2005 $ 1,250,000 June 30, 2005 $ 1,250,000 September 30, 2005 $ 1,250,000 December 31, 2005 $ 1,250,000 |
DATE SCHEDULED INSTALLMENT ---- --------------------- March 31, 2006 $ 1,250,000 June 30, 2006 $ 1,250,000 September 30, 2006 $ 1,250,000 December 31, 2006 $ 2,500,000 |
(3) The final installment shall in all events equal the entire remaining principal balance of Term Loan A and Term Loan B, respectively. Notwithstanding the foregoing, the outstanding principal balance of the Term Loans shall be due and payable in full on the Termination Date.
(B) REVOLVING LOAN. Each Lender, severally, agrees to lend to Borrower from time to time its Pro Rata Share of each advance under the Revolving Loan Commitment. The aggregate amount of the Revolving Loan Commitment shall not exceed at any time $118,500,000. Amounts borrowed under this SUBSECTION 2.1(B) may be repaid and reborrowed at any time prior to the earlier of (i) the termination of the Revolving Loan Commitment pursuant to SUBSECTION 8.3 or (ii) the Termination Date. Except as otherwise provided herein, no Lender shall have any obligation to make a Revolving Advance to the extent such Revolving Advance would cause the Revolving Loan (after giving effect to any immediate application of the proceeds thereof) to exceed the Maximum Revolving Loan Amount.
"Maximum Revolving Loan Amount" means, as of any date of determination, the lesser of (a) the Revolving Loan Commitments of all Lenders LESS the balance of Letter of Credit Obligations and (b) the Consolidated Borrowing Base LESS the sum of (i) the balance of Letter of Credit Obligations, and (ii) the outstanding balance of the Canadian Facility Revolving Loans (converted from Canadian Dollars into an Equivalent Amount of U.S. Dollars).
"Consolidating Borrowing Base" means, for any Obligor as of any date of determination, an amount equal to the sum of (a) up to 85% of such Obligor's Eligible Accounts LESS such Obligor's Dilution Reserve and less such Obligor's Credit Memoranda Reserve, plus (b) up to the Inventory Advance Rate Percentage (the Seasonal Inventory Advance Rate Percentage during the period from January 1 through March 31 of each year) of such Obligor's Eligible Inventory, and less, in each case, such other Reserves (excluding Credit Memoranda Reserves and Dilution Reserves included in the definition thereof) as Agent in its reasonable credit judgment may elect to establish with prior or contemporaneous written notice to Borrower.
"Consolidated Borrowing Base" means, as of any date of determination, an amount equal to the sum of the aggregate Consolidating Borrowing Bases PLUS the Beacon Canada Consolidating Borrowing Base (converted from Canadian Dollars into an Equivalent Amount of U.S. Dollars).
"Dilution Reserve" means, for any Obligor as of any date of determination, a reserve for the amount by which the total dilution of such Obligor's Accounts exceeds five percent (5%); with dilution referring to all actual and potential offsets to an Account of such Obligor, including, without limitation, customer payment and/or volume discounts, write-offs, credit memoranda, returns and allowances, and billing errors. The Dilution Reserve for each
Obligor shall be adjusted after each field examination audit of the Collateral conducted by Agent or any authorized representative designated by Agent.
"Credit Memoranda Reserve" means, for any Obligor as of any date of determination, a reserve equal to the aggregate credits to account debtors provided under credit memoranda issued by such Obligor more than thirty (30) days after the creation of the Accounts giving rise to such credits. The Credit Memoranda Reserve for each Obligor as of the Closing Date shall be in the amount set forth for such Obligor on SCHEDULE 2.1 hereto and shall thereafter be adjusted after each field examination audit of the Collateral conducted by Agent or any duly authorized representative of Agent.
"Inventory Advance Rate Percentage" means, initially, 64.5%, as such percentage may hereafter be adjusted in the manner set forth below; PROVIDED that the Inventory Advance Rate Percentage shall never exceed 64.5%.
"Seasonal Inventory Advance Rate Percentage" means, initially, 69.5%, as such percentage may hereafter be adjusted in the manner set forth below; PROVIDED that the Seasonal Inventory Advance Rate Percentage shall never exceed 69.5%.
With reasonable promptness following Agent's receipt of each Inventory appraisal obtained pursuant to PARAGRAPH I of the Reporting Rider (each such appraisal, an "Inventory Appraisal"), Agent shall determine the aggregate net orderly liquidation value of all Inventory of Obligors and Beacon Canada as of the date of such Inventory Appraisal, such determination to be made by Agent in good faith based upon the net orderly liquidation values set forth in such Inventory Appraisal (such aggregate net orderly liquidation value, the "Orderly Liquidation Value"). Effective five (5) Business Days following delivery by Agent to Borrower of written notice of such determination (and any resulting adjustments to the Inventory Advance Rate and the Seasonal Inventory Advance Rate):
(1) the Inventory Advance Rate shall be adjusted (if necessary) by Agent to a percentage equal to the lower of (x) 64.5% and (y) that percentage which, when multiplied by the aggregate Eligible Inventory of Obligors and Beacon Canada as of the date of such Inventory Appraisal (determined at the lower of cost, excluding intercompany charges or profits included in cost, on a weighted average basis, or market), results in an amount not exceeding 85% of the Orderly Liquidation Value of all Inventory of Obligors and Beacon Canada as of such date.
(2) the Seasonal Inventory Advance Rate shall be adjusted
(if necessary) by Agent to a percentage equal to the lower of (x) 69.5% and (y)
that percentage which, when multiplied by the aggregate Eligible Inventory of
Obligors and Beacon Canada as of the date of such Inventory Appraisal
(determined at the lower of cost, excluding intercompany charges or profits
included in cost, on a weighted average basis, or market), results in an amount
not exceeding 95% of the Orderly Liquidation Value of all Inventory of Obligors
and Beacon Canada as of such date.
All such adjustments to the Inventory Advance Rate and the Seasonal Inventory Advance Rate made by Agent hereunder shall be final and binding upon the Loan Parties and Lenders absent demonstrable error by Agent.
(C) [Intentionally Deleted].
(D) ELIGIBLE COLLATERAL.
"Eligible Accounts" means, for any Obligor as at any date of determination, the aggregate of all Accounts of such Obligor that Agent, in its reasonable credit judgment, deems to be eligible for borrowing purposes. Without limiting the generality of the foregoing, the Agent may determine that the following Accounts are not Eligible Accounts:
(1) Accounts which, at the date of issuance of the respective invoice therefor, were payable more than ninety (90) days after the date of issuance;
(2) Accounts which remain unpaid for more than the earlier of sixty (60) days after the due date specified in the original invoice or one hundred twenty (120) days after invoice date;
(3) Accounts which are otherwise eligible with respect to which the account debtor is owed a credit by any Loan Party, but only to the extent of such credit;
(4) Accounts due from an account debtor whose principal place of business is located outside the United States of America or Canada (excluding the Northwest Territories and the Territory of Nunavut) unless such Account is backed by a letter of credit, in form and substance acceptable to Agent and issued or confirmed by a bank that is organized under the laws of the United States of America or a State thereof, that is acceptable to Agent; PROVIDED that such letter of credit has been delivered to Agent as additional Collateral;
(5) Accounts due from an account debtor which Agent, in the exercise of its reasonable credit judgment, has notified Borrower does not have a satisfactory credit standing;
(6) Accounts in excess of $20,000 in the aggregate with respect to which the account debtor is the United States of America, any state or any municipality, or any department, agency or instrumentality thereof, unless the applicable Obligor has, with respect to such Accounts, complied with the Federal Assignment of Claims Act of 1940 as amended (31 U.S.C. Section 3727 et. seq.) or any applicable statute or municipal ordinance of similar purpose and effect;
(7) Accounts with respect to which the account debtor is an Affiliate of any Loan Party or a director, officer, agent, stockholder or employee of any Loan Party or any of its Affiliates;
(8) Accounts due from an account debtor if more than fifty percent (50%) of the aggregate amount of all Accounts of Obligors (together with all Beacon Canada
Accounts) due from such account debtor have at the time remained unpaid for more than the earlier of sixty (60) days after due date or one hundred twenty (120) days after the invoice date;
(9) Accounts with respect to which there is any unresolved dispute with the respective account debtor (but only to the extent of such dispute);
(10) Accounts evidenced by an "instrument" or "chattel paper" (as defined in the UCC) not in the possession of Agent, on behalf of itself and Lenders;
(11) Accounts with respect to which Agent, on behalf of itself and Lenders, does not have a valid, first priority and fully perfected security interest;
(12) Accounts subject to any Lien except those in favor of Agent, on behalf of itself and Lenders, and those in favor of Canadian Facility Agent, on behalf of itself and Canadian Facility Lenders;
(13) Accounts with respect to which the account debtor is the subject of any bankruptcy or other insolvency proceeding;
(14) Accounts due from an account debtor to the extent that such Accounts exceed in the aggregate an amount equal to ten percent (10%) of the aggregate of all Accounts of all Obligors (together with all Beacon Canada Accounts) at said date;
(15) Accounts with respect to which the account debtor's obligation to pay is conditional or subject to a repurchase obligation or right to return or with respect to which the goods or services giving rise to such Account have not been delivered (or performed, as applicable) and accepted by such account debtor, including progress billings, bill and hold sales, guarantied sales, sale or return transactions, sales on approval or consignment sales;
(16) Accounts with respect to which the account debtor is located in New Jersey, or any other state denying creditors access to its courts in the absence of a Notice of Business Activities Report or other similar filing, unless the applicable Loan Party has either qualified as a foreign corporation authorized to transact business in such state or has filed a Notice of Business Activities Report or similar filing with the applicable state agency for the then current year;
(17) Accounts with respect to which the account debtor is a creditor of any Loan Party; PROVIDED, HOWEVER, that any such Account shall only be ineligible as to that portion of such Account which is less than or equal to the amount owed by the Loan Parties to such Person; and
(18) that portion of Accounts which represents service charges, late fees or similar charges.
"Eligible Inventory" means, for any Obligor as at any date of determination, the value (determined at the lower of cost, excluding intercompany charges or profits included in cost, on a weighted average cost basis, or market) of all Inventory owned by such Obligor and located in the United States of America that Agent, in its reasonable credit judgment, deems to
be eligible for borrowing purposes. Without limiting the generality of the foregoing, the Agent may determine that the following is not Eligible Inventory:
(1) work-in-process that is not readily marketable in its current form;
(2) finished goods which do not meet the specifications of the purchase order for such goods and which are not readily saleable in their current form by Obligors in the ordinary course of business;
(3) Inventory which Agent determines in the exercise of its reasonable credit judgment, is unacceptable for borrowing purposes due to age, quality, type, category and/or quantity, including without limitation (a) Inventory on hand for more than 12 months and (b) Inventory purchased or otherwise acquired more than 3 months prior to any date of determination which is in excess of a twelve-month supply;
(4) packaging, shipping materials or supplies consumed in the applicable Loan Party's business;
(5) Inventory with respect to which Agent, on behalf of itself and Lenders, does not have a valid, first priority and fully perfected security interest;
(6) Inventory with respect to which there exists any Lien in favor of any Person other than Agent, on behalf of itself and Lenders, and Canadian Facility Agent, on behalf of itself and Canadian Facility Lenders;
(7) Inventory produced in violation of the Fair Labor Standards Act and subject to the so-called "hot goods" provisions contained in Title 29 U.S.C. 215 (a)(i) or any replacement statute;
(8) Inventory located at any location other than those identified pursuant to SUBSECTION 4.6;
(9) Inventory located at a vendor's location or with a consignee;
(10) Inventory located with a warehouseman, bailee, processor or similar third party, unless such Person has executed a waiver of interest satisfactory to Agent; and
(11) unless otherwise agreed by Agent, Inventory in any location for which Agent has not received an agreement, in form and substance acceptable to Agent, acknowledging Agent's rights and waiving its own interest in such Inventory from each lessor and sublessor and each mortgagee of such location.
(E) [Intentionally Deleted]
(F) BORROWING MECHANICS. (1) LIBOR Loans made on any Funding Date shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $100,000 in excess of such amount. (2) On any day when Borrower desires a Revolving Advance under this
SUBSECTION 2.1, Borrower shall give Agent written or telephonic notice of the
proposed borrowing by 1:00 p.m.. Chicago time on the Funding Date of an Index
Rate Loan less than $10,000,000, written or telephonic notice by 1:00 p.m.
Chicago time one (1) Business Day prior to the Funding Date of an Index Rate
Loan equal to or greater than $10,000,000, and three (3) Business Days in
advance of the Funding Date of a LIBOR Loan, which notice shall specify the
proposed Funding Date (which shall be a Business Day), whether such Loans shall
consist of Index Rate Loans or LIBOR Loans, and, for LIBOR Loans, the Interest
Period applicable thereto. Any such telephonic notice shall be confirmed with a
Notice of Borrowing on the same day as such request. Neither Agent nor Lender
shall incur any liability to Borrower for acting upon any telephonic notice or a
Notice of Borrowing Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of Borrower or
for otherwise acting in good faith under this SUBSECTION 2.1(F). Neither Agent
nor Lender will be required to make any advance pursuant to any telephonic or
written notice or a Notice of Borrowing, unless all of the terms and conditions
set forth in SECTION 3 and the Conditions Rider have been satisfied and Agent
has also received the most recent Consolidating Borrowing Base Certificates and
Consolidated Borrowing Base Certificate and all other documents required under
SECTION 5 and the Reporting Rider by 1:00 p.m. Chicago time on the date of such
funding request. Each Advance shall be deposited by wire transfer in immediately
available funds in such account as Borrower may from time to time designate to
Agent in writing. The becoming due of any amount required to be paid under this
Agreement or any of the other Loan Documents as principal, Lender Letter of
Credit reimbursement obligation, accrued interest, fees, compensation or any
other amounts shall be deemed irrevocably to be an automatic request by Borrower
for a Revolving Advance, which shall be an Index Rate Loan on the due date of,
and in the amount required to pay (as set forth on Agent's books and records),
such principal, Lender Letter of Credit reimbursement obligation, accrued
interest fees, compensation or any other amounts.
(G) NOTES. Borrower shall execute and deliver to each Lender with appropriate insertions (i) a Note to evidence the Revolving Loans, such Note to be in principal amount of such Lenders Pro Rata Share of the Revolving Loan Commitment and (ii) a Note to evidence each Term Loan, such Notes to be in the principal amount of such Lender's Pro Rata Share of each Term Loan. In the event of an assignment under SUBSECTION 9.5, Borrower shall, upon surrender of the assigning Lender's Notes, issue new Notes to reflect the interest held by the assigning Lender and its Eligible Assignee.
(H) LETTERS OF CREDIT. The Revolving Loan Commitments may, in addition to Revolving Advances, be utilized, upon the request of Borrower, for the issuance of Letters of Credit. Immediately upon the issuance by an L/C Issuer of a Letter of Credit, and without further action on the part of Agent or any of the Lenders, each Lender shall be deemed to have purchased from such L/C Issuer a participation in such Letter of Credit (or in its obligation under a risk participation agreement with respect thereto) equal to such Lender's Pro Rata Share of the aggregate amount available to be drawn under such Letter of Credit. In no event shall any Letter of Credit be issued to the extent that the issuance of such Letter of Credit would cause the sum of the balance of the Letter of Credit Obligations (after giving effect to such issuance), plus the Revolving Loan to exceed the lesser of (x) the Consolidated Borrowing Base less the Canadian Facility Revolving Loans and (y) the Revolving Loan Commitments.
(1) MAXIMUM AMOUNT. The aggregate amount of Letter of Credit Obligations with respect to all Letters of Credit outstanding at any time shall not exceed $5,000,000.
(2) REIMBURSEMENT. Borrower shall be irrevocably and unconditionally obligated forthwith without presentment, demand, protest or other formalities of any kind, to reimburse any L/C Issuer on demand in immediately available funds for any amounts paid by such L/C Issuer with respect to a Letter of Credit, including all reimbursement payments, fees, charges, costs and expenses paid by such L/C Issuer. Borrower hereby authorizes and directs Agent, at Agent's option, to debit Borrower's account (by increasing the outstanding principal balance of the Revolving Loan) in the amount of any payment made by an L/C Issuer with respect to any Letter of Credit. All amounts paid by an L/C Issuer with respect to any Letter of Credit that are not immediately repaid by Borrower with the proceeds of a Revolving Advance or otherwise shall bear interest at the interest rate applicable to Revolving Loans which are Index Rate Loans plus, at the election of Requisite Lenders, an additional two percent (2.00%) per annum. Each Lender agrees to fund its Pro Rata Share of any Revolving Loan made pursuant to this SECTION 2.1(H)(2). In the event Agent elects not to debit Borrower's account and Borrower fails to reimburse the L/C Issuer in full on the date of any payment in respect of a Letter of Credit, Agent shall promptly notify each Lender of the amount of such unreimbursed payment and the accrued interest thereon and each Lender, on the next Business Day prior to 2:00 p.m. (Chicago time), shall deliver to Agent an amount equal to its Pro Rata Share thereof in same day funds. Each Lender hereby absolutely and unconditionally agrees to pay to the L/C Issuer upon demand by the L/C Issuer such Lender's Pro Rata Share of each payment made by the L/C Issuer in respect of a Letter of Credit and not immediately reimbursed by Borrower or satisfied through a debit of Borrower's account. Each Lender acknowledges and agrees that its obligations pursuant to this subsection in respect of Letters of Credit are absolute and unconditional and shall not be affected by any circumstance whatsoever, including setoff, counterclaim, the occurrence and continuance of a Default or an Event of Default or any failure by Borrower to satisfy any of the conditions set forth in SECTION 3 and the Conditions Rider. If any Lender fails to make available to the L/C Issuer the amount of such Lender's Pro Rata Share of any payments made by the L/C Issuer in respect of a Letter of Credit as provided in this SECTION 2.1(H)(2), the L/C Issuer shall be entitled to recover such amount on demand from such Lender together with interest at the Index Rate.
(3) REQUEST FOR LETTERS OF CREDIT. Borrower shall give Agent at least three (3) Business Days prior written notice specifying the date a Letter of Credit is requested to be issued, the amount and the name and address of the beneficiary and a description of the transactions proposed to be supported thereby. If Agent informs Borrower that the L/C Issuer cannot issue the requested Letter of Credit directly, Borrower may request that L/C Issuer arrange for the issuance of the requested Letter of Credit under a risk participation agreement with another financial institution reasonably acceptable to Agent, L/C Issuer and Borrower. The issuance of any Letter of Credit under this Agreement shall be subject to the conditions that the Letter of Credit (i) supports a transaction entered into in the ordinary course of business of Borrower and (ii) is in a form, is for an amount and contains such terms and conditions as are reasonably satisfactory to the L/C Issuer and, in the case of standby letters of credit, Agent. The initial notice requesting the issuance of a Letter of Credit shall be accompanied by the form of the Letter of Credit and the Master Standby Agreement or Master Documentary Agreement, as
applicable, and an application for a letter of credit, if any, then required by the L/C Issuer completed in a manner satisfactory to such L/C Issuer. If any provision of any application or reimbursement agreement is inconsistent with the terms of this Agreement, then the provisions of this Agreement, to the extent of such inconsistency, shall control.
(4) EXPIRATION DATES OF LETTERS OF CREDIT. The expiration date of each Letter of Credit shall be on a date which is not later than the earlier of (a) one year from its date of issuance or (b) the thirtieth (30th) day prior to the date set forth in clause (a) of the definition of the term Termination Date. Notwithstanding the foregoing, a Letter of Credit may provide for automatic extensions of its expiration date for one (1) or more successive one (1) year periods provided that the L/C Issuer has the right to terminate such Letter of Credit on each such annual expiration date and no renewal term may extend the term of the Letter of Credit to a date that is later than the thirtieth (30th) day prior to the date set forth in clause (a) of the definition of the term Termination Date. The L/C Issuer may elect not to renew any such Letter of Credit and, upon direction by Agent or Requisite Lenders, shall not renew any such Letter of Credit at any time during the continuance of an Event of Default, provided that, in the case of a direction by Agent or Requisite Lenders, the L/C Issuer receives such directions prior to the date notice of non-renewal is required to be given by the L/C Issuer and the L/C Issuer has had a reasonable period of time to act on such notice.
(5) OBLIGATIONS ABSOLUTE. The obligation of Borrower to
reimburse the L/C Issuer, Agent and Lenders for payments made in respect of
Letters of Credit shall be unconditional and irrevocable and shall be paid under
all circumstances strictly in accordance with the terms of this Agreement,
including the following circumstances: (a) any lack of validity or
enforceability of any Letter of Credit; (b) any amendment or waiver of or any
consent or departure from all or any of the provisions of any Letter of Credit
or any Loan Document; (c) the existence of any claim, set-off, defense or other
right which Borrower, any of its Subsidiaries or Affiliates or any other Person
may at any time have against any beneficiary of any Letter of Credit, Agent, any
L/C Issuer, any Lender or any other Person, whether in connection with this
Agreement, any other Loan Document or any other related or unrelated agreements
or transactions; (d) any draft or other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect; (e) payment
under any Letter of Credit against presentation of a draft or other document
that does not substantially comply with the terms of such Letter of Credit; or
(f) any other act or omission to act or delay of any kind of any L/C Issuer,
Agent, any Lender or any other Person or any other event or circumstance
whatsoever that might, but for the provisions of this SECTION 2.1(H)(5),
constitute a legal or equitable discharge of Borrower's obligations hereunder.
(6) OBLIGATIONS OF L/C ISSUERS. Each L/C Issuer (other than GE Capital) hereby agrees that it will not issue a Letter of Credit hereunder until it has provided Agent with written notice specifying the amount and intended issuance date of such Letter of Credit and Agent has returned a written acknowledgment of such notice to L/C Issuer. Each L/C Issuer (other than GE Capital) further agrees to provide to Agent: (a) a copy of each Letter of Credit issued by such L/C Issuer promptly after its issuance; (b) a weekly report summarizing available amounts under Letters of Credit issued by such L/C Issuer, the dates and amounts of any draws under such Letters of Credit, the effective date of any increase or decrease in the face
amount of any Letters of Credit during such week and the amount of any unreimbursed draws under such Letters of Credit; and (c) such additional information reasonably requested by Agent from time to time with respect to the Letters of Credit issued by such L/C Issuer. Without limiting the generality of the foregoing, it is expressly understood and agreed by Borrower that the absolute and unconditional obligation of Borrower to Agent and Lenders hereunder to reimburse payments made under a Letter of Credit will not be excused by the gross negligence or willful misconduct of the L/C Issuer. However, the foregoing shall not be construed to excuse an L/C Issuer from liability to Borrower to the extent of any direct damages (as opposed to consequential damages, with Borrower hereby waiving all claims for any consequential damages to the extent permitted by applicable law) suffered by Borrower that are subject to indemnification under the Master Standby Agreement or the Master Documentary Agreement.
(I) AVAILABILITY OF A LENDER'S PRO RATA SHARE.
(1) LENDER'S AMOUNTS AVAILABLE ON A FUNDING DATE. Unless Agent receives written notice from a Lender on or prior to any Funding Date that such Lender will not make available to Agent as and when required such Lender's Pro Rata Share of any requested Loan or Advance, Agent may assume that each Lender will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower on such date a corresponding amount.
(2) LENDER'S FAILURE TO FUND. A Defaulting Lender shall pay interest to Agent at the Federal Funds Effective Rate on the Defaulted Amount from the Business Day following the applicable Funding Date of such Defaulted Amount until the date such Defaulted Amount is paid to Agent. A notice of Agent submitted to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is not paid when due to Agent, Agent, at its option, may notify Borrower of such failure to fund and, upon demand by Agent, Borrower shall pay the unpaid amount to Agent for Agent's account, together with interest thereon for each day elapsed since the date of such borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loan made by the other Lenders on such Funding Date. The failure of any Lender to make available any portion of its Commitment on any Funding Date or to fund its participation in a Lender Letter of Credit shall not relieve any other Lender of any obligation hereunder to fund such Lender's Commitment on such Funding Date or to fund any such participation, but no Lender shall be responsible for the failure of any other Lender to honor its Commitment on any Funding Date or to fund any participation to be funded by any other Lender.
(3) PAYMENTS TO A DEFAULTING LENDER. Agent shall not be obligated to transfer to a Defaulting Lender any payment made by Borrower to Agent or any amount otherwise received by Agent for application to the Obligations nor shall a Defaulting Lender be entitled to the sharing of any interest, fees or payments hereunder.
(4) DEFAULTING LENDER'S RIGHT TO VOTE. For purposes of voting or consenting to matters with respect to (i) the Loan Documents or (ii) any other matter concerning the Loans, a Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Commitments and outstanding Loans and Advances shall be deemed to be zero.
2.2 INTEREST.
(A) RATE OF INTEREST. From the date the Loans are made and the date the other Obligations become due the Loans and the other Obligations shall bear interest at the applicable rates set forth below (collectively, the "Interest Rate"):
(1) The Revolving Loan and all other Obligations for which no other interest rate is specified shall bear interest as follows:
(a) If an Index Rate Loan, then at the sum of the Index Rate PLUS three quarters of one percent (0.75%).
(b) If a LIBOR Loan, then at the sum of the LIBOR PLUS two percent (2.00%).
(2) Term Loan A shall bear interest as follows:
(a) If an Index Rate Loan, then at the sum of the Index Rate PLUS three quarters of one percent (0.75%).
(b) If a LIBOR Loan then at the sum of the LIBOR PLUS two percent (2.00%).
(3) Term Loan B shall bear interest as follows:
(a) If an Index Rate Loan, then at the sum of the Index Rate PLUS one and three quarters of one percent (1.75%).
(b) If a LIBOR Loan then at the sum of the LIBOR PLUS three percent (3.00%).
Subject to the provisions of SUBSECTION 2.1(F), Borrower shall
designate to Agent whether a Loan shall be an Index Rate Loan or LIBOR Loan at
the time a Notice of Borrowing is given pursuant to SUBSECTION 2.1(F). Such
designation by Borrower may be changed from time to time pursuant to SUBSECTION
2.2(D). If on any day a Loan or a portion of any Loan is outstanding with
respect to which notice has not been delivered to Agent in accordance with the
terms of this Agreement specifying the basis for determining the rate of
interest or if LIBOR has been specified and no LIBOR quote is available, then
for that day that Loan or portion thereof shall bear interest determined by
reference to the Index Rate.
After the occurrence and during the continuance of an Event of Default (i) the Loans and all other Obligations shall, at the election of Requisite Lenders, bear interest at a rate per annum equal to two percent (2%) plus the applicable Interest Rate (the "Default Rate"), (ii) each LIBOR Loan shall automatically convert to an Index Rate Loan at the end of any applicable Interest Period and (iii) no Loans may be made or continued as, or converted to, LIBOR Loans.
No Loan may be made as or converted into a LIBOR Loan until the earlier of (i) 45 days after the Closing Date or (ii) completion of primary syndication as determined by Agent.
(B) COMPUTATION AND PAYMENT OF INTEREST. Interest on the Loans and all other Obligations shall be computed on the daily principal balance on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. In computing interest on any Loan, the date of funding of the Loan or the first day of an Interest Period applicable to such Loan or, with respect to an Index Rate Loan being converted from a LIBOR Loan, the date of conversion of such LIBOR Loan to such Index Rate Loan, shall be included; and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan, or with respect to an Index Rate Loan being converted to a LIBOR Loan, the date of conversion of such Index Rate Loan to such LIBOR Loan, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one (1) day's interest shall be paid on that Loan. Interest on Index Rate Loans and all other Obligations other than LIBOR Loans shall be payable to Agent for the benefit of Lenders monthly in arrears on the first day of each month, on the date of any prepayment of Loans, and at maturity, whether by acceleration or otherwise. Interest on LIBOR Loans shall be payable to Agent for the benefit of Lenders on the last day of the applicable Interest Period for such Loan, on the date of any prepayment of the Loans, and at maturity, whether by acceleration or otherwise. In addition, for each LIBOR Loan having an Interest Period longer than three (3) months, interest accrued on such Loan shall also be payable on the last day of each three (3) month interval during such Interest Period.
(C) INTEREST LAWS. Notwithstanding any provision to the contrary contained in this Agreement or any other Loan Document, Borrower shall not be required to pay, and neither Agent nor any Lender shall be permitted to collect, any amount of interest in excess of the maximum amount of interest permitted by applicable law ("Excess Interest"). If any Excess Interest is provided for or determined by a court of competent jurisdiction to have been provided for in this Agreement or in any other Loan Document, then in such event: (1) the provisions of this subsection shall govern and control; (2) neither Borrower nor any other Loan Party shall be obligated to pay any Excess Interest; (3) any Excess Interest that Agent or any Lender may have received hereunder shall be, at such Lender's option, (a) applied as a credit against the outstanding principal balance of the Obligations or accrued and unpaid interest (not to exceed the maximum amount permitted by law), (b) refunded to the payor thereof, or (c) any combination of the foregoing; (4) the interest rate(s) provided for herein shall be automatically reduced to the maximum lawful rate allowed from time to time under applicable law (the "Maximum Rate"), and this Agreement and the other Loan Documents shall be deemed to have been and shall be, reformed and modified to reflect such reduction; and (5) neither Borrower nor any Loan Party shall have any action against Agent or any Lender for any damages arising out of the payment or collection of any Excess Interest. Notwithstanding the foregoing, if for any period of time interest on any Obligations is calculated at the Maximum Rate rather than the applicable rate under this Agreement, and thereafter such applicable rate becomes less than the Maximum Rate, the rate of interest payable on such Obligations shall remain at the Maximum Rate until each Lender shall have received the amount of interest which such Lender would have received during such period on such Obligations had the rate of interest not been limited to the Maximum Rate during such period.
(D) CONVERSION OR CONTINUATION. Subject to the other provisions of this Agreement, Borrower shall have the option to (1) convert at any time all or any part of outstanding Loans equal to $5,000,000 and integral multiples of $100,000 in excess of that amount from Index Rate Loans to LIBOR Loans or (2) upon the expiration of any Interest Period
applicable to a LIBOR Loan, to (a) continue all or any portion of such LIBOR Loan equal to $5,000,000 and integral multiples of $100,000 in excess of that amount as a LIBOR Loan or (b) convert all or any portion of such LIBOR Loan to an Index Rate Loan. The succeeding Interest Period(s) of such continued or converted Loan commence on the last day of the Interest Period of the Loan to be continued or converted; provided that no outstanding Loan may be continued as, or be converted into, a LIBOR Loan having an Interest Period of more than one month, when any Default has occurred and is continuing; PROVIDED FURTHER, that no outstanding Loan may be continued as, or be converted into, a LIBOR Loan, when any Event of Default has occurred and is continuing.
Borrower shall deliver a Notice of Borrowing with respect to any such conversion/continuation to Agent no later than 12:00 noon (Chicago time) at least three (3) Business Days in advance of the proposed conversion/continuation date. The Notice of Borrowing with respect to such conversion/continuation shall certify: (1) the proposed conversion/continuation date (which shall be a Business Day); (2) the amount of the Loan to be converted/continued; (3) the nature of the proposed conversion/continuation; (4) in the case of conversion to, or a continuation of, a LIBOR Loan, the requested Interest Period; and (5) that no Default or Event of Default has occurred and is continuing or would result from the proposed conversion/continuation.
In lieu of delivering a Notice of Borrowing with respect to any such conversion/continuation, Borrower may give Agent telephonic notice by the required time of any proposed conversion/continuation under this SUBSECTION 2.2(D); provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing (in form and substance described herein) with respect to such conversion/continuation to Agent on or before the proposed conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to Borrower in acting upon any telephonic notice or a Notice of Borrowing referred to above that Agent believes in good faith to have been given by an officer or other person authorized to act on behalf of Borrower or for otherwise acting in good faith under this SUBSECTION 2.2(D).
2.3 FEES.
(A) UNUSED LINE FEE. Borrower shall pay to Agent, for the benefit of Lenders, a fee in an amount equal to the Revolving Loan Commitment less the sum of (i) the average daily balance of each of the Revolving Loans plus, (ii) the average daily balance of the Letter of Credit Obligations during the preceding month, multiplied by (iii) the Unused Line Fee Margin per annum. Such fee to be calculated on the basis of a three hundred sixty (360) day year for the actual number of days elapsed and to be payable monthly in arrears on the first day of each month following the Closing Date.
(B) LETTER OF CREDIT FEES. Borrower shall pay to Agent a fee with respect to the Letters of Credit (i) for the benefit of all Lenders with a Revolving Loan Commitment (based on their respective Pro Rata Share) in the amount of the average daily balance of Letter of Credit Obligations outstanding during such month multiplied by 2.00% per annum. Such fee will be calculated on the basis of a three hundred sixty (360) day year for the actual number of days
elapsed and will be payable monthly in arrears on the first day of each month. In addition, Borrower shall pay to any L/C Issuer, on demand, such fees (including all customary fees and charges) and expenses of such L/C Issuer in respect of the issuance, negotiation, acceptance, amendment, transfer and payment of such Letter of Credit or otherwise payable pursuant to the application and related documentation under which such Letter of Credit is issued.
(C) [Intentionally Deleted]
(D) [Intentionally Deleted].
(E) AUDIT FEES. Borrower agrees to pay all fees and expenses of the firm or individual(s) engaged by Agent to perform audits of Borrower's operations. Notwithstanding the foregoing, if Agent uses its internal auditors to perform any such audit, Borrower agrees to pay to Agent, for its own account, an audit fee with respect to each such audit equal to $750 per internal auditor per day or any portion thereof, together with all out of pocket expenses.
(F) OTHER FEES AND EXPENSES. Borrower shall pay to Agent, for its own account, all charges for returned items and all other bank charges incurred by Agent, as well as Agent's standard wire transfer charges for each wire transfer made under this Agreement.
(G) FEE LETTER. Borrower shall pay to GE Capital, individually, the fees specified in that certain letter agreement dated as of the Closing Date among Borrower, Beacon Canada, GE Capital and Canadian Facility Agent, in the amounts and at the times specified therein.
2.4 PAYMENTS AND PREPAYMENTS.
(A) MANNER AND TIME OF PAYMENT. In its sole discretion, Agent may elect to honor the automatic requests by Borrower for Revolving Advances for all principal, Letter of Credit reimbursement obligations, interest, fees, compensation and any other amounts due hereunder or under any of the other Loan Documents on their applicable due dates pursuant to SUBSECTION 2.1 (F), up to the Revolving Loan Commitment of all Revolving Loan Lenders, and the proceeds of each such Revolving Advance, if made, shall be applied as a direct payment of the relevant Obligation. To the extent such amounts exceed the Revolving Loan Commitment of all Revolving Loan Lenders, or if Agent elects to bill Borrower for any amount due hereunder or under any of the other Loan Documents, such amount shall be immediately due and payable with interest thereon as provided herein. All payments made by Borrower with respect to the Obligations shall be made without deduction, defense, setoff or counterclaim. All payments to Agent hereunder shall, unless otherwise directed by Agent, be made to Agent's Account or in accordance with SUBSECTION 4.25, in each case in immediately available funds. All payments remitted to Agent's Account in immediately available funds shall be credited to the Obligations on the Business Day received; PROVIDED, that, solely for the purpose of computing interest, payments received in accordance with this sentence for application to the Revolving Loan shall be applied to the Revolving Loan one (1) Business Day following Agent's receipt thereof in immediately available funds.
(B) MANDATORY PREPAYMENTS.
(1) OVERADVANCE. At any time that the Revolving Loan exceeds the Maximum Revolving Loan Amount, Borrower shall, immediately repay the Revolving Loan to the extent necessary to reduce the aggregate principal balance to an amount equal to or less than the Maximum Revolving Loan Amount.
(2) PREPAYMENTS FROM PROCEEDS OF ASSET DISPOSITIONS. Immediately upon receipt by Borrower or any of its Subsidiaries of any Net Proceeds (excluding Net Proceeds received by Beacon Canada to the extent required to reduce the outstanding principal balance of the Canadian Facility Credit Agreement) in excess of $100,000 in the aggregate during any Fiscal Year, Borrower shall prepay the Obligations in an amount equal to such proceeds. All such prepayments shall be applied to the Loans in accordance with SUBSECTION 2.5; PROVIDED, HOWEVER, if Borrower reasonably expects the Net Proceeds of any Asset Disposition to be reinvested within one hundred eighty (180) days to repair or replace such assets with like assets, Borrower shall deliver the proceeds to Agent to be applied to the Revolving Loan and Agent shall establish a reserve against available funds for borrowing purposes under the Revolving Loan for such amount, until such time as such proceeds have been re-borrowed or applied to other Obligations as set forth herein. If Borrower so elects to deliver such proceeds to Agent, Borrower may, so long as no Default or Event of Default shall have occurred and be continuing, reborrow such proceeds only for such repair or replacement. If Borrower fails to reinvest such proceeds within one hundred eighty (180) days, Borrower hereby authorizes Agent and Lenders to make a Revolving Loan advance to repay the Loans in the manner set forth in SUBSECTION 2.5.
(3) PREPAYMENTS FROM EXCESS CASH FLOW. On May 15 of each Fiscal Year commencing on May 15, 2005, Borrower shall prepay the Obligations in an amount equal to 50% of Excess Cash Flow for the prior Fiscal Year (PROVIDED that such prepayment shall not exceed $2,500,000 with respect to any Fiscal Year), calculated on the basis of the audited financial statements for such Fiscal Year delivered to Agent and Lenders pursuant to the Reporting Rider. All such prepayments from Excess Cash Flow shall be applied to the Loans in accordance with SUBSECTION 2.5. Concurrently with the making of any such payment, Borrower shall deliver to Agent and Lenders a certificate of Borrower's chief executive officer or chief financial officer demonstrating its calculation of the amount required to be paid.
(4) PREPAYMENTS FROM ISSUANCE OF SECURITIES. Immediately upon the receipt by Holdings or any of its Subsidiaries of the proceeds of the issuance of equity securities other than (1) proceeds of the issuance of equity securities and Investor Subordinated Notes by Holdings received on or before the Closing Date and (2) proceeds from the issuance of equity securities and Investor Subordinated Notes by Holdings to members of the management of Holdings or any of its Subsidiaries, (3) proceeds of the issuance of equity securities to Borrower or any Subsidiary of Borrower, (4) proceeds from the issuance of equity securities and Investor Subordinated Notes by Holdings in connection with a Permitted Acquisition, and (5) proceeds from the issuance of equity securities by Holdings in an aggregate amount during the term of this Agreement not to exceed $2,000,000, and not otherwise described in the preceding clauses (1), (2) and (4), Borrower shall prepay the Loans in an amount equal to such proceeds, net of underwriting discounts and commissions and other reasonable costs associated therewith. All such prepayments shall be applied to the Loans in accordance with SUBSECTION 2.5.
(C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. Borrower may, at any time upon not less than three (3) Business Days prior notice to Agent, prepay the Term Loans or terminate the Revolving Loan Commitment; PROVIDED, HOWEVER, the Revolving Loan Commitment may not be terminated by Borrower until all Obligations are paid in full. Any prepayment of the Obligations permitted in this SUBSECTION 2.4(C) shall be subject to the payment of all fees set forth in SUBSECTION 2.3, and the payment of any amounts owing pursuant to SUBSECTION 2.13 resulting from such prepayment. In the event any Letters of Credit are outstanding at the time that Borrower prepays the Obligations and desires to terminate the Revolving Loan Commitment, Borrower shall cause L/C Issuer, Agent and each Lender to be released from all liability under any Letters of Credit or, at Agent's option, Borrower shall (1) deposit with Agent for the benefit of all Lenders with a Revolving Loan Commitment cash in an amount equal to one hundred and five percent (105%) of the aggregate balance of Letter of Credit Obligations to be available to Agent to reimburse payments of drafts drawn under such Letters of Credit and pay any fees and expenses related thereto and (2) prepay the fees payable under SUBSECTION 2.3(B) with respect to such Letters of Credit for the full remaining terms of such Letters of Credit. Upon termination of any such Letter of Credit, the unearned portion of such prepaid fee attributable to such Letter of Credit shall be refunded to Borrower. Notwithstanding the foregoing, any Lender holding any portion of Term Loan B may elect that prepayments of Term Loan B made in conjunction with a partial prepayment of the Loans be applied to Term Loan A in accordance with SUBSECTION 2.5 or as otherwise may be agreed by Requisite Lenders.
(D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the payment may be made on the next succeeding Business Day and such extension of time shall be included in the computation of the amount of interest or fees due hereunder.
2.5 APPLICATION OF PREPAYMENT PROCEEDS. With respect to the prepayments described in SUBSECTIONS 2.4(B)(2) and 2.4(B)(4), such prepayments shall first be applied in payment of Scheduled Installments of the Term Loan A in inverse order of maturity, and shall then be applied in payment of Scheduled Installments of Term Loan B in inverse order of maturity, and, at any time after the Term Loans shall have been repaid in full, such payments shall be applied to reduce the outstanding principal balance of the Revolving Loans but not as a permanent reduction of the Revolving Loan Commitment. With respect to the prepayments described in SUBSECTIONS 2.4(B)(3), such prepayments shall first be applied in payment of Scheduled Installments of the Term Loan B in inverse order of maturity, and shall then be applied in payment of Scheduled Installments of Term Loan A in inverse order of maturity, and, at any time after the Term Loans shall have been repaid in full, such payments shall be applied to reduce the outstanding principal balance of the Revolving Loans but not as a permanent reduction of the Revolving Loan Commitment. Considering each type of Loan being prepaid separately, any such prepayment shall be applied first to Index Rate Loans of the type required to be prepaid before application to LIBOR Loans of the type required to be prepaid, in each case in any manner which minimizes any resulting LIBOR breakage fees.
2.6 TERM OF THIS AGREEMENT. This Agreement shall be effective until the earliest of (a) December 31, 2006, (b) the acceleration of all Obligations pursuant to SUBSECTION 8.3 and (c) the date of termination of Canadian Lenders' obligations to make the Canadian Facility
Revolving Loans or permit existing Canadian Facility Revolving Loans to remain outstanding (other than in connection with a sale of Beacon Canada (or all or substantially all of its assets) approved by Lenders in accordance with the terms of this Agreement) (the "Termination Date"). The Commitments shall terminate (unless earlier terminated pursuant to the terms hereunder) upon the Termination Date and all Obligations shall become immediately due and payable without notice or demand. Notwithstanding any termination, until all Obligations (other than contingent indemnity obligations to the extent no unsatisfied claim has been asserted) have been fully paid and satisfied, Agent, on behalf of itself and Lenders, shall be entitled to retain security interests in and liens upon all Collateral, and even after payment of all Obligations hereunder, Obligors' obligation to indemnify Agent and each Lender in accordance with the terms hereof shall continue.
2.7 STATEMENTS. Agent shall render a monthly statement of account to Borrower within twenty (20) days after the end of each month. Such statement of account shall constitute an account stated unless Borrower makes written objection thereto within thirty (30) days from the date such statement is mailed to Borrower. Agent shall record in its books and records, including computer records, (a) all Loans, interest charges and payments thereof, (b) all Letter of Credit Liability, (c) the charging and payment of all fees, costs and expenses and (d) all other debits and credits pursuant to this Agreement. The balance in the loan accounts shall constitute presumptive evidence, absent demonstrable error, of the accuracy of the information contained therein; PROVIDED, HOWEVER, that any failure by Agent to so record shall not limit or affect the Borrower's obligation to pay.
2.8 GRANT OF SECURITY INTEREST. To secure the payment and performance of
the Obligations, including all renewals, extensions, restructurings and
refinancings of any or all of the Obligations, each Obligor hereby grants to
Agent, on behalf of Agent and Lenders, a continuing security interest, lien and
mortgage in and to all right, title and interest of such Obligor in all of such
Obligor's personal and real property, whether now owned or existing or hereafter
acquired or arising and regardless of where located (all being collectively
referred to as the "Collateral") including, without limitation, (A) Accounts,
and all guaranties and security therefor, and all goods and rights represented
thereby or arising therefrom including the rights of stoppage in transit,
replevin and reclamation; (B) Inventory; (C) general intangibles (as defined in
the UCC); (D) documents (as defined in the UCC) or other receipts covering,
evidencing or representing goods; (E) instruments (as defined in the UCC); (F)
chattel paper (as defined in the UCC); (G) Equipment; (H) Mortgaged Property;
(I) investment property (as defined in the UCC) including, without limitation,
all securities (certificated and uncertificated) security accounts, security
entitlements, commodity contracts and commodity accounts; (J) Intellectual
Property; (K) commercial tort claims (including those specified on SCHEDULE
2.8); (L) letter of credit rights (as defined in the UCC) and supporting
obligations (as defined in the UCC); (M) all deposit accounts of such Obligor
maintained with any bank or financial institution; (N) all cash and other monies
and property of such Obligor in the possession or under the control of Agent,
any Lender or any participant; (O) all books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and related data processing
software that at any time evidence or contain information relating to any of the
property described above or are otherwise necessary or helpful in the collection
thereof or realization thereon; and (P) proceeds and products of all or any of
the property described above, including, without limitation, the proceeds of any
insurance policies covering any of the above described property.
2.9 YIELD PROTECTION.
(A) CAPITAL ADEQUACY AND OTHER ADJUSTMENTS. In the event any Lender shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) from any central bank or governmental agency or body having jurisdiction does or shall have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Lender or any corporation controlling such Lender and thereby reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder, then Borrower shall within fifteen (15) days after notice and demand from such Lender (together with the certificate referred to in the next sentence and with a copy to Agent) pay to Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction. A certificate as to the amount of such cost and showing the basis of the computation of such cost submitted by such Lender to Borrower shall, absent demonstrable error, be final, conclusive and binding for all purposes.
(B) INCREASED LIBOR FUNDING COSTS. If, after the date hereof, the introduction of, change in or interpretation of any law, rule, regulation, treaty or directive would impose or increase reserve requirements (other than as taken into account in the definition of LIBOR) or otherwise increase the cost to any Lender of making or maintaining a LIBOR Loan, then Borrower shall from time to time within fifteen (15) days after notice and demand from such affected Lenders (together with the certificate referred to in the next sentence and with a copy to Agent) pay to Agent, for the account of such affected Lenders, additional amounts sufficient to compensate such Lenders for such increased cost. A certificate as to the amount of such cost and showing the basis of the computation of such cost submitted by such affected Lenders to Borrower and Agent shall, absent demonstrable error, be final, conclusive and binding for all purposes.
2.10 TAXES.
(A) NO DEDUCTIONS. Any and all payments or reimbursements made hereunder shall be made free and clear of and without deduction for any and all taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, levies, imposts, deductions, charges or withholdings and all liabilities with respect thereto referred to herein as "Tax Liabilities"; excluding, however, net income taxes, or franchise taxes imposed in lieu of net income taxes, to the extent imposed on the net income of any Lender or Agent by the jurisdiction under the laws of which Agent or such Lender is organized or doing business or any political subdivision thereof and taxes imposed on its net income by the jurisdiction of Agent's or such Lender's applicable lending office or any political subdivision). If Borrower shall be required by law to deduct any such Tax Liabilities from or in respect of any sum payable hereunder to Agent or any Lender, then the sum payable hereunder shall be increased as may be necessary so that, after making all required deductions, Agent or such Lender receives an amount equal to the sum it would have received had no such deductions been made.
(B) CHANGES IN TAX LAWS. In the event that, subsequent to the Closing Date, (i) any changes in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (ii) any new law, regulation, treaty or directive enacted or any interpretation or application thereof, or (iii) compliance by Lender with any request or directive (whether or not having the force of law) from any governmental authority, agency or instrumentality:
(1) does or shall subject Agent or any Lender to any tax of any kind whatsoever with respect to this Agreement, the other Loan Documents or any Loans made or Lender Letters of Credit issued hereunder, or change the basis of taxation of payments to Agent or such Lender of principal, fees, interest or any other amount payable hereunder (except for net income taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, state or local taxing authorities with respect to interest or commitment or other fees payable hereunder or changes in the rate of tax on the overall net income of Agent or such Lender); or
(2) does or shall impose on Agent or any Lender any other condition or increased cost in connection with the transactions contemplated hereby or participations herein; and the result of any of the foregoing is to increase the cost to Agent or such Lender of issuing any Lender Letter of Credit or making or continuing any Loan hereunder, as the case may be, or to reduce any amount receivable hereunder;
then, in any such case, Borrower shall promptly pay to Agent or such Lender, upon its notice and demand, any additional amounts necessary to compensate Agent or such Lender, on an after-tax basis, for such additional cost or reduced amount receivable, as determined by Agent or such Lender with respect to this Agreement or the other Loan Documents. If Agent or any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify Borrower of the event by reason of which Agent or such Lender has become so entitled (with any such Lender concurrently notifying Agent). A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Agent or any Lender to Borrower shall, absent demonstrable error, be final, conclusive and binding for all purposes.
(C) FOREIGN LENDERS. Each Lender organized under the laws of a
jurisdiction outside the United States (a "Foreign Lender") as to which payments
to be made under this Agreement are exempt from United States withholding tax
under an applicable statute or tax treaty shall provide to Borrower and Agent
(i) a properly completed and executed Internal Revenue Service Form W-8BEN or
Form W-8ECI or other applicable form, certificate or document prescribed by the
Internal Revenue Service of the United States of America certifying as to such
Foreign Lender's entitlement to such exemption with respect to payments to be
made to such Foreign Lender under this Agreement, (a "Certificate of
Exemption"), or (ii) a letter from any such Foreign Lender stating that it is
not entitled to any such exemption (a "Letter of Non-Exemption"). Prior to
becoming a Lender under this Agreement and within fifteen (15) days after a
reasonable written request of Borrower or Agent from time to time thereafter,
each Foreign Lender that becomes a Lender under this Agreement shall provide a
Certificate of Exemption or a Letter of Non-Exemption to Borrower and Agent;
PROVIDED that no Person who would otherwise be a Foreign Lender shall become a
Lender hereunder unless such Person is able to deliver a Certificate of
Exception at the time it becomes a Lender.
If a Foreign Lender is entitled to an exemption with respect to payments to be made to such Foreign Lender under this Agreement and does not provide a Certificate of Exemption to Borrower and Agent within the time periods set forth in the preceding paragraph, Borrower shall withhold taxes from payments to such Foreign Lender at the applicable statutory rates and Borrower shall not be required to pay any additional amounts as a result of such withholding; PROVIDED, HOWEVER, that all such withholding shall cease upon delivery by such Foreign Lender of a Certificate of Exemption to Borrower and Agent.
2.11 REQUIRED TERMINATION AND PREPAYMENT. If on any date any Lender shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties) that the making or continuation of its LIBOR Loans has become unlawful or impossible by compliance by such Lender in good faith with any law, governmental rule, regulation or order (whether or not having the force of law and whether or not failure to comply therewith would be unlawful), then, and in any such event, that Lender shall promptly give notice (by telephone confirmed in writing) to Borrower and Agent of that determination. Subject to prior withdrawal of a Notice of Borrowing or prepayment of LIBOR Loans as contemplated by SUBSECTION 2.13, the obligation of such Lender to make or maintain its LIBOR Loans during any such period shall be terminated at the earlier of the termination of the Interest Period then in effect or when required by law and Borrower shall no later than the termination of the Interest Period in effect at the time any such determination pursuant to this SUBSECTION 2.11 is made or, earlier when required by law, repay or prepay LIBOR Loans together with all interest accrued thereon or convert LIBOR Loans to Index Rate Loans.
2.12 OPTIONAL PREPAYMENT/REPLACEMENT OF LENDERS. Within fifteen (15) days
after receipt by Borrower of: (i) written notice and demand from any Lender for
payment of additional costs as provided in SUBSECTION 2.9 or SUBSECTION 2.10, or
(ii) written notice of any Lender's inability to make LIBOR Loans as provided in
SUBSECTION 2.11, (any such Lender demanding such payment or having such
inability being referred to herein as an "Affected Lender"), Borrower may, at
its option notify Agent and such Affected Lender of its intention to take one of
the actions set forth herein in subparagraphs (A) or (B) below.
(A) REPLACEMENT OF AN AFFECTED LENDER. Borrower may obtain, at Borrower's expense, a replacement Lender ("Replacement Lender") for an Affected Lender, which Replacement Lender shall be reasonably satisfactory to Agent. In the event Borrower obtains a Replacement Lender that will purchase all outstanding Obligations owed to such Affected Lender and assume its Commitments hereunder within ninety (90) days following notice of Borrower's intention to do so, the Affected Lender shall sell and assign its Loans and Commitments to such Replacement Lender in accordance with the provisions of SUBSECTION 9.5; PROVIDED, HOWEVER, Borrower has (i) reimbursed such Affected Lender for any administrative fee payable by such Affected Lender to Agent pursuant to SUBSECTION 9.5 and, (ii) in any case where such replacement occurs as the result of a demand for payment of certain costs pursuant to SUBSECTION 2.9 or SUBSECTION 2.10, paid all increased costs for which such Affected Lender is entitled to under SUBSECTION 2.9 or SUBSECTION 2.10 through the date of such sale and assignment; or
(B) PREPAYMENT OF AN AFFECTED LENDER. Borrower may prepay in full all outstanding Obligations owed to an Affected Lender and terminate such Affected Lender's
Commitments. Borrower shall, within ninety (90) days following notice of its intention to do so, prepay in full all outstanding Obligations owed to such Affected Lender, including such Affected Lender's increased costs for which it is entitled to reimbursement under this Agreement through the date of such prepayment, and terminate such Affected Lender's Commitments.
2.13 COMPENSATION. Borrower shall promptly compensate Agent for the benefit of Lenders (Agent's calculation of such amounts shall, absent manifest error, be conclusive and binding upon all parties hereto), for any losses, expenses and liabilities including, without limitation, any loss (including interest paid) sustained by such Lender in connection with the re-employment of such funds: (i) if for any reason (other than a default by any Lender) a borrowing of any LIBOR Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request of borrowing by Borrower; (ii) if any prepayment of any of its LIBOR Loans occurs on a date that is not the last day of an Interest Period applicable to that Loan (regardless of the source of such prepayment and whether voluntary, by acceleration or otherwise); (iii) if any prepayment of any of its LIBOR Loans is not made on any date specified in a notice of prepayment given by Borrower; or (iv) as a consequence of any other default by Borrower to repay its LIBOR Loans when required by the terms of this Agreement; provided that during the period while any such amounts have not been paid, Agent may, in its sole discretion, (a) in accordance with SUBSECTION 2.4(A) and upon contemporaneous notice to Borrower, elect to honor the automatic request by Borrower for a Revolving Advance for such amount pursuant to SUBSECTION 2.1(F) or (b) reserve an equal amount from amounts otherwise available to be borrowed under the Revolving Loan.
2.14 BOOKING OF LIBOR LOANS. Each Lender may make, carry or transfer LIBOR Loans at, to, or for the account of, any of its branch offices or the office of an affiliate of such Lender.
2.15 ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS. Calculation of all amounts payable to each Lender under SUBSECTION 2.13 shall be made as though each Lender had actually funded its relevant LIBOR Loan through the purchase of a LIBOR deposit bearing interest at LIBOR in an amount equal to the amount of that LIBOR Loan and having maturity comparable to the relevant Interest Period and through the transfer of such LIBOR deposit from an offshore office to a domestic office in the United States of America; PROVIDED, HOWEVER, each Lender may fund each of its LIBOR Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under SUBSECTION 2.13.
SECTION 3. CONDITIONS TO LOANS
The obligations of Agent and each Lender to make Loans and the obligation of L/C Issuer to issue Letters of Credit on the Closing Date and on each Funding Date are subject to satisfaction of all of the terms and conditions set forth in this Agreement and in the Conditions Rider attached hereto, and the accuracy of all the representations and warranties of Borrower and the other Loan Parties (as applicable) set forth herein and in the other Loan Documents.
SECTION 4.
OBLIGORS' REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS
To induce Agent and each Lender to enter into the Loan Documents, to make and to continue to make Loans and to issue or cause to be issued Letters of Credit, each Obligor represents, warrants and covenants to Agent and each Lender that the following statements are and (when deemed remade hereunder) will be true, correct and complete and, unless specifically limited, shall remain so for so long as any of the Commitments hereunder shall be in effect and until payment in full of all Obligations:
4.1 ORGANIZATION, POWERS, CAPITALIZATION.
(A) ORGANIZATION AND POWERS. Each of the Loan Parties is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and qualified to do business in all jurisdictions where such qualification is required except where failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. Each of the Loan Parties has all requisite organizational power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted and to enter into each Loan Document.
(B) CAPITALIZATION. As of the Closing Date, the authorized capital
stock of each of the Loan Parties and its respective Subsidiaries is as set
forth on SCHEDULE 4.1(B), including all preemptive or other outstanding rights,
options, warrants, conversion rights or similar agreements or understandings for
the purchase or acquisition from any Loan Party of any shares of capital stock
or other securities of any such entity. All issued and outstanding shares of
capital stock of each of Borrower and its Subsidiaries are duly authorized and
validly issued, fully paid, nonassessable, free and clear of all Liens other
than those in favor of Agent for the benefit of Agent and Lenders, and such
shares were issued in compliance with all applicable state and federal laws
concerning the issuance of securities. Borrower will promptly notify Lender of
any change in the ownership or corporate structure of any Loan Party that would
result in the occurrence of an Event of Default pursuant to paragraph (F) of
SECTION 8.1.
4.2 AUTHORIZATION OF BORROWING, NO CONFLICT. Each of the Obligors has the organizational power and authority to incur the Obligations and to grant security interests in the Collateral. On the Closing Date, the execution, delivery and performance of the Loan Documents by each Loan Party signatory thereto will have been duly authorized by all necessary corporate and shareholder action. The execution, delivery and performance by each Loan Party of each Loan Document to which it is a party and the consummation of the transactions contemplated by the Loan Documents by each Loan Party do not contravene any applicable law, the corporate charter or bylaws or other organizational documents of any Loan Party or any agreement or order by which any Loan Party or any Loan Party's property is bound. The Loan Documents are the legally valid and binding obligations of the applicable Loan Parties respectively, each enforceable against the Loan Parties, as applicable, in accordance with their respective terms.
4.3 FINANCIAL CONDITION. All financial statements concerning the Loan Parties which have been or will hereafter be furnished to Agent or any Lender pursuant to this Agreement have
been or will be prepared in accordance with GAAP consistently applied throughout the periods involved (except as disclosed therein and, in the case of interim financial statements, except for the absence of footnotes and non-material year-end adjustments) and do or will present fairly in all material respects the financial condition of the entities covered thereby as at the dates thereof and the results of their operations for the periods then ended. The Pro Forma was prepared by Borrower based on the unaudited consolidated balance sheet of Holdings and its Subsidiaries dated February 28, 2004.
The Projections delivered by Borrower will be prepared in light of the past operations of the business of Holdings and its Subsidiaries, and such Projections will represent the good faith estimate of Borrower and its senior management concerning the reasonably expected course of the Loan Parties' business as of the date such Projections are delivered; it being recognized that the Projections (as they relate to future events) are not to be viewed as fact and that actual results during the period or periods covered by the Projections may differ by a material amount from the Projections.
Since September 30, 2003 there have been no events or changes in facts or circumstances affecting any Loan Party which individually or in the aggregate have had or could reasonably be expected to have a Material Adverse Effect and that have not been disclosed herein or in the attached Schedules.
4.4 INDEBTEDNESS AND LIABILITIES. As of the Closing Date, neither Holdings nor any of its Subsidiaries has (a) any Indebtedness except as reflected on the Pro Forma; or (b) any Liabilities other than as reflected on the Pro Forma or as incurred in the ordinary course of business following the date of the Pro Forma. Borrower shall promptly deliver copies of all notices given or received by Holdings and any of its Subsidiaries with respect to noncompliance with any term or condition related to any Indebtedness in an amount exceeding $100,000, and shall promptly notify Agent of any potential or actual Event of Default with respect to any such Indebtedness.
4.5 ACCOUNT WARRANTIES AND COVENANTS. Except as otherwise disclosed to Agent in writing, as to each Account (excluding Accounts in an aggregate amount not exceeding $100,000 at any time) that, at the time of its creation, the Account is a valid, bona fide account, representing an undisputed indebtedness incurred by the named account debtor for goods actually sold and delivered or for services completely rendered; there are no setoffs, offsets or counterclaims, genuine or otherwise, against the Account; the Account does not represent a sale to an Affiliate or a consignment, sale or return or a bill and hold transaction; no agreement exists permitting any deduction or discount (other than the discount stated on the invoice); the applicable Obligor is the lawful owner of the Account and has the right to assign the same to Agent, for the benefit of Agent and Lenders; the Account is free of all security interests, liens and encumbrances other than those in favor of Agent, on behalf of itself and Lenders, and the Account is due and payable in accordance with its terms. Each Obligor shall, at its own expense: (a) cause all invoices evidencing Accounts and all copies thereof to bear a notice that such invoices are payable to the lockboxes established in accordance with SUBSECTION 4.25 and (b) use its diligent efforts to assure prompt payment of all amounts due or to become due under the Accounts. No discounts, credits or allowances will be issued, granted or allowed by any Obligor to customers and no returns will be accepted without Agent's prior written consent; PROVIDED,
HOWEVER, until Agent notifies Borrower to the contrary, Obligors may presume consent. Borrower will immediately notify Agent in the event that a customer alleges any dispute or claim with respect to an Account or of any other circumstances known to any Obligor that may impair the validity or collectibility of an Account. Agent shall have the right, at any time or times hereafter, to verify the validity, amount or any other matter relating to an Account, by mail, telephone or in person. After the occurrence of an Event of Default and upon notice from Agent to Borrower, no Obligor shall, without the prior consent of Agent, adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any customer or obligor thereof, or allow any credit or discount thereon.
4.6 NAMES AND LOCATIONS. SCHEDULE 4.6 sets forth as of the Closing Date
all names, trade names, fictitious names and business names under which Borrower
and each of its Subsidiaries currently conducts business or has at any time
during the past five years conducted business and the name of any entity which
Borrower or any of its Subsidiaries has acquired in whole or in part or from
whom Borrower or any of its Subsidiaries has acquired a significant amount of
assets within the past five years and sets forth the location of Borrower's and
each of its Subsidiaries' principal place of business, the location of
Borrower's and each of its Subsidiary's books and records, the location of all
other offices of Borrower and each of its Subsidiaries and all Collateral
locations, and such locations are Borrower's or each of its Subsidiary's sole
locations for its business and the Collateral. Borrower and each of its
Subsidiaries will give Agent at least thirty (30) days advance written notice
of: (a) any change of name or of any new trade name or fictitious business name,
(b) change of principal place of business, (c) any change in the location of
such Person's books and records or the Collateral, or (d) any new location for
such Person's books and records or the Collateral. SCHEDULE 4.6 sets forth each
Obligor's organizational identification number or states that one does not
exist.
4.7 TITLE TO PROPERTIES; LIENS. Borrower and each of its Subsidiaries has good, sufficient and legal title, to all of its respective material properties and assets, in each case, free and clear of all Liens except Permitted Encumbrances. Except for matters disclosed on SCHEDULE 2.8, no Obligor owns any commercial tort claims (as identified in the UCC) in excess of $250,000 individually.
4.8 LITIGATION; ADVERSE FACTS. There are no judgments outstanding against any Loan Party or affecting any property of any Loan Party nor is there any action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration now pending or, to the best knowledge of any Obligor after due inquiry, threatened against or affecting any Loan Party or any property of any Loan Party (including without limitation any tort claim in respect of asbestos products sold or distributed by any Loan Party) which could reasonably be expected to result in any Material Adverse Effect. Promptly upon any officer of any Obligor obtaining knowledge of (a) the institution of any material action, suit, proceeding, governmental investigation or arbitration against or affecting any Loan Party or any property of any Loan Party not previously disclosed by Borrower to Agent or (b) any material development in any action, suit, proceeding, governmental investigation or arbitration at any time pending against or affecting any Loan Party or any property of any Loan Party which could reasonably be expected to have a Material Adverse Effect, Borrower will promptly give notice thereof to Agent and provide such other information as may be reasonably available to enable Agent and its counsel to evaluate such matter.
4.9 PAYMENT OF TAXES. All material tax returns and reports of each Loan Party required to be filed by any of them have been timely filed and are complete and accurate in all material respects. All taxes, assessments, fees and other governmental charges which are due and payable by each Loan Party have been paid when due; PROVIDED that no such tax need be paid if any Loan Party is contesting same in good faith by appropriate proceedings promptly instituted and diligently conducted and if such Loan Party has established appropriate reserves as shall be required in conformity with GAAP. As of the Closing Date, none of the income tax returns of any Loan Party are under audit and Borrower shall promptly notify Agent in the event that any Loan Party's tax returns become the subject of an audit . No tax liens have been filed against any Loan Party. The charges, accruals and reserves on the books of each Loan Party in respect of any taxes or other governmental charges are in accordance with GAAP. Each Obligor's federal tax identification number is as set forth on SCHEDULE 4.9 hereto.
4.10 PERFORMANCE OF AGREEMENTS. None of the Loan Parties and none of their respective Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material contractual obligation of any such Person, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, in any such case which could reasonably be expected to have a Material Adverse Effect. Borrower shall promptly notify Agent of (a) the occurrence of any material default or breach under any material contractual obligation of any Loan Party, (b) the termination of any material contractual obligation of any Loan Party, in a manner adverse in any material respect to any Loan Party, or (c) the material amendment or modification of any material contractual obligation of any Loan Party, in a manner adverse in any material respect to any Loan Party.
4.11 EMPLOYEE BENEFIT PLANS. Each Loan Party and each ERISA Affiliate is in compliance, and will continue to remain in compliance, in all material respects with all applicable provisions of ERISA, the IRC and all other applicable laws and the regulations and interpretations thereof with respect to all Employee Benefit Plans. No material liability has been incurred by any Loan Party or any ERISA Affiliate which remains unsatisfied for any funding obligation, taxes or penalties with respect to any Employee Benefit Plan.
4.12 INTELLECTUAL PROPERTY. Borrower and each of its Subsidiaries owns, is licensed to use or otherwise has the right to use, all Intellectual Property used in or necessary for the conduct of its business as currently conducted, and, as of the Closing Date, all patents, trademarks and registered copyrights owned by any Loan Party and all licenses in respect of Intellectual Property to which any Loan Party is a party, are identified on SCHEDULE 4.12. All federally registered Intellectual Property owned by Borrower and each of its Subsidiaries is valid, subsisting and enforceable and all filings necessary to maintain the effectiveness of such registrations have been made, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
4.13 BROKER'S FEES. No broker's or finder's fee or commission will be payable with respect to any of the transactions contemplated hereby.
4.14 ENVIRONMENTAL MATTERS.
(A) Except as set forth in SCHEDULE 4.14, as of the Closing Date:
(i) the Real Estate is free of contamination from any Hazardous Material except
for such contamination that could not reasonably be expected to adversely impact
the value or marketability of such Real Estate and that could not reasonably be
expected to result in Environmental Liabilities of the Loan Parties in excess of
$250,000 in the aggregate; (ii) no Loan Party has caused or suffered to occur
any Release of Hazardous Materials on, at, in, under, above, to, from or about
any of their Real Estate; (iii) the Loan Parties are and have been in compliance
with all Environmental Laws, except for such noncompliance that could not
reasonably be expected to result in Environmental Liabilities of the Loan
Parties in excess of $250,000 in the aggregate; (iv) the Loan Parties have
obtained, and are in compliance with, all Environmental Permits required by
Environmental Laws for the operations of their respective businesses as
presently conducted or as proposed to be conducted, except where the failure to
so obtain or comply with such Environmental Permits could not reasonably be
expected to result in Environmental Liabilities of the Loan Parties in excess of
$250,000 in the aggregate, and all such Environmental Permits are valid,
uncontested and in good standing; (v) no Loan Party is involved in operations or
knows of any facts, circumstances or conditions, including any Releases of
Hazardous Materials, that are likely to result in any Environmental Liabilities
of such Loan Party which could reasonably be expected to be in excess of
$250,000 in the aggregate, and no Loan Party has permitted any current or former
tenant or occupant of the Real Estate to engage in any such operations; (vi)
there is no Litigation arising under or related to any Environmental Laws,
Environmental Permits or Hazardous Material that seeks damages, penalties,
fines, costs or expenses in excess of $250,000 in the aggregate or injunctive
relief against, or that alleges criminal misconduct by any Loan Party; (vii) no
notice has been received by any Loan Party identifying any of them as a
"potentially responsible party" or requesting information under CERCLA or
analogous state statutes, and to the knowledge of the Loan Parties, there are no
facts, circumstances or conditions that may result in any of the Loan Parties
being identified as a "potentially responsible party" under CERCLA or analogous
state statues; and (viii) the Loan Parties have provided to Agent copies of all
existing environmental reports, reviews and audits and all written information
pertaining to actual or potential Environmental Liabilities, in each case
relating to any of the Loan Parties.
(B) Each Obligor hereby acknowledges and agrees that (i) to its knowledge, Agent is not now, and has not ever been, in control of any of the Real Estate or affairs of such Loan Party, and (ii) Agent does not have the capacity through the provisions of the Loan Documents or otherwise to influence any Loan Party's conduct with respect to the ownership, operation or management of any of their Real Estate or compliance with Environmental Laws or Environmental Permits.
4.15 SOLVENCY. From and after the date of this Agreement, each Loan Party: (a) owns assets the fair salable value of which on a going concern basis are greater than the total amount of its liabilities (including contingent liabilities); (b) has capital that is not unreasonably small in relation to its business as presently conducted or any contemplated or undertaken transaction; and (c) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due.
4.16 DISCLOSURE. No representation or warranty of any Obligor or any other Loan Party contained in this Agreement, the financial statements, the other Loan Documents, or any other document, certificate or written statement furnished to Agent or any Lender by or on behalf of any such Person for use in connection with the Loan Documents contains any untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. There is no material fact known to any Obligor that has had or could have a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to Agent or any Lender for use in connection with the transactions contemplated hereby.
4.17 INSURANCE. Borrower and each of its Subsidiaries maintains adequate insurance policies for public liability, property damage, product liability, and business interruption with respect to its business and properties and the business and properties of its Subsidiaries against loss or damage of the kinds customarily carried or maintained by corporations of established reputation engaged in similar businesses and in amounts acceptable to Agent. Borrower shall cause Agent to be named as loss payee on all insurance policies relating to any Collateral and shall cause Agent to be named as additional insured under all liability policies, in each case pursuant to appropriate endorsements in form and substance satisfactory to Agent and shall collaterally assign to Agent, for itself and on behalf of Lenders, as security for the payment of the Obligations all business interruption insurance of Borrowers and its Subsidiaries. No notice of cancellation has been received with respect to such policies and Borrower and each of its Subsidiaries is in compliance with all conditions contained in such policies. Borrower shall apply any proceeds received from any policies of insurance relating to any Collateral to the Obligations as set forth in SUBSECTION 2.5. In the event Borrower fails to provide Agent with evidence of the insurance coverage required by this Agreement, Agent may, but is not required to, purchase insurance at Borrower's expense to protect Agent's and the Lender's interests in the Collateral. This insurance may, but need not, protect Obligors' interests. The coverage purchased by Agent may not pay any claim made by any Obligor or any claim that is made against any Obligor in connection with the Collateral. Borrower may later cancel any insurance purchased by Agent, but only after providing Agent with evidence that Borrower has obtained insurance as required by this Agreement. If Agent purchases insurance for the Collateral, Borrower will be responsible for the costs of that insurance, including interest thereon and other charges imposed on Agent in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance, and such costs may be added to the Obligations. The costs of the insurance may be more than the cost of insurance any Obligor is able to obtain on its own.
4.18 COMPLIANCE WITH LAWS. Neither Borrower nor any of its Subsidiaries is in violation of any law, ordinance, rule, regulation, order, policy, guideline or other requirement of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of its business or the ownership of its properties, including, without limitation, any Environmental Law, which violation would subject Borrower or any of its Subsidiaries, or any of their respective officers to criminal liability or have a Material Adverse Effect and no such violation which could reasonably be expected to have a Material Adverse Effect has been alleged.
4.19 BANK ACCOUNTS. SCHEDULE 4.19 sets forth the account numbers and locations of all bank accounts of Borrower and its Subsidiaries. Neither Borrower nor any of its Subsidiaries shall establish any new bank accounts, or amend or terminate any Blocked Account or lockbox agreement without Agent's prior written consent.
4.20 EMPLOYEE MATTERS. Except as set forth on SCHEDULE 4.20, (a) no Loan Party nor any of such Loan Party's employees is subject to any collective bargaining agreement, (b) no petition for certification or union election is pending with respect to the employees of any Loan Party and no union or collective bargaining unit has sought such certification or recognition with respect to the employees of any Loan Party and (c) there are no strikes, slowdowns, work stoppages or controversies pending or, to the best knowledge of any Obligor after due inquiry, threatened between any Loan Party and its respective employees, other than employee grievances arising in the ordinary course of business, which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. Except as set forth on SCHEDULE 4.20, as of the Closing Date none of the Loan Parties is subject to an employment contract.
4.21 GOVERNMENTAL REGULATION. None of the Loan Parties is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or to any federal or state statute or regulation limiting its ability to incur indebtedness for borrowed money.
4.22 ACCESS TO ACCOUNTANTS AND MANAGEMENT. Obligors authorize Agent and Lenders to discuss the financial condition and financial statements of the Loan Parties with Holdings' Accountants upon reasonable notice to Borrower of its intention to do so, and authorize Holdings' Accountants to respond to all of Agent's inquiries. Agent and each Lender may, with the consent of Agent, which will not be unreasonably denied, and upon prior notice (in the absence of an Event of Default), confer with the Loan Parties' management directly regarding the Loan Parties' business, operations and financial condition.
4.23 INSPECTION. Obligors shall permit Agent and any authorized representatives designated by Agent to visit and inspect any of the properties of Borrower or any of its Subsidiaries, including their financial and accounting records, and, in conjunction with such inspection, to make copies and take extracts therefrom, and to discuss their affairs, finances and business with their officers and Holdings' Accountants, upon prior notice (in the absence of an Event of Default) and at such reasonable times during normal business hours and as often as may be reasonably requested. Each Lender may with the consent of Agent, which will not be unreasonably denied, accompany Agent on any such visit or inspection (at such Lender's expense in the absence of a continuing Event of Default described in either of SUBSECTIONS 8.1(A) OR 8.1(C) (as a result of any breach of the Financial Covenants Rider)).
4.24 COLLATERAL RECORDS. Each Obligor shall keep full and accurate books and records relating to the Collateral and shall mark such books and records to indicate Agent's security interests in the Collateral, for the benefit of Agent and Lenders.
4.25 COLLECTION OF ACCOUNTS AND PAYMENTS. As promptly as practicable and in any event within 60 days following the Closing Date, Obligors shall establish lockboxes and blocked
accounts (collectively, "Blocked Accounts") in Obligors' names with such banks ("Collecting Banks") as are acceptable to Agent (subject to irrevocable instructions acceptable to Agent as hereinafter set forth) to which all account debtors shall directly remit all payments on Accounts of Obligors and in which Obligors will immediately deposit all payments made for Inventory or other payments constituting proceeds of Collateral in the identical form in which such payment was made, whether by cash or check. The Collecting Banks shall acknowledge and agree, in a manner satisfactory to Agent, that all payments made to the Blocked Accounts are the sole and exclusive property of Agent and Canadian Facility Agent, for their benefit and for the benefit of Lenders and Canadian Facility Lenders, and that the Collecting Banks have no right to setoff against the Blocked Accounts and that all such payments received will be promptly transferred to Agent's Account. Obligors hereby agree that all payments made to such Blocked Accounts or otherwise received by Agent and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of Agent and Canadian Facility Agent, for their benefit and for the benefit of Lenders and Canadian Facility Lenders. Obligors shall irrevocably instruct each Collecting Bank to promptly transfer all payments or deposits to the Blocked Accounts into Agent's Account. If any Obligor, or any if its Affiliates, employees, agents or other Person acting for or in concert with any Obligor, shall receive any monies, checks, notes, drafts or any other payments relating to and/or proceeds of Accounts or other Collateral, such Obligor or such Person shall hold such instrument or funds in trust for Agent, and, immediately upon receipt thereof, shall remit the same or cause the same to be remitted, in kind, to the Blocked Accounts or to Agent at its address set forth in SUBSECTION 10.3 below.
Borrower may amend any one or more of the Schedules referred to in this SECTION 4 (subject to prior notice to Agent, as applicable) and any representation, warranty, or covenant contained herein which refers to any such Schedule shall from and after the date of any such amendment refer to such Schedule as so amended; PROVIDED HOWEVER, that in no event shall the amendment of any such Schedule constitute a waiver by Agent and Lenders of any Default or Event of Default that exists notwithstanding the amendment of such Schedule.
SECTION 5.
REPORTING AND OTHER AFFIRMATIVE COVENANTS
Each Obligor covenants and agrees that, so long as any of the Commitments hereunder shall be in effect and until payment in full of all Obligations, Obligors shall perform, and shall cause the other Loan Parties to perform, all covenants in this SECTION 5.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will deliver to Agent and each Lender (unless specified to be delivered solely to Agent) the financial statements and other reports contained in the Reporting Rider attached hereto.
5.2 ENDORSEMENT. Each Obligor hereby constitutes and appoints Agent and all Persons designated by Agent for that purpose as such Obligor's true and lawful attorney-in-fact, with power to endorse such Obligor's name to any of the items of payment or proceeds described in SUBSECTION 4.25 above and all proceeds of Collateral that come into Agent's possession or under Agent's control. Both the appointment of Agent as each Obligor's attorney and Agent's rights and powers are coupled with an interest and are irrevocable until payment in full and complete
performance of all of the Obligations (other than contingent indemnity obligations to the extent no unsatisfied claim has been asserted).
5.3 MAINTENANCE OF PROPERTIES. Obligors will maintain or cause to be maintained in good repair, working order and condition all material properties used in the businesses of Obligors and their Subsidiaries and will make or cause to be made all appropriate repairs, renewals and replacements thereof.
5.4 COMPLIANCE WITH LAWS. Obligors will, and will cause their Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority as now in effect and which may be imposed in the future in all jurisdictions in which Obligors or any of their Subsidiaries is now doing business or may hereafter be doing business, other than those laws the noncompliance with which would not have a Material Adverse Effect.
5.5 FURTHER ASSURANCES. Obligors shall, and shall cause their Subsidiaries to, from time to time, execute such guaranties, financing or continuation statements, documents, security agreements, reports and other documents or deliver to Agent such instruments, certificates of title, mortgages, deeds of trust, or other documents as Agent at any time may reasonably request to evidence, perfect or otherwise implement the guaranties and security for repayment of the Obligations provided for in the Loan Documents. Without limiting the foregoing, Obligors shall, and shall cause their Subsidiaries to, execute and file such financing and continuation statements, or amendments thereto, and such other instruments, documents or notices as Agent may request, in order to create, preserve and protect the security interests granted or purported to be granted hereby or pursuant to any other Loan Document.
5.6 MORTGAGES; TITLE INSURANCE; SURVEYS.
(A) TITLE INSURANCE. On the Closing Date (or within thirty (30)
days following delivery of any Mortgage with respect to Additional Mortgaged
Property), Borrower shall, except as otherwise agreed by Agent, deliver or cause
to be delivered to Agent ALTA lender's title insurance policies or date down
endorsement to any existing title insurance policies issued by title insurers
reasonably satisfactory to Agent (the "Mortgage Policies") in form and substance
and in amounts reasonably satisfactory to Agent assuring Agent that the
Mortgages are valid and enforceable first priority mortgage liens on the
respective Mortgaged Property or Additional Mortgaged Property, free and clear
of all defects and encumbrances except Permitted Encumbrances. The Mortgage
Policies shall be in form and substance reasonably satisfactory to Agent and
shall include an endorsement insuring against the effect of future advances
under this Agreement, for mechanics' liens and for any other matter that Agent
may reasonably request. In the case of each leasehold constituting Mortgaged
Property or Additional Mortgaged Property, as soon as practicable or in any
event within sixty (60) days after the Closing Date, Agent shall have received
such estoppel letters, consents and waivers from the landlords and
non-disturbance agreements from any holders of mortgages or deeds of trust on
such real estate as may have been requested by Agent, which letters shall be in
form and substance satisfactory to Agent.
(B) ADDITIONAL MORTGAGED PROPERTY. Borrower shall as promptly as possible (and in any event within sixty (60) days after such designation) deliver to Agent a fully executed
Mortgage, in form and substance satisfactory to Agent together with title insurance policies and surveys on any Additional Mortgaged Property designated by Agent.
(C) SURVEYS. On or before the Closing Date (or within thirty (30) days following delivery of any Mortgage with respect to Additional Mortgaged Property), Borrower shall, to the extent necessary to obtain the Mortgage Policies, deliver or cause to be delivered to Agent current surveys, certified by a licensed surveyor, for all real property that is the subject of the Mortgage Policies including Additional Mortgaged Property for which a Mortgage Policy is issued. All such surveys shall be sufficient to allow the issuer of the Mortgage Policy to issue an ALTA lender's policy.
5.7 USE OF PROCEEDS AND MARGIN SECURITY. Borrower shall use the proceeds of all Loans for proper business purposes (as described in the recitals to this Agreement) consistent with all applicable laws, statutes, rules and regulations. No portion of the proceeds of any Loan shall be used by Borrower or any of its Subsidiaries for the purpose of purchasing or carrying margin stock within the meaning of Regulation U, or in any manner that might cause the borrowing or the application of such proceeds to violate Regulation T or Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act.
5.8 BAILEE. If any Collateral is at any time in the possession or control of any warehouseman, bailee or any Obligor's agents or processors, such Obligor shall, upon the request of Agent, notify such warehouseman, bailee, agent or processor of the security interests in favor of Agent, for the benefit of Agent and Lenders, created hereby and shall instruct such Person to hold all such Collateral for Agent's account subject to Agent's instructions.
5.9 THIRD PARTY INVENTORY. All inventory and products owned by Persons other than an Obligor and located on any premises owned, leased or controlled by any Obligor, shall be separately and conspicuously identified as such and shall be segregated from such Obligor's own Inventory located at such premises.
5.10 ENVIRONMENTAL MATTERS. Each Obligor shall and shall cause each Person within its control to: (a) conduct its operations and keep and maintain its Real Estate in compliance with all Environmental Laws and Environmental Permits other than noncompliance that could not reasonably be expected to have a Material Adverse Effect; (b) implement any and all investigation, remediation, removal and response actions that are appropriate or necessary to maintain the value and marketability of the Real Estate or to otherwise comply with Environmental Laws and Environmental Permits pertaining to the presence, generation, treatment, storage, use, disposal, transportation or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its Real Estate, in each case except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; (c) notify Agent promptly after such Obligor or any Person within its control becomes aware of any violation of Environmental Laws or
Environmental Permits or any Release on, at, in, under, above, to, from or about
any Real Estate that is reasonably likely to result in a Material Adverse
Effect; and (d) promptly forward to Agent a copy of any order, notice, request
for information or any communication or report received by such Obligor or any
Person within its control in connection with any such violation or Release or
any other matter relating to any Environmental Laws or Environmental Permits
that could reasonably be expected to result in a Material Adverse Effect. If
Agent at any time has a reasonable basis to believe that there may be a
violation of any Environmental Laws or Environmental Permits by any Loan Party
or any Environmental Liability arising thereunder, or a Release of Hazardous
Materials on, at, in, under, above, to, from or about any of its Real Estate,
that, in each case, could reasonably be expected to have a Material Adverse
Effect, then Obligor and its Subsidiaries shall, upon Agent's written request
(i) cause the performance of such environmental audits including subsurface
sampling of soil and groundwater, and preparation of such environmental reports
at Borrower's expense, as Agent may from time to time reasonably request, which
shall be conducted by reputable environmental consulting firms reasonably
acceptable to Agent and shall be in form and substance reasonably acceptable to
Agent, and (ii) permit Agent or its representatives to have access to all Real
Estate for the purpose of conducting such environmental audits and testing as
Agent deems appropriate, including subsurface sampling of soil and groundwater.
Borrower shall reimburse Agent for the costs of such audits and tests and the
same will constitute a part of the Obligations secured hereunder.
5.11 CURRENCY RATE AGREEMENT. If Agent shall determine in its reasonable credit judgment that Borrower and its Subsidiaries at any time hereafter have a material Canadian Dollar currency rate risk exposure relative to Borrower's Obligations hereunder, then, within sixty (60) days after a request by Agent to do so, Borrower shall enter into (and thereafter maintain) Currency Rate Agreements to hedge such currency rate exposure in a manner, and upon terms and conditions, reasonably satisfactory to Agent.
"Currency Rate Agreement" means any currency rate swap agreement, currency forward purchase contract or similar agreement or arrangement designed to protect Borrower against fluctuations currency exchange rates entered into in accordance with this SUBSECTION 5.11.
SECTION 6. FINANCIAL COVENANTS
Obligors covenant and agree that so long as any of the Commitments remain in effect and until indefeasible payment in full of all Obligations and termination of all Letters of Credit, Obligors shall comply with and shall cause the other Loan Parties to comply with all covenants contained in the Financial Covenants Rider.
SECTION 7. NEGATIVE COVENANTS
Obligors covenant and agree that so long as any of the Commitments remain in effect and until indefeasible payment in full of all Obligations and termination of all Letters of Credit, Obligors shall not and will not permit any other Loan Party (except where indicated) to:
7.1 INDEBTEDNESS AND LIABILITIES. Directly or indirectly create, incur, assume, guaranty, or otherwise become or remain directly or indirectly liable, on a fixed or contingent basis, with respect to any Indebtedness except:
(A) the Obligations;
(B) intercompany Indebtedness (i) outstanding on the Closing Date and (ii) made following the Closing Date to fund working capital requirements of such Subsidiaries in the ordinary course of business and to fund Permitted Acquisitions; PROVIDED, HOWEVER, that the aggregate outstanding principal amount of intercompany loans from Borrower to Beacon Canada Holdings and Beacon Canada shall not exceed an amount equal to the outstanding balance of such intercompany loan as of the Closing Date (after giving effect to the Related Transactions on the Closing Date) plus $3,000,000 at any time; PROVIDED, FURTHER, that upon the request of Agent at any time, such Indebtedness shall be evidenced by promissory notes having terms reasonably satisfactory to Agent, the sole originally executed counterparts of which shall be delivered to Agent and shall be pledged to (i) Agent, for the benefit of Agent and Lenders, as security for the Obligations and (ii) Canadian Facility Agent, for the benefit of Canadian Facility Agent and Canadian Lenders, as security for the obligations under the Canadian Facility Loan Documents;
(C) unsecured, subordinated Indebtedness of Borrower in the principal amount of $16,032,000 (plus deferred interest thereon in accordance with the terms of the Senior Subordinated Notes) pursuant to the Senior Subordinated Loan Documents;
(D) [Intentionally Omitted];
(E) unsecured, subordinated Indebtedness of Holdings pursuant to
(i) the Investor Subordinated Notes outstanding on the Closing Date in the
aggregate principal amount of $12,165,881, (ii) Investor Subordinated Notes
issued after the Closing Date to individuals who hereafter become employees of
the Loan Parties and who purchase such Investor Subordinated Notes together with
common stock of Holdings (which additional Investor Subordinated Notes shall be
in the form of the Investor Subordinated Notes outstanding on the Closing Date)
and (iii) Investor Subordinated Notes issued after the Closing Date in
connection with Permitted Acquisitions (including Investor Subordinated Notes
issued to stockholders of Holdings to provide funds for Permitted Acquisitions)
(which additional Investor Subordinated Notes shall be in the form of the
Investor Subordinated Notes outstanding on the Closing Date);
(F) unsecured, subordinated Indebtedness of Holdings in the aggregate principal amount of $7,000,000 pursuant to the Best Seller Notes;
(G) [Intentionally Omitted];
(H) [Intentionally Omitted];
(I) [Intentionally Omitted];
(J) Indebtedness of Beacon Canada pursuant to the Canadian Facility Loan Documents;
(K) Indebtedness not to exceed $8,000,000 in the aggregate at any time outstanding secured by purchase money Liens on fixed assets or incurred with respect to Capital Leases;
(L) unsecured, subordinated Indebtedness evidenced by the Stockholder Notes;
(M) unsecured Indebtedness not to exceed $500,000 in the aggregate at any time outstanding which is subordinated to the Obligations in a manner satisfactory to Agent and Requisite Lenders;
(N) Indebtedness existing on the Closing Date and identified on
SCHEDULE 7.1; and
(O) unsecured Indebtedness of Holdings incurred in connection with
any Permitted Acquisition in an amount not to exceed ten percent (10%) of the
purchase price for such Permitted Acquisition; provided, however, that any such
Indebtedness shall (i) have a maturity date no earlier than ninety (90) days
after the date set forth in CLAUSE (a) of the definition of "Termination Date",
(ii) shall be fully subordinated to the Obligations in a manner satisfactory to
Agent and (iii) be otherwise issued pursuant to terms and conditions reasonably
satisfactory to Agent.
Obligors will not, and will not permit the other Loan Parties to, incur any Liabilities except for Indebtedness permitted herein and trade payables and normal accruals in the ordinary course of business not yet due and payable or with respect to which any Obligors or any of the other Loan Parties is contesting in good faith the amount or validity thereof by appropriate proceedings and then only to the extent that such Obligor or such other Loan Party has established adequate reserves therefor under GAAP.
7.2 CONTINGENT OBLIGATIONS. Directly or indirectly create or become or be liable with respect to any Contingent Obligation (other than in respect of the Obligations) except:
(A) Letter of Credit Obligations;
(B) those resulting from Currency Rate Agreements and Interest Rate Agreements entered into by Borrower with Agent's prior written approval, including the Interest Rate Agreement in effect on the Closing Date between Borrower and LaSalle Bank National Association;
(C) those resulting from endorsement of negotiable instruments for collection in the ordinary course of business;
(D) those existing on the Closing Date and described in SCHEDULE 7.2 annexed hereto;
(E) those arising under indemnity agreements to title insurers to cause such title insurers to issue to Agent mortgagee title insurance policies;
(F) those arising with respect to customary indemnification obligations incurred in connection with Asset Dispositions or Permitted Acquisitions;
(G) those incurred in the ordinary course of business with respect to surety and appeal bonds, performance and return-of-money bonds and other similar obligations not exceeding at any time outstanding $100,000 in aggregate liability;
(H) those incurred with respect to Indebtedness permitted by CLAUSES (A), (C), (J), (K), (L) and (M) of SUBSECTION 7.1, and those with respect to the "put" obligations of Holdings under the Stock Purchase Warrants issued pursuant to the Senior Subordinated Loan Agreement and the "Prior Purchase Agreement" (as defined in the Senior Subordinated Loan Agreement), PROVIDED that any guaranty of Indebtedness that is subordinated to the Obligations shall be subordinated to the same extent that such Indebtedness is subordinated to the Obligations, and any guaranty of the above-referenced "put" obligations of Holdings shall be subordinated to the Obligations in accordance with the Senior Subordination Agreement; and
(I) any other Contingent Obligation not expressly permitted by CLAUSES (A) through (H) above, so long as any such other Contingent Obligations, in the aggregate at any time outstanding, do not exceed $250,000.
7.3 TRANSFERS, LIENS AND RELATED MATTERS.
(A) TRANSFERS. Sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to any of the Collateral
or the assets of any Loan Party, except that Borrower and its Subsidiaries may
(i) sell inventory to customers in the ordinary course of business and dispose
of obsolete equipment not used or useful in the business for fair value; and
(ii) make Asset Dispositions if all of the following conditions are met: (1) the
aggregate market value of assets sold or otherwise disposed of in any Fiscal
Year does not exceed $500,000; (2) the consideration received is at least equal
to the fair market value of such assets; (3) at least 75% of the consideration
received is cash; (4) the net proceeds of such Asset Disposition are applied as
required by SUBSECTION 2.4; (5) after giving effect to the sale or other
disposition of the assets included within the Asset Disposition and the
repayment of the Obligations with the proceeds thereof, Obligors are in
compliance on a pro forma basis with the covenants set forth in the Financial
Covenants Rider recomputed for the most recently ended fiscal quarter for which
information is available and is in compliance with all other terms and
conditions contained in this Agreement; and (6) no Default or Event of Default
shall then exist or result from such sale or other disposition.
(B) LIENS. Except for Permitted Encumbrances, directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of the Collateral or the assets of any Loan Party or any proceeds, income or profits therefrom.
(C) NO NEGATIVE PLEDGES. Enter into or assume any agreement (other than the Loan Documents, the Canadian Facility Loan Documents and the Senior Subordinated Loan Documents) prohibiting the creation or assumption of any Lien upon the properties or assets of any Loan Party, whether now owned or hereafter acquired.
(D) NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO BORROWER. Except as provided herein and in the Canadian Facility Loan Documents and the Senior Subordinated Loan Documents, directly or indirectly create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Borrower to: (1) pay dividends or make any other distribution on any of such Subsidiary's capital stock owned by Borrower or any Subsidiary of Borrower; (2) pay any indebtedness owed
to Borrower or any other Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or (4) transfer any of its property or assets to Borrower or any other Subsidiary.
7.4 INVESTMENTS AND LOANS. Make or permit to exist investments in or loans to any other Person, except: (a) Cash Equivalents; (b) intercompany loans by Borrower to its Subsidiaries to the extent permitted under Section 7.1; (c) loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business in an aggregate outstanding amount not in excess of $200,000 at any time; (d) promissory notes of employees issued to Holdings in consideration for shares of capital stock and Investor Subordinated Notes issued by Holdings to such employees in an aggregate outstanding amount not exceeding $500,000 at any time; and (e) Permitted Acquisitions consummated by Obligors.
7.5 RESTRICTED JUNIOR PAYMENTS. Directly or indirectly declare, order, pay, make or set apart any sum for any Restricted Junior Payment, except that:
(A) Borrower may make payments and distributions to Holdings that are used by Holdings to pay federal and state income taxes then due and owing, franchise taxes and other similar licensing expenses incurred in the ordinary course of business; PROVIDED that Borrower's aggregate contribution to taxes as a result of the filing of a consolidated or combined return by Holdings shall not be greater, nor the aggregate receipt of tax benefits less, than they would have been had Borrower and its Subsidiaries not filed a consolidated or combined return with Holdings;
(B) Subsidiaries of Borrower may make Restricted Junior Payments to Borrower;
(C) Borrower may, on the Closing Date, prepay a portion of the outstanding Indebtedness under the Senior Subordinated Loan Documents in an aggregate amount equal to $22,411,238.75 (consisting of principal in the aggregate amount of $15,968,000, capitalized interest in the aggregate amount of $5,533,199 and accrued interest in the aggregate amount of $910,039) and thereafter, make regularly scheduled cash interest payments (and may accrue deferred interest) pursuant to the terms of the Senior Subordinated Loan Documents as in effect on the date hereof, subject to the subordination provisions set forth in the Senior Subordination Agreement;
(D) [Intentionally Omitted];
(E) Borrower may make distributions to Holdings to permit Holdings to make (and Holdings may make) scheduled payments of principal of, and accrued and unpaid interest on, the Best Seller Notes, in each case on an unaccelerated basis, provided all of the following conditions are satisfied:
(1) no Default or Event of Default shall have occurred and be continuing or would arise as a result of such distribution and payment; and
(2) after giving effect to such distribution and payment, Obligors shall be in compliance on a pro forma basis with all financial covenants set forth in the Financial Covenants Rider (excluding PARAGRAPH A thereof) recomputed for the twelve month period
ending on the last day of the most recent fiscal quarter for which Agent has received the monthly financial statements required to be delivered pursuant to PARAGRAPH A to the Reporting Rider;
(F) Borrower may make distributions to Holdings to permit Holdings to redeem (and Holdings may redeem) Investor Subordinated Notes and shares of its capital stock (or warrants or options to acquire any such shares) from employees of Borrower and its Subsidiaries upon the death or other termination of employment of such employees, or to permit Holdings to pay interest or principal in respect of any Stockholder Notes issued by Holdings to any such employee or their executors or administrators in payment of all or any portion of such redemption price, provided all of the following conditions are satisfied:
(1) no Default or Event of Default shall have occurred and be continuing or would arise as a result of such distribution or payment;
(2) after giving effect to such distribution and payment, Obligors shall be in compliance on a pro forma basis with all financial covenants set forth in the Financial Covenants Rider (excluding PARAGRAPH A thereof) recomputed for the twelve-month period ending on the last day of the most recent fiscal quarter for which Agent has received the monthly financial statements required to be delivered pursuant to paragraph (A) of the Reporting Rider;
(3) the aggregate amount of such distributions permitted in any fiscal year of the Borrower shall not exceed $500,000; and
(4) after giving effect to such distribution and payment and the making of any Revolving Loan to fund such distribution, Excess Availability is at least $7,500,000;
(G) [Intentionally Omitted];
(H) [Intentionally Omitted];
(I) Borrower may make Restricted Junior Payments to Holdings in an amount sufficient to permit Holdings to pay (and Holdings may pay) regularly scheduled installments of accrued and unpaid interest on Investor Subordinated Notes issued to, and held by, individuals who are directors and employees of any Loan Party (excluding any partner, principal, director or employee of Code Hennessy & Simmons III, L.P., Code Hennessy & Simmons L.L.C., CHS Management III, L.P. or any holder of Senior Subordinated Notes) in an amount not to exceed forty-four percent (44%) of the accrued and unpaid interest on such Investor Subordinated Notes, so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, and subject to the subordination provisions set forth in such Investor Subordinated Notes or the Investor Subordination Agreement (as applicable);
(J) [Intentionally Omitted];
(K) The Loan Parties may pay to CHS the management fees set forth on SCHEDULE 7.8 to the extent permitted under SUBSECTION 7.8.
7.6 RESTRICTION ON FUNDAMENTAL CHANGES.
(A) Enter into any transaction of merger or consolidation; (B)
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); (C) convey, sell, lease, sublease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business or assets, or the capital stock of any of its Subsidiaries,
whether now owned or hereafter acquired; or (D) acquire by purchase or otherwise
all or any substantial part of the business or assets of, or stock or other
beneficial ownership of, any Person.
Notwithstanding the foregoing, Borrower may acquire all or substantially all of the assets or equity securities of any Person (the "TARGET") (in each case, a "PERMITTED ACQUISITION") subject to the satisfaction of each of the following conditions:
(1) Agent shall receive at least 20 Business Days' prior written notice of such proposed Permitted Acquisition, which notice shall include a reasonably detailed description of such proposed Permitted Acquisition;
(2) such Permitted Acquisition shall only involve assets located in the United States and comprising a business, or those assets of a business, of a similar type engaged in by Obligors as of the Closing Date, and which business would not subject Agent or any Lender to regulatory or third party approvals in connection with the exercise of its rights and remedies under this Agreement or any other Loan Documents other than approvals applicable to the exercise of such rights and remedies with respect to Obligors prior to such Permitted Acquisition;
(3) such Permitted Acquisition shall be consensual and shall have been approved by the Target's board of directors;
(4) no additional Indebtedness, Contingent Obligations or other liabilities shall be incurred, assumed or otherwise be reflected on a consolidated balance sheet of Obligor and Target after giving effect to such Permitted Acquisition, except (A) Loans made hereunder, (B) Indebtedness under Investor Subordinated Notes issued to fund such Permitted Acquisition, (C) ordinary course trade payables, accrued expenses and unsecured Indebtedness of the Target to the extent no Default or Event of Default has occurred and is continuing or would result after giving effect to such Permitted Acquisition and (D) Indebtedness permitted under Section 7.1(O);
(5) the sum of all amounts payable in connection with any Permitted Acquisition (including all transaction costs and all Indebtedness, liabilities and Contingent Obligations incurred or assumed in connection therewith or otherwise reflected on a consolidated balance sheet of Obligors and Target) shall not exceed $10,000,000;
(6) the Target shall have positive EBITDA for the trailing twelve-month period preceding the date of the Permitted Acquisition, as determined based upon the Target's financial statements for its most recently completed fiscal year and its most recent interim financial period completed within sixty (60) days prior to the date of consummation of such Permitted Acquisition, taking into account verifiable cost addbacks approved by Agent (such Target's "Pro Forma EBITDA");
(7) the business and assets acquired in such Permitted Acquisition shall be free and clear of all Liens (other than Permitted Encumbrances);
(8) at or prior to the closing of any Permitted Acquisition, Agent will be granted a first priority perfected Lien (subject to Permitted Encumbrances) in all assets acquired pursuant thereto or in the assets and equity securities of the Target, and Holdings and Obligor and the Target shall have executed such documents and taken such actions as may be required by Agent in connection therewith;
(9) at the time of such Permitted Acquisition (after given effect to such Permitted Acquisition and all Loans funded in connection therewith), Excess Availability shall exceed $15,000,000;
(10) Within five (5) Business Days following delivery of the notice referred to in CLAUSE (1) above, Borrower shall have delivered to Agent, in form and substance reasonably satisfactory to Agent:
(a) a pro forma consolidated balance sheet, income statement and cash flow statement of Holdings and its Subsidiaries (the "ACQUISITION PRO FORMA"), based on recent financial statements, which shall be complete and shall fairly present in all material respects the assets, liabilities, financial condition and results of operations of Holdings and its Subsidiaries in accordance with GAAP consistently applied, but taking into account such Permitted Acquisition and the funding of all Loans in connection therewith, and such Acquisition Pro Forma shall reflect that average daily Excess Availability for the 30-day period preceding the consummation of such Permitted Acquisition would have exceeded $15,000,000 on a pro forma basis (after giving effect to such Permitted Acquisition and all Loans funded in connection therewith as if made on the first day of such period) and the Acquisition Projections (as hereinafter defined) shall reflect that such Excess Availability of $15,000,000 shall continue for at least 30 days after the consummation of such Permitted Acquisition and on a pro forma basis, no Event of Default has occurred and is continuing or would result after giving effect to such Permitted Acquisition and Borrower would have been in compliance with the financial covenants set forth in the Financial Covenants Rider recomputed for the twelve month period ending on the last day of the most recent fiscal quarter for which Agent has received the monthly financial statements required to be delivered pursuant to PARAGRAPH A of the Reporting Rider (after giving effect to such Permitted Acquisition and all Loans funded in connection therewith as if made on the first day of such period);
(b) updated versions of the most recently delivered Projections covering the 1 year period commencing on the date of such Permitted Acquisition and otherwise prepared in accordance with the Projections (the "ACQUISITION PROJECTIONS") and based upon historical financial data of a recent date reasonably satisfactory to Agent, taking into account such Permitted Acquisition; and
(c) a certificate of the chief financial officer of Borrower on behalf of Borrower to the effect that: (w) the Parties will be Solvent upon the consummation of the Permitted Acquisition; (x) the Acquisition Pro Forma fairly presents the financial condition of Holdings and its Subsidiaries (on a consolidated basis) as of the date thereof after giving effect to
the Permitted Acquisition; (y) the Acquisition Projections are reasonable estimates of the future financial performance of Holdings and its Subsidiaries subsequent to the date thereof based upon the historical performance of Holdings and its Subsidiaries and the Target and show that Holdings and its Subsidiaries shall continue to be in compliance with the financial covenants set forth in the Financial Covenants Rider for the 1 year period thereafter; and (z) Holdings and its Subsidiaries have completed their due diligence investigation with respect to the Target and such Permitted Acquisition, which investigation was conducted in a manner similar to that which would have been conducted by a prudent purchaser of a comparable business and the results of which investigation were delivered to Agent and Lenders;
(11) on or prior to the date of such Permitted Acquisition, Agent shall have received, in form and substance reasonably satisfactory to Agent, environmental assessments satisfactory to Agent, copies of the acquisition agreement and related agreements and instruments, and all opinions, certificates, lien search results and other documents reasonably requested by Agent, including any landlord waivers requested by Agent; and
(12) at the time of such Permitted Acquisition and after giving effect thereto, no Default or Event of Default has occurred and is continuing.
Notwithstanding the foregoing, the Accounts and Inventory of Target shall not be included in Eligible Accounts and Eligible Inventory unless Agent shall have received the reports, listings and agings set forth in CLAUSE (G) of the Reporting Rider with respect to Target.
7.7 CHANGES RELATING TO INDEBTEDNESS. Change or amend the terms of any of its Indebtedness permitted by CLAUSE (B) through (O) of SUBSECTION 7.1 if the effect of such amendment is an attempt to: (a) increase the interest rate on such Indebtedness; (b) change the dates upon which payments of principal or interest are due on such Indebtedness; (c) change any event of default or add any covenant with respect to such Indebtedness; (d) change the payment provisions of such Indebtedness; (e) change the subordination provisions thereof; or (f) change or amend any other term if such change or amendment would materially increase the obligations of the obligor or confer additional material rights on the holder of such Indebtedness in a manner adverse to any Loan Party, Agent or any Lender.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale or exchange of property or the rendering of any service) with any Affiliate or with any officer, director or employee of any Loan Party, except (a) as set forth on SCHEDULE 7.8, (b) for transactions in the ordinary course of and pursuant to the reasonable requirements of the business of any Loan Party and upon fair and reasonable terms which are fully disclosed to Agent and are no less favorable to such Loan Party than would be obtained in a comparable arm's length transaction with a Person that is not an Affiliate, (c) for payment of reasonable compensation to officers and employees for services actually rendered to such Loan Party and (d) for payment of outside directors' fees not to exceed $150,000 in the aggregate for any fiscal year of Borrower. Notwithstanding the foregoing, upon written notice to Borrower from Agent or Requisite Lenders, no payments may be made with respect to any items set forth on SCHEDULE 7.8 (other than reasonable out-of-pocket expenses of CHS which are reimbursable by Borrower, as set forth in the Management Agreement referred to in SCHEDULE 7.8) after the occurrence and during the continuation of an Event of Default or if an Event of
Default would result therefrom, provided such items may continue to accrue following such notice and be payable once such Event of Default has been cured or waived or would not otherwise result from such payment.
7.9 CONDUCT OF BUSINESS. From and after the Closing Date, engage in any business other than businesses of the type engaged in by such Loan Party on the Closing Date.
7.10 TAX CONSOLIDATIONS. File or consent to the filing of any consolidated income tax return with any Person other than the Loan Parties; PROVIDED that the contribution of Borrower and its Subsidiaries with respect to taxes as a result of the filing of a consolidated return with Holdings shall not be greater, nor the receipt of tax benefits less, than they would have been had Borrower and its Subsidiaries not filed a consolidated return with Holdings.
7.11 SUBSIDIARIES. Other than the Subsidiaries set forth on SCHEDULE 7.11, establish, create or acquire any new Subsidiaries other than in connection with a Permitted Acquisition.
7.12 FISCAL YEAR; TAX DESIGNATION. Change its Fiscal Year; or, in the case of the Loan Parties other than Beacon Canada, elect to be designated as an entity other than a C corporation; or, in the case of Beacon Canada, elect to be designated as an entity other than an unlimited liability company.
7.13 PRESS RELEASE; PUBLIC OFFERING MATERIALS. Issue any press releases or other public disclosure, including any prospectus, proxy statement or other materials filed with any governmental authority relating to a public offering of the capital stock or other equity securities of any Loan Party, using the name of GE Capital or its affiliates or referring to this Agreement, the other Loan Documents or the Related Transactions Documents without at least two (2) Business Days' prior notice to GE Capital and without the prior written consent of GE Capital unless (and only to the extent that) such Loan Party is required to do so under law and then, in any event, such Loan Party will consult with GE Capital before issuing such press release or other public disclosure. Each Obligor consents to the publication by Agent or any Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement. Agent or such Lender shall provide a draft of any such tombstone or similar advertising material to Borrower for review and comment prior to the publication thereof. Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.
7.14 BANK ACCOUNTS. Establish any new bank accounts, or attempt to amend or terminate any Blocked Account or lockbox agreement without Agent's prior written consent.
7.15 IRS FORM 8821. Revoke United States of America Internal Revenue Service ("IRS") Form 8821 designating Agent as Borrower's appointee to receive directly from the IRS, on an on-going basis, certain tax information, notices and other written communication or fail to take actions necessary to renew such Form 8821 prior to its expiration for all time periods prior to the Termination Date.
7.16 HAZARDOUS MATERIALS. Cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any of the Real Estate where such Release would (a) violate in any respect, or form the basis for any Environmental Liabilities by the Loan Parties
under, any Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or marketability of any of the Real Estate or any of the Collateral, other than such violations or Environmental Liabilities that could not reasonably be expected, in either case, to have a Material Adverse Effect.
7.17 CIGNA IMPRESS ACCOUNT. Maintain more than $125,000 on deposit in the CIGNA Impress Account.
SECTION 8. DEFAULT, RIGHTS AND REMEDIES
8.1 EVENT OF DEFAULT. "Event of Default" shall mean the occurrence or existence of any one or more of the following (for each subsection a different grace or cure period may be specified, if no grace or cure period is specified, such occurrence or existence constitutes an immediate Event of Default):
(A) PAYMENT. (1) Failure to pay any installments or other payments of principal of any Loan when due, or to repay the Revolving Loan to reduce its balance to the Maximum Revolving Loan Amount or to reimburse Agent, L/C Issuer or any Lender for any payment made by Agent, L/C Issuer or such Lender under or in respect of any Lender Letter of Credit when due or (2) failure to pay, within five (5) days after the due date, any interest on any Loan or any other amount due (other than principal of any Loan) under this Agreement or any of the other Loan Documents; or
(B) DEFAULT IN OTHER AGREEMENTS. (1) Failure of any Loan Party to pay when due any principal or interest on any Indebtedness (other than the Obligations) or (2) breach or default of any Loan Party with respect to any Indebtedness (other than the Obligations); if such failure to pay, breach or default entitles the holder to cause such Indebtedness having an individual principal amount in excess of $150,000 or having an aggregate principal amount in excess of $250,000 to become or be declared due prior to its stated maturity; or
(C) BREACH OF CERTAIN PROVISIONS. (1) Failure of any Obligor to perform or comply with any term or condition contained in paragraphs (A) and (C) of the Reporting Rider, that portion of subsection 4.17 relating to Obligors' obligations to maintain insurance or subsection 5.1 or contained in Section 7 or the Financial Covenants Rider; or (2) failure of any Obligor to perform or comply with any term or condition contained in paragraphs (E), (F) and (L) of the Reporting Rider and such failure is not remedied or waived within five (5) Business Days (two (2) Business Days in the case of any term or condition contained in paragraph (F) of the Reporting Rider to be performed on a weekly basis) after the date such failure first occurs; or
(D) BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by any Loan Party in any Loan Document or in any statement or certificate at any time given by such Person in writing pursuant or in connection with any Loan Document is false in any material respect on the date made; or
(E) OTHER DEFAULTS UNDER LOAN DOCUMENTS. Borrower or any other Loan Party defaults in the performance of or compliance with any term contained in this Agreement other than those otherwise set forth in this SUBSECTION 8.1, or defaults in the performance of or
compliance with any term contained in the other Loan Documents and such default is not remedied or waived within fifteen (15) days after notice from Agent, or, as required, Requisite Lenders, to Borrower of such default; or
(F) CHANGE IN CONTROL. (1) CHS ceases to beneficially and of record own and control, directly or indirectly, free and clear of all Liens, at least fifty-one percent (51%) of the issued and outstanding shares of each class of capital stock or other equity securities of Holdings entitled (without regard to the occurrence of any contingency) to vote for the election of a majority of the members of the board of directors of Holdings; or (2) Holdings ceases to beneficially and of record own and control all of the issued and outstanding capital stock or other equity securities of Borrower free and clear of all Liens other than Liens in favor of Agent; or (3) Borrower ceases to beneficially own and control, directly or indirectly, free and clear of all Liens other than Liens in favor of Agent and Canadian Facility Agent, 100% of the issued and outstanding shares of each class of capital stock or other equity securities entitled (without regard to the occurrence of any contingency) to vote for the election of a majority of the members of the boards of directors of any Loan Party other than Borrower and Holdings; or (4) any "Change of Control" as defined in the Senior Subordinated Loan Agreement shall occur; or
(G) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) A court enters a decree or order for relief with respect to any Loan Party in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed or other similar relief is not granted under any applicable federal or state law; or (2) the continuance of any of the following events for forty-five (45) days unless dismissed, bonded or discharged: (a) an involuntary case is commenced against any Loan Party, under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a receiver, liquidator, sequestrator, trustee, custodian or other fiduciary having similar powers over any Loan Party, or over all or a substantial part of their respective property, is appointed; or
(H) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) Any Loan Party, Borrower or any of its Subsidiaries commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to a voluntary case under any such law or consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or (2) any Loan Party makes any assignment for the benefit of creditors; or (3) the board of directors of any Loan Party adopts any resolution or otherwise authorizes action to approve any of the actions referred to in this SUBSECTION 8.1(H); or
(I) LIENS. Any lien, levy or assessment is filed or recorded with respect to or otherwise imposed upon all or any part of the Collateral or the assets of Borrower or any of its Subsidiaries by the United States or any department or instrumentality thereof or by any state, county, municipality or other governmental agency (other than Permitted Encumbrances) and such lien, levy or assessment is not stayed, vacated, paid or discharged within ten (10) days; or
(J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant of attachment, or similar process involving (1) an amount in any individual case in excess of $150,000 or (2) an amount in the aggregate at any time in excess of $250,000 (in either case not
adequately covered by insurance as to which the insurance company has
acknowledged coverage) is entered or filed against any Loan Party or any of
their respective assets and remains undischarged, unvacated, unbonded or
unstayed for a period of thirty (30) days, but in any event not later than five
(5) days prior to the date of any proposed sale thereunder; or
(K) DISSOLUTION. Any order, judgment or decree is entered against any Loan Party decreeing the dissolution or split up of such Loan Party and such order remains undischarged or unstayed for a period in excess of fifteen (15) days, but in any event not later than five (5) days prior to the date of any proposed dissolution or split up; or
(L) SOLVENCY. Any Loan Party ceases to be solvent (as represented by Obligors in SUBSECTION 4.15) or admits in writing its present or prospective inability to pay its debts as they become due; or
(M) INJUNCTION. Any Loan Party is enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or any material part of its business and such order continues for fifteen (15) days or more; or
(N) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for any reason, other than a partial or full release in accordance with the terms thereof, ceases to be in full force and effect or is declared to be null and void, or any Loan Party denies that it has any further liability under any Loan Documents to which it is party, or gives notice to such effect; or
(O) FAILURE OF SECURITY. Agent, on behalf of itself and Lenders, does not have or ceases to have a valid and perfected first priority security interest in the Collateral (subject to Permitted Encumbrances), in each case, for any reason other than the failure of Agent or any Lender to take any action within its control; or
(P) DAMAGE, STRIKE, CASUALTY. Any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of Borrower or any of its Subsidiaries if any such event or circumstance could reasonably be expected to have a Material Adverse Effect; or
(Q) LICENSES AND PERMITS. The loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by Borrower or any of its Subsidiaries, if such loss, suspension, revocation or failure to renew could reasonably be expected to have a Material Adverse Effect; or
(R) FORFEITURE. There is filed against any Loan Party of any civil or criminal action, suit or proceeding under any federal or state racketeering statute (including, without limitation, the Racketeer Influenced and Corrupt Organization Act of 1970), which action, suit or proceeding (1) is not dismissed within one hundred twenty (120) days; and (2) could reasonably be expected to result in the confiscation or forfeiture of any material portion of the Collateral, or
(S) DEFAULT UNDER CANADIAN FACILITY CREDIT AGREEMENT. Any Event of Default (as defined under the Canadian Facility Credit Agreement) shall occur under the Canadian Facility Credit Agreement.
8.2 SUSPENSION OF COMMITMENTS. Upon the occurrence of any Default or Event of Default, notwithstanding any grace period or right to cure, Agent may or upon demand by Requisite Lenders shall, without notice or demand, immediately cease making additional Loans and the Commitments shall be suspended; PROVIDED that, in the case of a Default, if the subject condition or event is waived or cured within any applicable grace or cure period, the Commitments shall be reinstated.
8.3 ACCELERATION. Upon the occurrence of any Event of Default described in the foregoing SUBSECTIONS 8.1(G) OR 8.1(H), all Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Obligors, and the Commitments shall thereupon terminate. Upon the occurrence and during the continuance of any other Event of Default, Agent may, and upon demand by Requisite Lenders shall, by written notice to Borrower, (a) declare all or any portion of the Obligations to be, and the same shall forthwith become, immediately due and payable and the Commitments shall thereupon terminate and (b) demand that Borrower immediately deposit with Agent an amount equal to one hundred five percent (105%) of the balance of Letter of Credit Obligations to enable Agent or L/C Issuer to make payments under the Letters of Credit when required and such amount shall become immediately due and payable.
8.4 REMEDIES. If any Event of Default shall have occurred and be
continuing, in addition to and not in limitation of any other rights or remedies
available to Agent and Lenders at law or in equity, Agent may, and shall upon
the request of Requisite Lenders, exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the UCC (whether or not the UCC applies to the affected Collateral) and may also
(a) require Obligors to, and each Obligor hereby agrees that it will, at its
expense and upon request of Agent forthwith, assemble all or part of the
Collateral as directed by Agent and make it available to Agent at a place to be
designated by Agent which is reasonably convenient to both parties; (b) withdraw
all cash in the Blocked Accounts and apply such monies in payment of the
Obligations in the manner provided in SUBSECTION 8.7; and (c) without notice or
demand or legal process, enter upon any premises of Borrower and take possession
of the Collateral. Obligors agree that, to the extent notice of sale of the
Collateral or any part thereof shall be required by law, at least ten (10) days
notice to Borrower of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
At any sale of the Collateral (whether public or private), if permitted by law,
Agent or any Lender may bid (which bid may be, in whole or in part, in the form
of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Agent or such Lender. Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. Obligors shall remain liable for any deficiency. Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. To the extent permitted by law,
Obligors hereby specifically waive all rights of redemption, stay or appraisal
which it has or may have under any
law now existing or hereafter enacted. Agent shall not be required to proceed against any Collateral but may proceed against any Obligor directly.
8.5 APPOINTMENT OF ATTORNEY-IN-FACT. Each Obligor hereby constitutes and
appoints Agent as such Obligor's attorney-in-fact with full authority in the
place and stead of such Obligor and in the name of such Obligor, Agent or
otherwise, from time to time in Agent's discretion while an Event of Default is
continuing to take any action and to execute any instrument that Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including:
(a) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral; (b) to adjust, settle or compromise the amount or payment
of any Account, or release wholly or partly any customer or obligor thereunder
or allow any credit or discount thereon; (c) to receive, endorse, and collect
any drafts or other instruments, documents and chattel paper, in connection with
clause (a) above; (d) to file any claims or take any action or institute any
proceedings that Agent may deem necessary or desirable for the collection of or
to preserve the value of any of the Collateral or otherwise to enforce the
rights of Agent and Lenders with respect to any of the Collateral; and (e) to
sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, assignments, verifications and notices in
connection with Accounts and other documents relating to the Collateral. The
appointment of Agent as each Obligor's attorney and Agent's rights and powers
are coupled with an interest and are irrevocable until indefeasible payment in
full and complete performance of all of the Obligations and termination of the
Commitments.
8.6 LIMITATION ON DUTY OF AGENT WITH RESPECT TO COLLATERAL. Beyond the safe custody thereof, Agent and each Lender shall have no duty with respect to any Collateral in its possession or control (or in the possession or control of any agent or bailee) or with respect to any income thereon or the preservation of rights against prior parties or any other rights pertaining thereto. Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Agent accords its own property. Neither Agent nor any Lender shall be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee, broker or other agent or bailee selected by any Obligor or selected by Agent in good faith.
8.7 APPLICATION OF PROCEEDS. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, (a) Obligors irrevocably waive the right to direct the application of any and all payments at any time or times thereafter received by Agent from or on behalf of any Obligor, and Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received at any time or times after the occurrence and during the continuance of an Event of Default against the Obligations in such manner as Agent may deem advisable notwithstanding any previous application by Agent and (b) in the absence of a specific determination by Agent with respect thereto, the proceeds of any sale of, or other realization upon, all or any part of the Collateral shall be applied: FIRST, to all fees, costs and expenses incurred by or owing to Agent and then any Lender with respect to this Agreement, the other Loan Documents or the Collateral; SECOND, to accrued and unpaid interest on the Obligations (including any interest which but for the
provisions of any bankruptcy or insolvency law would have accrued on such amounts); THIRD, to the principal amounts of the Obligations outstanding (other than Obligations owed to any Lender under an Interest Rate Agreement or Currency Rate Agreement); and FOURTH, to any other Obligations of Borrower owing to Agent or any Lender under the Loan Documents or any Interest Rate Agreement or Currency Rate Agreement. Any balance remaining shall be delivered to Obligors or to whomever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct.
8.8 LICENSE OF INTELLECTUAL PROPERTY. Each Obligor hereby assigns, transfers and conveys to Agent, for the benefit of Agent and Lenders, effective upon the occurrence of any Event of Default hereunder, the non-exclusive right and license to use all Intellectual Property owned or used by such Obligor together with any goodwill associated therewith, all to the extent necessary to enable Agent to realize on the Collateral and any successor or assign to enjoy the benefits of the Collateral. This right and license shall inure to the benefit of all successors, assigns and transferees of Agent and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge.
8.9 WAIVERS; NON-EXCLUSIVE REMEDIES. No failure on the part of Agent or any Lender to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement or the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise by Agent or any Lender of any right under this Agreement or any other Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the other Loan Documents are cumulative and shall in no way limit any other remedies provided by law.
SECTION 9.
AGENT
9.1 AGENT.
(A) APPOINTMENT. Each Lender hereto and, upon obtaining an interest in any Loan, any participant, transferee or other assignee of any Lender irrevocably appoints, designates and authorizes GE Capital as Agent to take such actions or refrain from taking such action as its agent on its behalf and to exercise such powers hereunder and under the other Loan Documents as are delegated by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Neither the Agent nor any of its directors, officers, employees or agents shall be liable for any action so taken. The provisions of this SUBSECTION 9.1 are solely for the benefit of Agent and Lenders and no Obligor nor any other Loan Party shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and the other Loan Documents, Agent shall act solely as agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any Obligor or any other Loan Party. Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. For the purposes of holding any security granted by any Loan Party pursuant to the laws of the Province of Quebec, Agent shall be the holder of an irrevocable power of attorney for all present and future Lenders. By executing an Assignment and Acceptance Agreement, any future Lender
shall be deemed to ratify the power of attorney granted to Agent hereunder. Lenders and each Loan Party agree that notwithstanding Section 32 of "the Act respecting the Special Powers of Legal Persons (Quebec)", Agent may, as the person holding the power of attorney of Lenders, acquire any debentures or other title of indebtedness secured by any hypothec granted by any Loan Party to Agent pursuant to the laws of the Province of Quebec.
(B) NATURE OF DUTIES. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the Loan Documents. The duties of Agent shall be mechanical and administrative in nature. Agent shall not have by reason of this Agreement a fiduciary, trust or agency relationship with or in respect of any Lender, any Obligor or any other Loan Party. Nothing in this Agreement or any of the Loan Documents, express or implied, is intended to or shall be construed to impose upon Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein or therein. Each Lender shall make its own appraisal of the credit worthiness of the Loan Parties, and shall have independently taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Loan Parties, and Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto (other than as expressly required herein), whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of any Lenders to the taking or refraining from taking any action hereunder, then Agent shall send notice thereof to each Lender. Agent shall promptly notify each Lender any time that the Requisite Lenders have instructed Agent to act or refrain from acting pursuant hereto
(C) RIGHTS, EXCULPATION, ETC. Neither Agent nor any of its officers, directors, employees or agents shall be liable to any Lender for any action taken or omitted by them hereunder or under any of the Loan Documents, or in connection herewith or therewith, except that Agent shall be liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. Agent shall not be liable for any apportionment or distribution of payments made by it in good faith and if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing with loans for its own account, but neither Agent nor any of its agents or representatives shall be responsible to any Lender for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the transactions contemplated thereby, or for the financial condition of any Loan Party. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of any Loan Party, or the existence or possible existence of any Default or Event of Default. Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the Loan Documents Agent is permitted or required to take or to grant, and if such instructions are promptly requested, Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and
shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from Requisite Lenders or all or such other portion of the Lenders as shall be prescribed by this Agreement. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders in the absence of an express requirement for a greater percentage of Lender approval hereunder for such action.
(D) RELIANCE. Agent shall be under no duty to examine, inquire into, or pass upon the validity, effectiveness or genuineness of this Agreement, any other Loan Document, or any instrument, document or communication furnished pursuant hereto or in connection herewith. Agent shall be entitled to rely, and shall be fully protected in relying, upon any written or oral notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, fax, telecopy or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder. Agent shall be entitled to rely upon the advice of legal counsel, independent accountants, and other experts selected by Agent in its sole discretion.
(E) INDEMNIFICATION. Lenders will reimburse and indemnify Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, attorneys' fees and expenses), advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by Agent under this Agreement or any of the Loan Documents, in proportion to each Lender's Pro Rata Share, but only to the extent that any of the foregoing is not promptly reimbursed by Borrower; PROVIDED, HOWEVER, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements resulting from Agent's gross negligence or willful misconduct as determined by a final non-appealable judgment by a court of competent jurisdiction. If any indemnity furnished to Agent for any purpose shall, in the opinion of Agent, be insufficient or become impaired, Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against, even if so directed by Lenders or Requisite Lenders, until such additional indemnity is furnished. The obligations of Lenders under this SUBSECTION 9.1(E) shall survive the payment in full of the Obligations and the termination of this Agreement.
(F) GE CAPITAL INDIVIDUALLY. With respect to its Commitments and the Loans made by it, GE Capital shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include GE Capital in its individual capacity as a Lender or one of the Requisite Lenders. GE Capital, either directly or through strategic affiliations, may lend money to, acquire equity or other ownership interests in, provide advisory services to and generally engage in any kind of banking, trust or other business with any Loan Party as if it were
not acting as Agent pursuant hereto and without any duty to account therefor to Lenders. GE Capital, either directly or through strategic affiliations, may accept fees and other consideration from any Loan Party for services in connection with this Agreement or otherwise without having to account for the same to Lenders. Each Lender acknowledges that GE Capital has purchased certain equity interests in, and subordinated indebtedness of, Holdings and the potential conflict of interest of GE Capital as Agent and as a Lender and as a holder of an equity interest in, and subordinated indebtedness of, Holdings and consents thereto.
(G) SUCCESSOR AGENT.
(1) RESIGNATION. Agent may resign from the performance of all its agency functions and duties hereunder at any time by giving at least thirty (30) Business Days' prior written notice to Borrower and the Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment as provided below.
(2) APPOINTMENT OF SUCCESSOR. Upon any such notice of resignation pursuant to clause (G)(1) above, Requisite Lenders shall appoint a successor Agent which, unless an Event of Default has occurred and is continuing, shall be reasonably acceptable to Borrower. If a successor Agent shall not have been so appointed within said thirty (30) Business Day period, the retiring Agent, upon notice to Borrower, shall then appoint a successor Agent who shall serve as Agent until such time, if any, as Requisite Lenders appoint a successor Agent as provided above.
(3) SUCCESSOR AGENT. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's resignation as Agent, the provisions of this SECTION 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.
(H) COLLATERAL MATTERS.
(1) RELEASE OF COLLATERAL. Lenders hereby irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent upon any Collateral (i) upon termination of the Commitments and upon payment and satisfaction of all Obligations (other than contingent indemnification obligations to the extent no claims giving rise thereto have been asserted); or (ii) constituting property being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with the provisions of this Agreement (and Agent may rely in good faith conclusively on any such certificate, without further inquiry). In addition, with the consent of Requisite Lenders, Agent may release Liens granted to or held by Agent upon any Collateral having a book value of not greater than ten percent (10%) of the total book value of all Collateral, as determined by Agent, either in a single transaction or in a series of related transactions; PROVIDED, HOWEVER, in no event will Agent, acting under the authority granted to it pursuant to this sentence, release during any calendar year Liens granted to or held by Agent upon any Collateral having a total book value in excess of twenty percent (20%) of the total book value of all Collateral, as determined by Agent.
(2) CONFIRMATION OF AUTHORITY; EXECUTION OF RELEASES. Without in any manner limiting Agent's authority to act without any specific or further authorization or consent by Lenders (as set forth in SUBSECTION 9.1(H)(1) above), each Lender agrees to confirm in writing, upon request by Agent or Borrower, the authority to release any Collateral conferred upon Agent under clauses (i) and (ii) of SUBSECTION 9.1(H)(1). Upon receipt by Agent of confirmation from the requisite percentage of Lenders (as set forth in SUBSECTION 9.1(H)(1) above), if any, of Agent's authority to release any Liens upon any Collateral, and upon at least ten (10) Business Days prior written request by Borrower, Agent shall, and is hereby irrevocably authorized by Lenders to, execute such documents as may be necessary to evidence the release of the Liens granted to Agent, for the benefit of Agent and Lenders, upon such Collateral; PROVIDED, HOWEVER, that (i) Agent shall not be required to execute any such document on terms which, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens granted to Agent on behalf of Agent and Lenders upon (or obligations of any Loan Party, in respect of) all interests retained by any Loan Party, including, without limitation, the proceeds of any sale, all of which shall continue to constitute part of the property covered by this Agreement or the Loan Documents.
(3) ABSENCE OF DUTY. Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the property covered by this Agreement or the Loan Documents exists or is owned by any Obligor or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent on behalf of Agent and Lenders herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Agreement or in any of the Loan Documents, it being understood and agreed that in respect of the property covered by this Agreement or the Loan Documents or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its discretion, given Agent's own interest in property covered by this Agreement or the Loan Documents as one of the Lenders and that Agent shall have no duty or liability whatsoever to any of the other Lenders; PROVIDED, HOWEVER, that Agent shall exercise the same care which it would in dealing with loans for its own account.
(I) AGENCY FOR PERFECTION. Agent and each Lender hereby appoint each other Lender as agent for the purpose of perfecting Agent's security interest in assets which, in accordance with the Uniform Commercial Code in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such assets, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor, shall deliver such assets to Agent or in accordance with Agent's instructions. The Agent may file such proofs of claim or documents as may be necessary or advisable in order to have the claims of the Agent and the Lenders (including any claim for the reasonable compensation, expenses, disbursements and advances of the Agent and the Lenders, their respective agents, financial advisors and counsel), allowed in any judicial proceedings relative to any of the Loan Parties, or any of their respective creditors or property, and shall be entitled and empowered to collect, receive and distribute any monies, securities or other property payable or deliverable on any such claims. Any custodian in any judicial proceedings relative to any Loan Party is hereby
authorized by each Lender to make payments to the Agent and, in the event that the Agent shall consent to the making of such payments directly to the Lenders, to pay to the Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Agent, its agents, financial advisors and counsel, and any other amounts due the Agent. Nothing contained in this Agreement or the other Loan Documents shall be deemed to authorize the Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Loans, or the rights of any holder thereof, or to authorize the Agent to vote in respect of the claim of any Lender in any such proceeding, except as specifically permitted herein.
(J) EXERCISE OF REMEDIES. Each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any Loan Document or to realize upon any collateral security for the Loans, unless instructed to do so by Agent, it being understood and agreed that such rights and remedies may be exercised only by Agent.
9.2 NOTICE OF DEFAULT. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default except with respect to defaults in the payment of principal, interest and fees required to be paid to Agent for the account of Lenders, unless Agent shall have received written notice from a Lender or an Obligor referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". Agent will notify each Lender of its receipt of any such notice.
9.3 ACTION BY AGENT. Agent shall take such action with respect to any Default or Event of Default as may be requested by Requisite Lenders in accordance with Section 8. Unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to any Default or Event of Default as it shall deem advisable or in the best interests of Lenders.
9.4 AMENDMENTS, WAIVERS AND CONSENTS.
(A) PERCENTAGE OF LENDERS REQUIRED. Except as otherwise provided
herein or in any of the other Loan Documents, no amendment, modification,
termination or waiver of any provision of this Agreement or any other Loan
Document, or consent to any departure by any Loan Party therefrom, shall in any
event be effective unless the same shall be in writing and signed by Requisite
Lenders (or, Agent, if expressly set forth herein or in any of the other Loan
Documents) and the applicable Loan Party; PROVIDED HOWEVER, no amendment,
modification, termination, waiver or consent shall be effective, unless in
writing and signed by all Lenders (other than Defaulting Lenders) and all
Canadian Facility Lenders (other than "Defaulting Lenders" as defined in the
Canadian Facility Credit Agreement), to do any of the following: (i) increase
any of the Commitments; (ii) reduce the principal of or the rate of interest on
any Loan or reduce the fees payable with respect to any Loan or Letter of
Credit; (iii) extend the Termination Date or the scheduled due date for all or
any portion of principal of the Loans or any interest or fees due hereunder;
(iv) amend the definitions of the term "Requisite Lenders" or the percentage of
Lenders which shall be required for Lenders to take any action hereunder; (v)
amend or waive this SUBSECTION 9.4 or the definitions of the terms used in this
SUBSECTION 9.4 insofar as the definitions affect the substance of this
SUBSECTION 9.4; (vi) increase the percentages contained in the definition of
Consolidating Borrowing Base (or in the definition of Beacon
Canada Consolidating Borrowing Base under the Canadian Facility Credit Agreement) or amend the definitions of the terms "Consolidating Borrowing Base", "Consolidated Borrowing Base" and "Beacon Canada Consolidating Borrowing Base" or the definitions of the terms used therein insofar as the definitions effect the substance of such terms; (vii) amend PARAGRAPH A of the Financial Covenants Rider or the definitions of the terms used therein insofar as the definitions effect the substance of said PARAGRAPH A; (viii) release Collateral (except if the sale, disposition or release of such Collateral is permitted under SUBSECTION 7.3 or SUBSECTION 9.1 or under any other Loan Document); (ix) amend the definition of the term "Obligations" or the definitions of the terms used therein insofar as the definitions effect the substance of such term; or (x) consent to the assignment, delegation or other transfer by any Loan Party of any of its rights and obligations under any Loan Document; PROVIDED, FURTHER, that no amendment, modification, termination, waiver or consent affecting the rights or duties of Agent under this SECTION 9 or under any Loan Document shall in any event be effective, unless in writing and signed by Agent, in addition to the Lenders required to take such action. Any amendment, modification, termination, waiver or consent effected in accordance with this SECTION 9 shall be binding upon each Lender or future Lender and, if signed by a Loan Party, on such Loan Party.
(B) SPECIFIC PURPOSE OR INTENT. Each amendment, modification, termination, waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination, waiver or consent shall be required for Agent to take additional Collateral.
(C) FAILURE TO GIVE CONSENT; REPLACEMENT OF NON-CONSENTING LENDER. In the event Agent requests the consent of a Lender and does not receive a written consent or denial thereof within ten (10) Business Days after such Lender's receipt of such request, then such Lender will be deemed to have denied the giving of such consent. If, in connection with any proposed amendment, modification, termination or waiver of any of the provisions of this Agreement requiring the consent or approval of all Lenders under this SUBSECTION 9.4, the consent of Requisite Lenders is obtained but the consent of one or more other Lenders whose consent is required is not obtained, then Borrower shall have the right, so long as all such non-consenting Lenders are either replaced or prepaid as described in clauses (A) or (B) below, to either (A) replace the non-consenting Lenders with one or more Replacement Lenders pursuant to SUBSECTION 2.12(A), as if such Lender were an Affected Lender thereunder, but only so long as each such Replacement Lender consents to the proposed amendment, modification, termination or waiver, or (B) prepay in full the Obligations of the non-consenting Lenders and terminate the non-consenting Lenders' Commitments pursuant to SUBSECTION 2.12(B), as if such Lender were an Affected Lender thereunder.
Notwithstanding anything in this SUBSECTION 9.4, Agent and Obligors, without the consent of either Requisite Lenders or all Lenders, may execute amendments to this Agreement and the Loan Documents, which consist solely of the making of typographical corrections.
9.5 ASSIGNMENTS AND PARTICIPATIONS IN LOANS.
(A) ASSIGNMENTS. Each Lender may assign its rights and delegate
its obligations under this Agreement to an Eligible Assignee; PROVIDED, HOWEVER,
(1) such Lender (other than GE Capital) shall first obtain the written consent
of Agent and Borrower, which
consent in either case shall not be unreasonably withheld (provided that such consent of Borrower shall not be required at any time that an Event of Default exists), (2) the amount of Commitments and Loans of the assigning Lender being assigned shall in no event be less than the lesser of (a) $5,000,000 or (b) the entire amount of the Commitments and Loans of such assigning Lender and (3) the parties to such assignment shall execute and deliver to Agent for acceptance and recording a Assignment and Acceptance Agreement together with (i) a processing and recording fee of $3,500 payable by the assigning Lender to Agent and (ii) each of the Notes originally delivered to the assigning Lender. The administrative fee referred to in clause (3) of the preceding sentence shall not apply to an assignment of a security interest in all or any portion of a Lender's rights under this Agreement or the other Loan Documents, as described in PARAGRAPH (D)(1) below. Upon receipt of all of the foregoing, Agent shall notify Borrower of such assignment and Borrower shall comply with its obligations under the last sentence of SUBSECTION 2.1(G). In the case of an assignment authorized under this SUBSECTION 9.5, the assignee shall be considered to be a "Lender" hereunder and Obligors hereby acknowledge and agree that any assignment will give rise to a direct obligation of Obligors to the assignee. The assigning Lender shall be relieved of its obligations to make Loans hereunder with respect to the assigned portion of its Commitment.
(B) PARTICIPATIONS. Each Lender may sell participations in all or any part of any Loans or Commitments made by it to another Person; PROVIDED, HOWEVER, such Lender shall first obtain the prior written consent of Agent, which consent shall not be unreasonably withheld, and any such participation shall be in a minimum amount of $5,000,000. All amounts payable by Borrower hereunder shall be determined as if that Lender had not sold such participation and the holder of any such participation shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly effecting (1) any reduction in the principal amount or an interest rate on any Loan in which such holder participates; (2) any extension of the Termination Date or the date fixed for any payment of interest or principal payable with respect to any Loan in which such holder participates; and (3) any release of substantially all of the Collateral. Borrower hereby acknowledges and agrees that the participant under each participation shall for purposes of SUBSECTIONS 2.9, 2.10, 2.11, 9.6 and 10.2 be considered to be a "Lender"; PROVIDED, that no such participant shall be entitled to receive any greater amount pursuant to such subsections from the participating Lender would have been entitled to receive in respect of the portion of such Loan or Commitment in which such participation was sold.
(C) NO RELIEF OF OBLIGATIONS; COOPERATION; ABILITY TO MAKE LIBOR LOANS. Except as otherwise provided in SUBSECTION 9.5(A) no Lender shall, as between Borrower and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans or other Obligations owed to such Lender. Each Lender may furnish any information concerning the Loan Parties in the possession of that Lender from time to time to Eligible Assignees and participants (including prospective assignees and participants), subject to the provisions of SUBSECTION 10.18. Each Obligor agrees that it will use its diligent efforts to assist and cooperate with Agent and any Lender in any manner reasonably requested by Agent or such Lender to effect the sale of a participation or an assignment described above, including without limitation assistance in the preparation of appropriate disclosure documents or placement memoranda. Notwithstanding anything contained in this Agreement to the contrary, so long as the Requisite
Lenders shall remain capable of making LIBOR Loans, no Person shall become a Lender hereunder unless such Person shall also be capable of making LIBOR Loans.
(D) SECURITY INTERESTS; ASSIGNMENT TO AFFILIATES. Notwithstanding
any other provision set forth in this Agreement, any Lender may at any time
following written notice to Agent (1) pledge the Obligations held by it or
create a security interest in all or any portion of its rights under this
Agreement or the other Loan Documents in favor of any Person; PROVIDED, HOWEVER
(a) no such pledge or grant of security interest to any Person shall release
such Lender from its obligations hereunder or under any other Loan Document and
(b) the acquisition of title to such Lender's Obligations pursuant to any
foreclosure or other exercise of remedies by such Person shall be subject to the
provisions of this Agreement and the other Loan Documents in all respects
including, without limitation, any consent required by SUBSECTION 9.5; and (2)
subject to complying with the provisions of SUBSECTION 9.5 (A), assign all or
any portion of its funded loans to an Eligible Assignee which is a Subsidiary of
such Lender or its parent company, to one or more other Lenders, or to a Related
Fund. For purposes of this paragraph, a "Related Fund" shall mean, with respect
to any Lender, a fund or other investment vehicle that invests in commercial
loans and is managed by such Lender or by the same investment advisor that
manages such Lender or by an Affiliate of such investment advisor.
(E) RECORDING OF ASSIGNMENTS. Agent shall maintain at its office in Chicago, Illinois a copy of each Assignment and Acceptance Agreement delivered to it and a register for the recordation of the names and addresses of Lenders, and the commitments of, and principal amount of the Loans owing to each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be presumptive evidence of the amounts due and owing to Lender in the absence of manifest error. Each Obligor, Agent and each Lender may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower and any Lender, at any reasonable time upon reasonable prior notice.
9.6 SET OFF AND SHARING OF PAYMENTS. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized by Obligors at any time or from time to time, with reasonably prompt subsequent notice to Borrower (any prior or contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances held by such Lender at any of its offices for the account of any Obligor or any of its Subsidiaries (regardless of whether such balances are then due to such Obligor or its Subsidiaries), and (b) other property at any time held or owing by such Lender to or for the credit or for the account of any Obligor or any of its Subsidiaries, against and on account of any of the Obligations; except that no Lender shall exercise any such right without the prior written consent of Agent. Any Lender exercising its right to set off shall purchase for cash (and the other Lenders shall sell) interests in each of such other Lender's Pro Rata Share of the Obligations as would be necessary to cause all Lenders to share the amount so set off with each other Lender in accordance with their respective Pro Rata Shares. Obligors agree, to the fullest extent permitted by law, that any Lender may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Obligations and upon doing so shall deliver such amount so set off to Agent for the benefit of Agent and of all Lenders in accordance with their Pro Rata Shares.
9.7 DISBURSEMENT OF FUNDS. Agent may, on behalf of Lenders, disburse funds to Borrower for Loans requested. Each Lender shall reimburse Agent on demand for all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender will remit to Agent its Pro Rata Share of any Loan or Advance before Agent disburses same to Borrower. If Agent elects to require that each Lender make funds available to Agent prior to a disbursement by Agent to Borrower, Agent shall advise each Lender by telephone, telex, fax or telecopy of the amount of such Lender's Pro Rata Share of the Loan requested by Borrower no later than 1:00 p.m. Chicago time on the Funding Date applicable thereto, and each such Lender shall pay Agent such Lender's Pro Rata Share of such requested Loan, in same day funds, by wire transfer to Agent's account on such Funding Date.
9.8 SETTLEMENTS, PAYMENTS AND INFORMATION.
(A) REVOLVING ADVANCES AND PAYMENTS; FEE PAYMENTS.
(1) FLUCTUATION OF REVOLVING LOAN BALANCE. The Revolving Loan balance may fluctuate from day to day through Agent's disbursement of funds to, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and each Lender notwithstanding terms to the contrary set forth in SECTION 2 and SUBSECTION 9.7, Revolving Advances and repayments will be settled according to the procedures described in this SUBSECTION 9.8. Notwithstanding these procedures, each Lender's obligation to fund its portion of any advances made by Agent to Borrower will commence on the date such advances are made by Agent. Such payments will be made by such Lender without set-off, counterclaim or reduction of any kind.
(2) SETTLEMENT DATES. Once each week for the Revolving Loan or more frequently (including daily), if Agent so elects (each such day being a "Settlement Date"), Agent will advise each Lender by telephone, fax or telecopy of the amount of each such Lender's Pro Rata Share of the Revolving Loan. In the event payments are necessary to adjust the amount of such Lender's required Pro Rata Share of the Revolving Loan balance to such Lender's actual Pro Rata Share of the Revolving Loan balance as of any Settlement Date, the party from which such payment is due will pay the other, in same day funds, by wire transfer to the other's account not later than 3:00 p.m. Chicago time on the Business Day following the Settlement Date.
(3) SETTLEMENT DEFINITIONS. For purposes of this SUBSECTION 9.8(A), the following terms and conditions will have the meanings indicated:
(a) "Daily Loan Balance" means an amount calculated as of the end of each calendar day by subtracting (i) the cumulative principal amount paid by Agent to a Lender on a Loan from the Closing Date through and including such calendar day, from (ii) the cumulative principal amount on a Loan advanced by such Lender to Agent on that Loan from the Closing Date through and including such calendar day.
(b) "Daily Interest Rate" means an amount calculated by dividing the interest rate payable to a Lender on a Loan (as set forth in SUBSECTION 2.2) as of each calendar day by three hundred sixty (360).
(c) "Daily Interest Amount" means an amount calculated by multiplying the Daily Loan Balance of a Loan by the associated Daily Interest Rate on that Loan.
(d) "Interest Ratio" means a number calculated by dividing the total amount of the interest on a Loan received by Agent with respect to the immediately preceding month by the total amount of interest on that Loan due from Borrower during the immediately preceding month.
(4) SETTLEMENT PAYMENTS. On the first Business Day of each month ("Interest Settlement Date"), Agent will advise each Lender by telephone, fax or telecopy of the amount of such Lender's share of interest and fees on each of the Loans as of the end of the last day of the immediately preceding month. Provided that such Lender has made all payments required to be made by it under this Agreement, Agent will pay to such Lender, by wire transfer to such Lender's account (as specified by such Lender on the signature page of this Agreement or the applicable Assignment and Acceptance Agreement, as amended by such Lender from time to time after the date hereof or in the applicable Assignment and Acceptance Agreement) not later than 3:00 p.m. Chicago time on the next Business Day following the Interest Settlement Date, such Lender's share of interest and fees on each of the Loans. Such Lender's share of interest on each Loan will be calculated for that Loan by adding together the Daily Interest Amounts for each calendar day of the prior month for that Loan and multiplying the total thereof by the Interest Ratio for that Loan. Such Lender's share of the Unused Line Fee described in SUBSECTION 2.3(A) shall be an amount equal to (a)(i) such Lender's average Revolving Loan Commitment during such month, LESS (ii) the sum of (x) such Lender's average Daily Loan Balance of the Revolving Loans, PLUS (y) such Lender's Pro Rata Share of the average daily aggregate balance of Letter of Credit Obligations, in each case for the preceding month, MULTIPLIED by (b) the percentage required by SUBSECTION 2.3(A). Such Lender's share of all other fees paid to Agent for the benefit of Lenders hereunder shall be paid and calculated based on such Lender's Commitment with respect to the Loans on which such fees are associated. To the extent Agent does not receive the total amount of any fee owing by Borrower under this Agreement, each amount payable by Agent to a Lender under this SUBSECTION 9.8(A)(4) with respect to such fee shall be reduced on a pro rata basis. Any funds disbursed or received by Agent pursuant to this Agreement, including, without limitation, under SUBSECTIONS 9.7, 9.8(A)(1), and 9.9, prior to the Settlement Date for such disbursement or payment shall be deemed advances or remittances by GE Capital, in its capacity as a Lender, for purposes of calculating interest and fees pursuant to this SUBSECTION 9.8(A)(4).
(B) TERM LOAN PRINCIPAL PAYMENTS. Provided that such Lender has made all payments required to be made by it under this Agreement, payments of principal of the Term Loans will be settled on the date of receipt if received by Agent on the last Business Day of a month and on the Business Day immediately following the date of receipt if received on any day other than the last Business Day of a month.
(C) RETURN OF PAYMENTS.
(1) RECOVERY AFTER NON-RECEIPT OF EXPECTED PAYMENT. If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment
has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind together with interest thereon, for each day from and including the date such amount is made available by Agent to such Lender to but excluding the date of repayment to Agent, at the greater of the Federal Funds Effective Rate and a rate determined by Agent in accordance with banking industry rules on interbank compensation.
(2) RECOVERY OF RETURNED PAYMENT. If Agent determines at any time that any amount received by Agent under this Agreement must be returned to any Obligor or paid to any other Person pursuant to any requirement of law, court order or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to any Obligor or such other Person, without set-off, counterclaim or deduction of any kind.
9.9 DISCRETIONARY ADVANCES. Notwithstanding anything contained herein to the contrary, Agent may, in its sole discretion make Revolving Advances in an aggregate amount of not more than $5,000,000 in excess of the limitations set forth in the Consolidated Borrowing Base for the purpose of preserving or protecting the Collateral or the value thereof or for incurring any costs associated with collection or enforcing rights or remedies against the Collateral, or incurred in any action to enforce this Agreement or any other Loan Document (such Revolving Advances, "Discretionary Advances"); PROVIDED, that Agent shall not make additional Discretionary Advances at any time when the Revolving Loan has exceeded the limitations set forth in the Consolidated Borrowing Base for more than sixty (60) consecutive days.
SECTION 10. MISCELLANEOUS
10.1 EXPENSES AND ATTORNEYS' FEES. Whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to promptly pay all reasonable fees, costs and expenses incurred in connection with any matters contemplated by or arising out of this Agreement or the other Loan Documents including the following, and all such fees, costs and expenses shall be part of the Obligations, payable on demand and secured by the Collateral: (a) fees, costs and expenses incurred by Agent (including attorneys' fees and expenses, the allocated costs of Agent's internal legal staff and fees of environmental consultants, accountants and other professionals retained by Agent) incurred in connection with the examination, review, due diligence investigation, documentation and closing of the financing arrangements evidenced by the Loan Documents; (b) fees, costs and expenses incurred by Agent (including attorneys' fees and expenses, the allocated costs of Agent's internal legal staff and fees of environmental consultants, accountants and other professionals retained by Agent) incurred in connection with the review, negotiation, preparation, documentation, execution, syndication and administration of the Loan Documents, the Loans, and any amendments, waivers, consents, forbearances and other modifications relating thereto or any subordination or intercreditor agreements, including reasonable documentation charges assessed by Agent for amendments, waivers, consents and any other documentation prepared by Agent's internal legal staff; (c) fees, costs and expenses
(including attorneys' fees and allocated costs of internal legal staff) incurred
by Agent or any Lender in creating, perfecting and maintaining perfection of
Liens in favor of Agent, on behalf of Agent and Lenders; (d) fees, costs and
expenses incurred by Agent in connection with forwarding to Borrower the
proceeds of Loans including Agent's or any Lenders' standard wire transfer fee;
(e) fees, costs, expenses and bank charges, including bank charges for returned
checks, incurred by Agent or any Lender in establishing, maintaining and
handling lock box accounts, blocked accounts or other accounts for collection of
the Collateral; (f) fees, costs, expenses (including attorneys' fees and
allocated costs of internal legal staff) of Agent or any Lender and costs of
settlement incurred in collecting upon or enforcing rights against the
Collateral or incurred in any action to enforce this Agreement or the other Loan
Documents or to collect any payments due from Borrower or any other Loan Party
under this Agreement or any other Loan Document or incurred in connection with
any refinancing or restructuring of the credit arrangements provided under this
Agreement, whether in the nature of a "workout" or in connection with any
insolvency or bankruptcy proceedings or otherwise.
10.2 INDEMNITY. In addition to the payment of expenses pursuant to SUBSECTION 10.1, whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to indemnify, pay and hold Agent, each Lender, each L/C Issuer and the officers, directors, employees, agents, consultants, auditors, persons engaged by Agent any Lender, to evaluate or monitor the Collateral, affiliates and attorneys of Agent, Lenders, L/C Issuers and such holders (collectively called the "Indemnitees") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may be imposed on, incurred by, or asserted against that Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents, the consummation of the transactions contemplated by this Agreement, the statements contained in the commitment letters, if any, delivered by Agent or any Lender, Agent's and each Lender's agreement to make the Loans hereunder, the use or intended use of the proceeds of any of the Loans or the exercise of any right or remedy hereunder or under the other Loan Documents (the "Indemnified Liabilities"); PROVIDED that Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of that Indemnitee as determined by a final non-appealable judgment by a court of competent jurisdiction.
10.3 NOTICES. Unless otherwise specifically provided herein, all notices shall be in writing addressed to the respective party as set forth below and may be personally served, faxed, telecopied or sent by overnight courier service or United States mail and shall be deemed to have been given: (a) if delivered in person, when delivered; (b) if delivered by fax or telecopy, on the date of transmission if transmitted on a Business Day before 4:00 p.m. Chicago time or, if not, on the next succeeding Business Day; (c) if delivered by overnight courier, two (2) days after delivery to such courier properly addressed; or (d) if by U.S. Mail, four (4) Business Days after depositing in the United States mail, with postage prepaid and properly addressed.
If to any Obligor: Beacon Sales Acquisition, Inc.
50 Webster
Somerville, Massachusetts 02143
Attn: Robert Buck/David Grace
Fax/Telecopy No.: (617) 629-2939
With a copy to: Code Hennessy & Simmons III, L.P.
10 South Wacker Drive, Suite 3175
Chicago, Illinois 60606
Attn: Peter M. Gotsch
Fax/Telecopy No.: (312) 876-3854
If to Agent or to GE Capital: GENERAL ELECTRIC CORPORATION
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Scott Garlinghouse
Fax: (312) 441-7920
With a copy to: GENERAL ELECTRIC CAPITAL CORPORATION
201 High Ridge Road
Stamford, Connecticut 06927-5100
ATTN: Corporate Counsel -
Global Sponsor Finance
Fax: (203) 316-7899
and
GENERAL ELECTRIC CAPITAL CORPORATION
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Corporate Counsel -
Global Sponsor Finance
Fax: (312) 441-6876
If to any Lender: Its address indicated on the
signature page hereto, in an
Assignment and Acceptance Agreement
or in a notice to Agent and Borrower
or to such other address as the party
addressed shall have previously
designated by written notice to the
serving party, given in accordance
with this SUBSECTION 10.3.
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10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND CERTAIN AGREEMENTS. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Obligors and Lender set forth in SUBSECTIONS 10.1, 10.2, 10.6, 10.11, 10.14, and 10.15 and in SECTION 12 (Borrower's agreement to pay fees, Borrower's agreement to indemnify Lender, the reinstatement of Obligations, the parties' agreement as to choice of law and jurisdiction, Obligors' and Lender's waiver of a jury trial and Domestic Subsidiary Guarantors' guaranty of Borrower's Obligations) shall survive the payment of the Loans and the termination of this Agreement.
10.5 INDULGENCE NOT WAIVER. No failure or delay on the part of Agent, any Lender or any holder of any Note in the exercise of any power, right or privilege hereunder or under any Note shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
10.6 MARSHALING; PAYMENTS SET ASIDE. Neither Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Loan Party or any other party or against or in payment of any or all of the Obligations. To the extent that any Loan Party makes a payment or payments to Agent and/or any Lender or Agent and/or any Lender enforces its security interests or exercise its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
10.7 ENTIRE AGREEMENT. This Agreement and the other Loan Documents embody the entire agreement among the parties hereto and supersede all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof, and may not be contradicted or varied by evidence of prior, contemporaneous, or subsequent oral agreements or discussions of the parties hereto.
10.8 SEVERABILITY. The invalidity, illegality or unenforceability in any jurisdiction of any provision in or obligation under this Agreement or the other Loan Documents shall not affect or impair the validity, legality or enforceability of the remaining provisions or obligations under this Agreement, or the other Loan Documents.
10.9 LENDERS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The obligation of each Lender hereunder is several and not joint and neither Agent nor any Lender shall be responsible for the obligation or Commitment of any other Lender hereunder. In the event that any Lender at any time should fail to make a Loan as herein provided, the Lenders, or any of them, at their sole option, may make the Loan that was to have been made by the Lender so failing to make such Loan. Nothing contained in any Loan Document and no action taken by Agent or any Lender pursuant hereto or thereto shall be deemed to constitute Lenders to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at
any time hereunder to each Lender shall be a separate and independent debt, and, provided Agent fails or refuses to exercise any remedies against any Obligor after receiving the direction of the Requisite Lenders, each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
10.10 HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.
10.11 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, PROVIDED, HOWEVER, no Obligor may assign its rights or obligations hereunder without the written consent of Lenders.
10.13 NO FIDUCIARY RELATIONSHIP; NO DUTY; LIMITATION OF LIABILITIES.
(A) NO FIDUCIARY RELATIONSHIP. No provision in this Agreement or in any of the other Loan Documents and no course of dealing between the parties shall be deemed to create any fiduciary duty by Agent or any Lender to any Obligor.
(B) NO DUTY. All attorneys, accountants, appraisers, and other professional Persons and consultants retained by Agent or any Lender shall have the right to act exclusively in the interest of Agent or such Lender and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to any Obligor or any of such Obligor's shareholders or any other Person.
(C) LIMITATION OF LIABILITIES. Neither Agent nor any Lender, nor any affiliate, officer, director, shareholder, employee, attorney, or agent of Agent or any Lender shall have any liability with respect to, and each Obligor hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by any Obligor in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Each Obligor hereby waives, releases, and agrees not to sue Agent or any Lender or any of Agent's or any Lender's affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the transactions contemplated hereby.
10.14 CONSENT TO JURISDICTION. EACH OBLIGOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH OBLIGOR EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH OBLIGOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON EACH OBLIGOR BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. IN ANY LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF ANY OBLIGOR OR OF ITS AFFILIATES SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF SUCH OBLIGOR FOR PURPOSES OF ALL APPLICABLE LAW OR COURT RULES REGARDING THE PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A DEPOSITION, AT TRIAL OR OTHERWISE). EACH OBLIGOR AGREES THAT AGENT'S OR ANY LENDER'S COUNSEL IN ANY SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING AS IF IT WERE AN EVIDENCE DEPOSITION. EACH OBLIGOR IN ANY EVENT WILL USE ALL COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH DISPUTE RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY AGENT OR ANY LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM) OR OTHER THINGS UNDER ITS CONTROL AND RELATING TO THE DISPUTE.
10.15 WAIVER OF JURY TRIAL. EACH OBLIGOR, AGENT AND EACH LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. EACH OBLIGOR, AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OBLIGOR, AGENT AND EACH LENDER WARRANT AND REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
10.16 CONSTRUCTION. Each Obligor, Agent and each Lender each acknowledge that it has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by each Obligor, Agent and each Lender.
10.17 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments, waivers, consents, or supplements may be executed via telecopier or facsimile transmission in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto.
10.18 CONFIDENTIALITY. Agent and each Lender agree to exercise their best efforts to keep confidential any non-public information delivered pursuant to the Loan Documents and identified as such by Borrower and not to disclose such information to Persons other than to: its respective affiliates, officers, directors and employees; or its potential assignees or participants; or Persons employed by or engaged by Agent, a Lender or a Lender's assignees or participants including, without limitation, attorneys, auditors, professional consultants, rating agencies and portfolio management services. The confidentiality provisions contained in this subsection shall not apply to disclosures (i) required to be made by Agent or any Lender to any regulatory or governmental agency or pursuant to legal process or (ii) consisting of general portfolio information that does not identify any Loan Party. The obligations of Agent and Lenders under this SUBSECTION 10.18 shall supersede and replace the obligations of Agent and Lenders under any confidentiality agreement in respect of this financing executed and delivered by Agent or any Lender prior to the date hereof. In no event shall Agent or any Lender be obligated or required to return any materials furnished by any Loan Party; PROVIDED, HOWEVER, each potential assignee or participant shall be required to agree that if it does not become an assignee (or participant) it shall return all materials furnished to it by any Loan Party in connection herewith.
10.19 SYNDICATION AGENT. Fleet, in its capacity as Syndication Agent, shall not have any rights, powers, duties or responsibilities hereunder or under any other Loan Document in such capacity, and no implied rights, powers, duties or responsibilities shall be read into this Agreement or any other Loan Document or otherwise exist on behalf of or against Fleet in such capacity.
SECTION 11. DEFINITIONS AND ACCOUNTING TERMS
11.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings:
"Accounts" means all "accounts" (as defined in the UCC), accounts receivable, contract rights and general intangibles relating thereto, notes, drafts and other forms of obligations owed to or owned by any Obligor arising or resulting from the sale of goods or the rendering of services, whether or not earned by performance.
"Additional Mortgaged Property" means all real property owned or leased by any Obligor or any of its Subsidiaries in which after the Closing Date Agent requires a mortgage to secure the Obligations.
"Advance" shall mean an advance under the Revolving Loan.
"Affiliate" means, with respect to any Person, any other Person (other than Agent or any Lender): (a) directly or indirectly controlling, controlled by, or under common control with, any such Person; (b) directly or indirectly owning or holding ten percent (10%) or more of any equity interest in such Person; or (c) ten percent (10%) or more of whose stock or other equity interest having ordinary voting power for the election of directors or the power to direct or cause the direction of management, is directly or indirectly owned or held by such Person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with") means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or other equity interest, or by contract or otherwise.
"Agent" means GE Capital in its capacity as agent for the Lenders under the Loan Documents and any successor in such capacity appointed pursuant to SUBSECTION 9.1(G).
"Agent's Account" means:
ABA No. 021-001-033
Account Number 502-328-54
Bankers Trust Company
New York, New York
ACCOUNT NAME: GECC/CAF DEPOSITORY
Reference: GE Capital re Beacon Sales Acquisition, Inc.
"Agreement" means this Loan and Security Agreement as it may be amended, restated, supplemented or otherwise modified from time to time.
"Asset Disposition" means the disposition, whether by sale, lease, transfer, loss, damage, destruction, condemnation or otherwise, of any or all of the assets of any Obligor or any of its Subsidiaries other than sales of Inventory in the ordinary course of business.
"Assignment and Acceptance Agreement" shall mean an Assignment and Acceptance Agreement substantially in the form of EXHIBIT A.
"Beacon Canada" means Beacon Roofing Supply Canada Company, a Nova Scotia unlimited liability company.
"Beacon Canada Accounts" means all "Accounts" of Beacon Canada, as defined in the Canadian Facility Credit Agreement.
"Beacon Canada Borrowing Base Certificate" means the "Borrowing Base Certificate", as defined in the Canadian Facility Credit Agreement.
"Beacon Canada Consolidating Borrowing Base" means the "Canadian Borrowing Base" as defined under the Canadian Facility Credit Agreement.
"Best Distribution" means Best Distributing Co, a North Carolina corporation.
"Best Purchase Agreements" means (a) the Master Purchase Agreement dated as of September 6, 2000 among Best Acquisition I LLC, the Persons named therein as "Asset Sellers" and "Stock Targets", and the other signatories thereto, (b) the Reorganization Agreement dated as of September 6, 2000 among Holdings, Best Distribution, Best Distributing of Wilmington, Inc. and the other signatories thereto and (c) the letter agreement dated as of September 6, 2000 entered into among the parties to the foregoing Master Purchase Agreement and Reorganization Agreement.
"Best Seller Notes" means those Nonnegotiable Subordinated Promissory Notes dated September 6, 2000 in the aggregate principal amount of $7,000,000 issued by Holdings to certain of the sellers under the terms of the Best Purchase Agreements.
"Best Subordination Agreement" means that Subordination and Intercreditor Agreement dated as of September 6, 2000 among Best Distribution, certain of the sellers under the Best Purchase Agreement, Agent, Canadian Facility Agent and the purchasers under the Senior Subordinated Loan Agreement.
"Borrowing Base Certificates" means the Consolidating Borrowing Base Certificates, the Consolidated Borrowing Base Certificate and the Beacon Canada Borrowing Base Certificate.
"Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the States of Illinois, Pennsylvania or is a day on which banking institutions located in any such state are closed, or for the purposes of LIBOR Loans only, a day on which commercial banks are open for dealings in Dollar deposits in the London, England (U.K.) market.
"C Dollars", "C$" and "Canadian Dollars" each means the lawful money of Canada.
"Canadian Collateral" shall mean all assets and property of Beacon Canada in which Agent, on behalf of Lenders, has been granted a lien and security interest pursuant to the Canadian Facility Loan Documents.
"Canadian Facility Agent" means GE Canada Finance Holding Company as agent under the Canadian Facility Loan Documents and any successor in such capacity appointed pursuant to SUBSECTION 9.1(G) under the Canadian Facility Credit Agreement.
"Canadian Facility Credit Agreement" means the Amended and Restated Loan and Security Agreement dated as of the Closing Date among Beacon Canada, Canadian Facility Agent and Canadian Facility Lenders.
"Canadian Facility Intercreditor Agreement" means the Intercreditor Agreement dated as of the Closing Date among Agent, Canadian Facility Agent, Lenders and Canadian Facility Lenders party thereto.
"Canadian Facility Lenders" means the lenders party to the Canadian Facility Credit Agreement.
"Canadian Facility Loan Documents" means the Canadian Facility Credit Agreement and the other "Loan Documents" as defined therein.
"Canadian Facility Revolving Loan Commitment" means the "Revolving Loan Commitment" as defined under the Canadian Facility Credit Agreement.
"Canadian Facility Revolving Loans" means the "Revolving Loans" as defined under the Canadian Facility Credit Agreement.
"Capital Expenditures" means all expenditures (including deposits) for, or contracts for expenditures (excluding contracts for expenditures under or with respect to Capital Leases, but including cash down payments for assets acquired under Capital Leases) with respect to any fixed assets or improvements, or for replacements, substitutions or additions thereto, which have a useful life of more than one year, including the direct or indirect acquisition of such assets by way of increased product or service charges, offset items or otherwise.
"Capital Lease" means any lease of any property (whether real, personal or mixed) that, in conformity with GAAP, should be accounted for as a capital lease.
"Capitalization/Acquisition Documents" means, collectively: (a) any or all of the stock certificates, notes, debentures or other instruments representing securities bought, sold or issued, or loans made, to facilitate the consummation of the Related Transactions; (b) the indentures or other documents pursuant to which such stock, notes, debentures or other instruments are issued or to be issued; (c) each document governing the issuance of, or setting forth the terms of, such stock, notes, debentures or other instruments; (d) any stockholders, registration or intercreditor agreement among or between the holders of such stock, notes, debentures or other instruments; (e) the Subordinated Loan Documents; and (f) the Equity Documents; but excluding all Loan Documents and all Canadian Facility Loan Documents.
"Cash Equivalents" means: (a) marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof;
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within six (6) months
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from any commercial bank organized under the laws of the United
States of America, or any state thereof or the District of Columbia, having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
"CHS" means Code, Hennessy & Simmons III, L.P., a Delaware limited partnership.
"CIGNA Impress Account" means that certain Citibank Delaware depository account number 30548966, for the account of Beacon Roofing Supply Company, Inc.
"Closing Date" means March 12, 2004.
"Commitment" or "Commitments" means the commitment or commitments of Lenders to make Loans as set forth in SUBSECTIONS 2.1(A) AND/OR 2.1(B) and to provide Letters of Credit as set forth in SUBSECTION 2.1(H).
"Compliance Certificate" means a certificate duly executed on behalf of Borrower by the chief executive officer or chief financial officer of Borrower appropriately completed and in substantially the form of EXHIBIT D.
"Consolidated Borrowing Base Certificate" means a certificate and schedule duly executed by an officer of Borrower appropriately completed and in substantially the form of EXHIBIT B-1.
"Consolidating Borrowing Base Certificate" mean, with respect to each Obligor, a certificate and schedule duly executed by an officer of Borrower appropriately completed and substantially in the form of EXHIBIT B-2.
"Contingent Obligation", as applied to any Person, means any direct or indirect liability of that Person: (i) with respect to any Indebtedness, lease, dividend or other obligation of another Person if the purpose or intent of the Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (iii) under any foreign exchange contract, currency swap agreement, interest rate swap agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates; (iv) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement, or (v) pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to maintain the solvency, financial condition or any balance sheet item or level of income of another. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.
"Default" means a condition, act or event that, after notice or lapse of time or both, would constitute an Event of Default if that condition, act or event were not cured or removed within any applicable grace or cure period.
"Defaulted Amount" means, with respect to any Lender at any time, any amount required to be paid hereunder or under any other Loan Document by such Lender to the Agent or any other Lender which has not been so paid.
"Defaulting Lender" means, at any time, any Lender that owes a Defaulted Amount.
"EBITDA" means, for any period, without duplication, the total of the following for Holdings and its Subsidiaries on a consolidated basis, each calculated for such period: (1) net
income determined in accordance with GAAP; PLUS, to the extent included in the
calculation of net income, (2) the sum of (a) income, capital and franchise
taxes paid or accrued; (b) interest expenses, net of interest income, paid or
accrued; (c) amortization and depreciation and (d) other non-cash charges
(excluding accruals for cash expenses made in the ordinary course of business);
LESS, to the extent included in the calculation of net income, (3) the sum of
(a) the income of any Person (other than Borrower and wholly-owned Subsidiaries
of Borrower) in which Holdings or a wholly-owned Subsidiary of Holdings has an
ownership interest except to the extent such income is received by Borrower or a
wholly-owned Subsidiary of Borrower in a cash distribution during such period;
(b) gains or losses from sales or other dispositions of assets (other than
Inventory in the normal course of business); and (c) extraordinary or
non-recurring gains, but not net of extraordinary or non-recurring "cash"
losses.
"Eligible Assignee" shall mean (a) any Lender, any Affiliate of any Lender and, with respect to any Lender that is an investment fund that invests in commercial loans, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor, and (b) any commercial bank, savings and loan association or savings bank or any other entity which is an "accredited investor" (as defined in Regulation D under the Securities Act of 1933) which extends credit or buys loans as one of its businesses, including insurance companies, mutual funds, lease financing companies and commercial finance companies, in each case, which has a rating of BBB or higher from S&P and a rating of Baa2 or higher from Moody's at the date that it becomes a Lender and which, through its applicable lending office, is capable of lending to Borrower without the imposition of any withholding or similar taxes; provided that no Person determined by Agent to be acting in the capacity of a vulture fund or distressed debt purchaser shall be an Eligible Assignee and no Affiliate of any Loan Party shall be an Eligible Assignee.
"Employee Benefit Plan" means any employee benefit plan within the meaning of SECTION 3(3) of ERISA which (a) is maintained for employees of any Loan Party or any ERISA Affiliate or (b) has at any time within the preceding 6 years been maintained for the employees of any Loan Party or any current or former ERISA Affiliate.
"Environmental Claims" means claims, liabilities, investigations, litigation, administrative proceedings, judgments or orders relating to Hazardous Materials.
"Environmental Laws" means all applicable federal, state, local and foreign laws, statutes, ordinances, codes, rules, standards and regulations, now or hereafter in effect, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Sections 9601 ET SEQ.) ("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. Sections 5101 ET SEQ.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Sections 136 ET SEQ.); the Solid Waste Disposal Act (42 U.S.C. Sections 6901 ET SEQ.); the Toxic Substance Control Act (15 U.S.C. Sections 2601 ET SEQ.); the Clean Air Act (42 U.S.C. Sections 7401 ET SEQ.); the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 ET SEQ.); the Occupational
Safety and Health Act (29 U.S.C. Sections 651 ET SEQ.); and the Safe Drinking Water Act (42 U.S.C. Sections 300(f) ET SEQ.), and any and all regulations promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents and any transfer of ownership notification or approval statutes.
"Environmental Liabilities" means, with respect to any Person, all liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants), fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including any arising under or related to any Environmental Laws, Environmental Permits, or in connection with any Release or threatened Release or presence of a Hazardous Material whether on, at, in, under, from or about or in the vicinity of any real or personal property.
"Environmental Permits" means all permits, licenses, authorizations, certificates, approvals or registrations required by any Governmental Authority under any Environmental Laws.
"Equipment" means all "equipment" (as defined in the UCC), all furniture, furnishings, "fixtures" (as defined in the UCC), machinery, motor vehicles, trucks, trailers, vessels, aircraft and rolling stock and all parts thereof and all additions and accessions thereto and replacements therefor.
"Equity Documents" means (i) the Chief Executive Securities Agreement dated as of August 21, 1997 by and among Holdings, CHS and Andrew Logie, (ii) the Executive Securities Agreements among Holdings, CHS and certain managers of the Loan Parties, (iii) the Amended and Restated Investor Securities Agreement dated as of September 6, 2000 among Holdings, CHS and certain of Holdings' other equity holders, (iv) the Warrants dated as of August 22, 1997 issued by Holdings to Heller Financial, Inc. ("Heller") and Banc of America Commercial Finance Corporation ("BofA"), as assigned by BofA on June 8, 2001 to CHS and Mark Shufro and (v) the Warrantholders Rights Agreement dated as of August 21, 1997 among Holdings, Heller, Mark Shufro (as BofA's assignee), CHS and certain other stockholders of Holdings to which Holdings is a party.
"Equivalent Amount" means, on any date of determination, with respect to amounts denominated in Canadian Dollars, the amount of U.S. Dollars which would result from the conversion of Canadian Dollars into U.S. Dollars at the 12:00 noon (Toronto time) rate quoted on the Reuters Screen Page BOFC on the date of the most recent Borrowing Base Certificates required to be delivered hereunder or, at the discretion of Agent, on a more recent date (or if such display or service ceases to exist, any other display and service in existence as of the relevant time designated by Agent).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any Person who is a member of a group which is under common control with any Loan Party, who together with any Loan Party is treated as a single employer within the meaning of SECTION 414(b) AND (c) of the IRC.
"Excess Availability" means, for any date, an amount equal to (a) the Maximum Revolving Loan Amount on such date minus (b) the outstanding Revolving Loan on such date.
"Excess Cash Flow" means, for any period, the greater of (A) zero
(0); or (B) without duplication, the total of the following for Holdings and its
Subsidiaries on a consolidated basis, each calculated for such period: (1)
EBITDA; PLUS (2) tax refunds actually received; LESS (3) Capital Expenditures
(to the extent actually made in cash and/or due to be made in cash within such
period but in no event more than the amount permitted in paragraph B of the
Financial Covenants Rider); LESS (4) income, capital and franchise taxes paid or
accrued excluding any provision for deferred taxes included in the determination
of net income; LESS (5) decreases in deferred income taxes resulting from
payments of deferred taxes accrued in prior periods; LESS (6) Interest Expense;
LESS (7) scheduled amortization of Indebtedness actually paid in cash and/or due
to be paid in cash within such period and permitted under SUBSECTION 7.1; LESS
(8) voluntary prepayments made under SUBSECTION 2.4(C); LESS (9) mandatory
prepayments made under SUBSECTION 2.4(B)(2), but only to the extent that the
transaction that precipitated the mandatory prepayment increased net income of
Holdings determined in accordance with GAAP.
"Existing Obligations" means the "Obligations" under the Existing Loan Agreement outstanding on the Closing Date.
"Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the immediately following Business Day by the Board of Governors of the Federal Reserve System as the Federal Funds Rate or Federal Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any successor publication of the Federal Reserve System reporting the Federal Funds Effective Rate or its equivalent or, if such rate is not published for any Business Day, the average of the quotations for the day of the requested Loan received by Agent from three Federal funds brokers of recognized standing selected by Agent.
"Fiscal Year" means each twelve (12) month period ending on the last day of September in each year.
"Fixed Charge Coverage" means, for any period, Operating Cash Flow divided by Fixed Charges.
"Fixed Charges" means, for any period, and each calculated for such period (without duplication), (a) Interest Expense of Holdings and its Subsidiaries; PLUS (b) scheduled payments of principal with respect to all Indebtedness of Holdings and its Subsidiaries; PLUS
(c) any provision for (to the extent it is greater than zero) income, capital or franchise taxes included in the determination of net income, excluding any provision for deferred taxes; PLUS (d) payment of deferred taxes accrued in any prior period.
"Funding Date" means the date of each funding of a Loan or issuance of a Letter of Credit.
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination.
"Hazardous Material" means any substance, material or waste that is regulated by, or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance that is (a) defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant," "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, or (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance.
"Holdings" means Beacon Roofing Supply, Inc., a Delaware corporation.
"Holdings' Accountants" means the independent certified public accountants selected by Holdings and its Subsidiaries and reasonably acceptable to Agent, which selection shall not be modified during the term of this Agreement without Agent's prior written consent.
"Indebtedness" as applied to any Person, means: (a) all indebtedness for borrowed money; (b) that portion of obligations with respect to capital leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (c) any obligation under any lease (a "synthetic lease") treated as an operating lease under GAAP and as a loan or financing for United States income tax purposes or creditors rights purposes; (d) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (e) any obligation owed for all or any part of the deferred purchase price of property or services if the purchase price is due more than six (6) months from the date the obligation is incurred or is evidenced by a note or similar written instrument; (f) "earnouts" and similar payment obligations, which obligations shall, for purposes of determining outstanding Indebtedness in connection with calculating Borrower's compliance with the covenants contained in SECTION 7, be valued based upon the amount thereof required to be recorded as a liability on a balance sheet prepared in accordance with GAAP; (g) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person and (h) obligations in respect of letters of credit.
"Index Rate" means, for any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by THE WALL STREET JOURNAL as the "base rate on corporate loans posted by at least 75% of the nation's 30 largest banks" (or, if THE WALL STREET JOURNAL ceases quoting a base rate of the type described, the highest per annum rate of interest published by the
Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate or its equivalent), or
(ii) the Federal Funds Rate plus 50 basis points per annum. Each change in any
interest rate provided for in the Agreement based upon the Index Rate shall take
effect at the time of such change in the Index Rate.
"Intellectual Property" means all present and future designs, patents, patent rights and applications therefor, trademarks and registrations or applications therefor, trade names, inventions, copyrights and all applications and registrations therefor, software or computer programs, license rights, trade secrets, methods, processes, know-how, drawings, specifications, descriptions, and all memoranda, notes and records with respect to any research and development, whether now owned or hereafter acquired, all goodwill associated with any of the foregoing, and proceeds of all of the foregoing, including, without limitation, proceeds of insurance policies thereon.
"Interest Expense" means, without duplication, for any period, the
following, for Holdings and its Subsidiaries each calculated for such period:
interest expenses deducted in the determination of net income (excluding (i) the
amortization of fees and costs with respect to the Related Transactions which
have been capitalized as transaction costs in accordance with the provisions of
SUBSECTION 11.2; and (ii) interest paid in kind).
"Interest Period" means, in connection with each LIBOR Loan, an interest period which Borrower shall elect to be applicable to such Loan, which Interest Period shall be either a one(1), two (2), three (3), or six (6) month period; provided that:
(1) the initial Interest Period for any LIBOR Loan shall commence on the Funding Date of such Loan;
(2) in the case of successive Interest Periods, each successive Interest Period shall commence on the day on which the immediately preceding Interest Period expires;
(3) if an Interest Period expiration date is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if any Interest Period expiration date is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the immediately preceding Business Day;
(4) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to part
(5) below, end on the last Business Day of a calendar month;
(5) no Interest Period shall extend beyond the Termination Date;
(6) no Interest Period for any portion of a Term Loan shall extend beyond the date of the final Scheduled Installment thereof;
(7) no Interest Period may extend beyond a scheduled principal payment date of any Loan, unless the aggregate principal amount of such Loan that is an Index Rate Loan or
that has Interest Periods expiring on or before such scheduled principal payment date equals or exceeds the principal amount required to be paid on such Loan on such scheduled principal payment date; and
(8) there shall be no more than 6 Interest Periods relating to LIBOR Loans outstanding at any time.
"Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or similar agreement or arrangement designed to protect Borrower against fluctuations in interest rates entered into between Borrower and any Lender (or Affiliate of any Lender), including without limitation, the Interest Rate Agreement in effect on the Closing Date between Borrower and LaSalle Bank National Association.
"Inventory" means all "inventory" (as defined in the UCC), including, without limitation, finished goods, raw materials, work in process and other materials and supplies used or consumed in a Person's business, and goods which are returned or repossessed.
"Investor Subordinated Notes" means (i) those Junior Subordinated Promissory Notes issued by Holdings to its stockholder prior to the Closing Date in an aggregate outstanding amount of $12,165,881 as of the Closing Date, (ii) those additional Junior Subordinated Promissory Notes that may hereafter be issued by Holdings to employees who purchase such Junior Subordinated Notes together with common stock of Holdings (which Junior Subordinated Notes shall be in the form of the Junior Subordinated Promissory Notes outstanding on the Closing Date and referred to in clause (i) above); and (iii) those additional Junior Subordinated Promissory Notes that may be issued after the Closing Date in connection with Permitted Acquisitions (including Junior Subordinated Notes issued to stockholders of Holdings to provide funds for Permitted Acquisitions) (which Junior Subordinated Promissory Notes shall be in the form of the Junior Subordinated Promissory Notes outstanding on the Closing Date and referred to in clause (i) above).
"Investor Subordination Agreement" means the Subordination Agreement dated as of September 6, 2000 among the holders of the Investor Subordinated Notes issued on or prior to September 6, 2000, Holdings, Agent, Canadian Facility Agreement and the purchasers under the Senior Subordinated Loan Agreement, as amended on the Closing Date.
"IRC" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder.
"L/C Issuer" means GE Capital or a Subsidiary thereof or a bank or other legally authorized Person selected by or acceptable to Agent in its sole discretion, in such Person's capacity as an issuer of Letters of Credit hereunder.
"Letters of Credit" means documentary or standby letters of credit issued for the account of Borrower by L/C Issuers, and bankers' acceptances issued by Borrower, for which Agent and Lenders have incurred Letter of Credit Obligations.
"Letter of Credit Obligations" means all outstanding obligations incurred by Agent and Lenders at the request of Borrower, whether direct or indirect, contingent or
otherwise, due or not due, in connection with the issuance of Letters of Credit by L/C Issuers or the purchase of a participation as set forth in SECTION 2.1(H) with respect to any Letter of Credit. The amount of such Letter of Credit Obligations shall equal the maximum amount that may be payable by Agent and Lenders thereupon or pursuant thereto.
"Liabilities" shall have the meaning given that term in accordance with GAAP and shall include Indebtedness.
"LIBOR" means, for each Interest Period, a rate per annum equal to:
(a) the offered rate for deposits in United States Dollars for the
applicable Interest Period that appears on Telerate Page 3750 as of 11:00
a.m. (London time), on the second full Business Day next preceding the
first day of such Interest Period; divided by
(b) a number equal to 1.0 MINUS the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day that is two (2) Business Days prior to the beginning of such Interest Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve Board or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board that are required to be maintained by a member bank of the Federal Reserve System.
If such interest rates shall cease to be available from Telerate News Service, LIBOR shall be determined from such financial reporting service or other information as shall be available to Agent.
"LIBOR Loans" means at any time that portion of the Loans bearing interest at rates determined by reference to LIBOR.
"Lien" means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind, whether voluntary or involuntary, (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Term Loan A Commitment or the Term Loan B Commitment or the Revolving Loan Commitment.
"Loan Documents" means this Agreement, the Notes, the Loan
Documents, the Canadian Facility Intercreditor Agreement, any Interest Rate
Agreement with a Lender, any Currency Rate Agreements with a Lender pursuant to
SECTION 5.11, the letter agreement reference in SUBSECTION 2.3(G) and all other
documents, instruments and agreements executed by or on behalf of any Loan Party
and delivered concurrently herewith or at any time hereafter to or for Agent or
any Lender in connection with the Loans, any Letter of Credit, and any other
transaction contemplated by this Agreement, all as amended, restated,
supplemented or modified from time to time but excluding all
Capitalization/Acquisition Documents.
"Loan Party" means each of Holdings, Borrower and each Subsidiary of Borrower.
"Loan Year" means each period of twelve (12) consecutive months commencing on the Closing Date and on each anniversary thereof.
"London Banking Day" means any day on which dealings in deposits in U.S. dollars are transacted in the London Interbank market.
"Master Documentary Agreement" means the Master Agreement for Documentary Letters of Credit dated as of the date hereof between Borrower, as applicant, and GE Capital.
"Master Standby Agreement" means the Master Agreement for Standby Letters of Credit dated as of the date hereof between Borrower, as applicant, and GE Capital.
"Material Adverse Effect" means a material adverse effect upon (a) the business, operations, prospects, properties, assets or condition (financial or otherwise) of Holdings and its Subsidiaries taken as a whole or (b) the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party or of Agent or any Lender to enforce or collect any of the Obligations. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event does not of itself have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect.
"Maximum Revolving Loan Amount" has the meaning assigned to that term in SUBSECTION 2.1(B)(1).
"Moody's" means Moody's Investor Services, Inc.
"Mortgage" means each of the mortgages, deeds of trust, leasehold mortgages, leasehold deeds of trust, collateral assignments of leases or other real estate security documents delivered by any Loan Party to Agent, on behalf of Agent and Lenders, with respect to Mortgaged Property or Additional Mortgaged Property, all in form and substance satisfactory to Agent.
"Mortgaged Property" means the real property owned or leased by Borrower or its Subsidiaries as described on SCHEDULE 11.1(A).
"Net Proceeds" means cash proceeds received by Borrower or any of its Subsidiaries from any Asset Disposition (including insurance proceeds, awards of condemnation, and payments under notes or other debt securities received in connection with any Asset Disposition), net of (a) the costs of such sale, lease, transfer or other disposition (including taxes attributable to such sale, lease or transfer) and (b) amounts applied to repayment of Indebtedness (other than the Obligations) secured by a Lien on the asset or property disposed.
"Notes" means the Revolving Notes and the Term Notes.
"Notice of Borrowing" means a notice duly executed by an authorized representative of Borrower appropriately completed and in the form of EXHIBIT E.
"Obligations" means all obligations, liabilities and indebtedness of every nature of each Loan Party from time to time owed to Agent or to any Lender under the Loan Documents (whether incurred before or after the Termination Date) including the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable including, without limitation, all interest, fees, cost and expenses accrued or incurred after the filing of any petition under any bankruptcy or insolvency law.
"Operating Cash Flow" means, for any period, (a) EBITDA; LESS (b) unfinanced Capital Expenditures.
"Papillon" means Fournier & Papillon, Ltee, a Quebec company.
"Papillon Investment" means the 50% equity interest of Beacon Canada in Papillon existing on the Closing Date.
"Permitted Encumbrances" means the following types of Liens: (a)
Liens (other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent; (c) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (d) deposits, in an aggregate amount not to
exceed $250,000 made in the ordinary course of business to secure liability to
insurance carriers; (e) easements, rights-of-way, restrictions, and other
similar charges or encumbrances not interfering in any material respect with the
ordinary conduct of the business of any Loan Party or any of its Subsidiaries;
(f) Liens on fixed asserts for purchase money obligations, PROVIDED that (i) the
purchase of the asset subject to any such Lien is permitted under paragraph B of
the Financial Covenants Rider, (ii) the Indebtedness secured by any such Lien is
permitted under SUBSECTION 7.1, (iii) such Lien encumbers only the asset so
purchased and (iv) the Indebtedness or other obligation secured by such Liens is
incurred within ninety (90) days after the purchase or lease of such asset,; (g)
Liens in favor of Agent, on behalf of itself and Lenders, (h) Liens under the
Canadian Facility Loan Documents in favor of Canadian Facility Agent, for the
benefit of Canadian Facility Agent and Canadian Facility Lenders, and (i) Liens
set forth on SCHEDULE 11.1(B).
"Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof.
"Pro Forma" means the unaudited consolidated and consolidating balance sheet of Holdings and its Subsidiaries prepared in accordance with GAAP as of the Closing Date after giving effect to the transactions contemplated by this Agreement. The Pro Forma is attached hereto as SCHEDULE 11.1(C).
"Pro Rata Share" means (a) with respect to matters relating to a particular Commitment of a Lender, the percentage obtained by dividing (i) such Commitment of that Lender by (ii) all such Commitments of all Lenders and (b) with respect to all other matters, the percentage obtained by dividing (i) the Total Loan Commitment of a Lender by (ii) the Total Loan Commitments of all Lenders, in either (a) or (b), as such percentage may be adjusted by assignments permitted pursuant to SUBSECTION 9.5; PROVIDED, HOWEVER, if any Commitment is terminated pursuant to the terms hereof, then "Pro Rata Share" means the percentage obtained by dividing (x) the aggregate amount of such Lender's outstanding Loans related to such Commitment by (y) the aggregate amount of all outstanding Loans related to such Commitment.
"Projections" means Holdings' forecasted consolidated and consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization statements, all prepared on a division by division and Subsidiary by Subsidiary basis consistent with Borrower's historical financial statements and based upon good faith estimates and assumptions by Borrower believed to be reasonable at the time made, together with appropriate supporting details and a statement of underlying assumptions.
"Real Estate" means all of the real property owned, leased, subleased, or used by any of Borrower, each other Obligor and Holdings or any of their Subsidiaries.
"Related Transactions" means the execution and delivery of the Related Transactions Documents entered into in connection with those Related Transactions consummated on the Closing Date, the funding of all Loans on the Closing Date, the repayment of a portion of the Indebtedness pursuant to the Senior Subordinated Loan Documents which is to be paid in full on the Closing Date, and the payment of all fees, costs and expenses associated with all of the foregoing.
"Related Transactions Documents" means the Loan Documents, the Subordinated Loan Documents, the Capitalization/Acquisition Documents and all other agreements, instruments and documents executed or delivered in connection with the Related Transactions.
"Release" means any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment, including the movement of Hazardous Material through or in the air, soil, surface water, ground water or property.
"Requisite Lenders" means Lenders (including for purposes hereof, Canadian Facility Lenders) (other than (i) Defaulting Lenders hereunder and (ii) "Defaulting Lenders" as defined in the Canadian Facility Credit Agreement) having (together with their Affiliates) (a)
more than 50% of the sum of (i) the Revolving Loan Commitment and the aggregate outstanding principal balance of the Term Loans of all Lenders that are not Defaulting Lenders PLUS (ii) the Canadian Facility Revolving Loan Commitment (expressed in U.S. Dollars) or (b) if the Revolving Loan Commitment has been terminated, more than 50% of the sum of (i) the aggregate outstanding principal balance of the Loans of all Lenders that are not Defaulting Lenders PLUS (ii) the aggregate outstanding principal balance of the Canadian Facility Revolving Loans (expressed in U.S. Dollars) of all Canadian Facility Lenders that are not "Defaulting Lenders" as defined in the Canadian Facility Credit Agreement; provided, that, in each case, Requisite Lenders shall at all times consist of at least three Lenders.
"Reserves" means, with respect to the Borrowing Base (a) the Credit Memoranda Reserve and the Dilution Reserve, and (b) reserves against Eligible Accounts, Eligible Inventory or Consolidated Borrowing Base that Agent may, in its reasonable credit judgment, establish from time to time, with prior or contemporaneous notice to Borrower.
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
or other equity securities, or ownership interest in, any Loan Party now or
hereafter outstanding, except a dividend payable solely with shares of the class
of stock on which such dividend is declared; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
or other equity security of, or ownership interest in, any Loan Party now or
hereafter outstanding, or the issuance of a notice of any intention to do any of
the foregoing; (c) any payment or prepayment of interest on, principal of,
premium, if any, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Indebtedness
subordinated to the Obligations including, without limitation, the Indebtedness
incurred pursuant to the Subordinated Loan Documents, or the issuance of a
notice of any intention to do any of the foregoing; (d) any payment made to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock or other equity security
of, or ownership interest in, any Loan Party now or hereafter outstanding; and
(e) any payment by Borrower or any of its Subsidiaries of any management,
consulting or similar fees to any Affiliate, whether pursuant to a management
agreement or otherwise.
"Revolving Advance" means each advance made by Lender(s) under the Revolving Loan Commitment pursuant to SUBSECTION 2.1 (B).
"Revolving Loan" means the outstanding balance of all Revolving Advances and any amounts added to the principal balance of the Revolving Loan pursuant to this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment of such Lender to make Revolving Advances pursuant to SUBSECTION 2.1 (B), and to incur its Pro Rata Share of Letter of Credit Obligations in the aggregate amount set forth on the signature page of this Agreement below such Lender's signature or in the most recent Assignment and Acceptance Agreement, if any, executed by such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders to make Revolving Advances and to incur letter of Credit Obligations.
"Revolving Note" means each promissory note of Borrower in form and substance reasonably acceptable to Agent, issued to evidence the Revolving Loan Commitments.
"Senior Indebtedness" means the aggregate outstanding principal balance of all Indebtedness of Holdings and its Subsidiaries on a consolidated basis, but excluding Indebtedness evidenced by the Best Seller Notes, the Investor Subordinated Notes, the Stockholder Notes, the Senior Subordinated Loan Documents, and excluding any other Indebtedness which, by its express terms is subordinated to the Obligations on a basis satisfactory to Agent.
"Senior Subordinated Loan Documents" means the Second Amended and Restated Note and Warrant Purchase Agreement dated as of the Closing Date (the "Senior Subordinated Loan Agreement") among Holdings, Borrower and the "Purchasers" named therein, the Subordinated Promissory Notes in the aggregate initial principal amount of $12,000,000 issued thereunder and the Subordinated Promissory Notes in the aggregate initial principal amount of $20,000,000 issued under the "Prior Purchase Agreement" (as defined in the Senior Subordinated Loan Agreement) (collectively, the "Senior Subordinated Notes") and all other documents, instruments and agreements executed pursuant to the terms of the Senior Subordinated Loan Agreement.
"Senior Subordination Agreement" means Subordination and Intercreditor Agreement dated as of June 8, 2001 among Holdings, the Borrower, the Purchasers under the Senior Subordinated Loan Agreement, Agent and Canadian Agent, as amended on the Closing Date.
"Subordinated Loan Documents" means the Best Seller Notes, the Best Subordination Agreement, the Investor Subordinated Notes, the Investor Subordination Agreement, the Senior Subordination Agreement and the Senior Subordinated Loan Documents.
"Stockholder Notes" means promissory notes issued by Holdings to former employees or the estate or personal representative of deceased employees of the Borrower and its Subsidiaries in payment of all or a portion of the redemption price for Investor Subordinated Notes and shares of Holdings' common stock redeemed from such Persons, which notes are fully subordinated to Holdings' guaranty of the Obligations in a manner satisfactory to the Agent and payable only after the Obligations have been paid in full or as otherwise permitted by this Agreement.
"Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than fifty percent (50%) of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other subsidiaries of that Person or a combination thereof. Papillon shall not be deemed a Subsidiary of any Loan Party.
"Syndication Agent" means Fleet Capital Corporation.
"Term Loans" mean(s) the unpaid balance of the term loans made pursuant to SUBSECTION 2.1 (A).
"Term Loan A" means the advances made pursuant to SUBSECTION 2.1(A)(1).
"Term Loan A Commitment" means (a) as to any Lender, the commitment of such Lender to make its Pro Rata share of the Term Loan A in the maximum aggregate amount set forth on the signature page of this Agreement below such Lender's signature or in the most recent Assignment and Acceptance Agreements, if any, executed by such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders to make the Term Loan A.
"Term Loan B" means the advances made pursuant to SUBSECTION 2.1(A)(2).
"Term Loan B Commitment" means (a) as to any Lender, the commitment of such Lender to make its Pro Rata share of Term Loan B in the maximum aggregate amount set forth on the signature page of this Agreement opposite such Lender's signature or in the most recent Assignment and Acceptance Agreements, if any, executed by such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders to make Term Loan B.
"Term Note" or "Term Notes" means each promissory note of Borrower in form and substance acceptable to Agent, issued to evidence the Term Loan A Commitment and the Term Loan B Commitment.
"Total Loan Commitment" means as to any Lender the aggregate commitments of such Lender with respect to its Revolving Loan Commitment and Term Loan A Commitment and Term Loan B Commitment.
"Unused Line Fee Margin" means with respect to any month (or portion
thereof) for which the unused line fee under SECTION 2.3 is being calculated, a
per annum rate equal to (a) three-eighths of one percent (0.375%) if the sum of
(i) the average daily balance of the Revolving Loan for such period plus (ii)
the average daily balance of Letter of Credit Obligations for such period plus
(iii) the average daily balance of the Canadian Facility Revolving Loan
(expressed in U.S. Dollars) for such period, is less than $60,000,000 and (b)
one-quarter of one percent (0.25%) if the sum of (i) the average daily balance
of the Revolving Loan for such period plus (ii) the average daily balance of
Letter of Credit Obligations for such period plus (iii) the average daily
balance of the Canadian Facility Revolving Loan (expressed in U.S. Dollars) for
such period, is equal to or greater than $60,000,000.
"UCC" means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Illinois; PROVIDED, that to the extent that the UCC is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern; PROVIDED FURTHER, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Agent's or any Lender's Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Illinois, the term "UCC" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions
11.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to such terms in conformity with GAAP. Financial statements and other information furnished to Agent or any Lender pursuant to SUBSECTION 5.1 shall be prepared in accordance with GAAP (as in effect at the time of such preparation) on a consistent basis. In the event any "Accounting Changes" (as defined below) shall occur and such changes affect financial covenants, standards or terms in this Agreement, then Borrower and Lenders agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of Borrower shall be the same after such Accounting Changes as if such Accounting Changes had not been made, and until such time as such an amendment shall have been executed and delivered by Borrower and Requisite Lenders, (A) all financial covenants, standards and terms in this Agreement shall be calculated and/or construed as if such Accounting Changes had not been made, and (B) Borrower shall prepare footnotes to each Compliance Certificate and the financial statements required to be delivered hereunder that show the differences between the certificate or financial statements delivered (which reflect such Accounting Changes) and the basis for calculating financial covenant compliance (without reflecting such Accounting Changes). "Accounting Changes" means: (a) changes in accounting principles required by GAAP and implemented by Holdings; (b) changes in accounting principles recommended by Holdings' Accountants; and (c) changes in carrying value of Holdings' or any of its Subsidiaries' assets, liabilities or equity accounts resulting from (i) the application of purchase accounting principles (A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109) to the Related Transactions or (ii) any other adjustments that, in each case, were applicable to, but not included in, the Pro Forma. All such adjustments resulting from expenditures made subsequent to the Closing Date (including, but not limited to, capitalization of costs and expenses or payment of pre-Closing Date liabilities) shall be treated as expenses in the period the expenditures are made and deducted as part of the calculation of EBITDA in such period.
11.3 OTHER DEFINITIONAL PROVISIONS. References to "Sections", "subsections", "Riders", "Exhibits", "Schedules" and "Addendums" shall be to Sections, subsections, Riders, Exhibits, Schedules and Addendums, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in SUBSECTION 11.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, words importing any gender include the other genders; the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement or any other Loan Document; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.
SECTION 12.
GUARANTY
12.1 GUARANTY. Each Domestic Subsidiary Guarantor hereby agrees that such Domestic Subsidiary Guarantor is jointly and severally liable for, and hereby absolutely and unconditionally guarantees to Agent and Lenders, and their respective successors and assigns, the full and prompt payment when due (whether at stated maturity, by acceleration or otherwise), and performance of, all Obligations owed or hereafter owing by Borrower to Agent and Lenders. Each Domestic Subsidiary Guarantor agrees that its guaranty obligation hereunder is a continuing guaranty of payment and performance and not of collection, and that its obligation under this SECTION 12 shall be absolute and unconditional, irrespective of, and unaffected by,
(A) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Loan Document or any other agreement, document or instrument to which any Obligor is or may become a party;
(B) the absence of any action to enforce this Agreement (including this SECTION 12) or any other Loan Document or the waiver or consent by Agent and Lenders with respect to any of the provisions thereof.
(C) the existence, value or condition of, or failure to perfect its Lien against, any security for the Obligations or any action, or the absence of any action, by Agent and Lenders in respect thereof (including the release of any such security);
(D) the insolvency of any Obligor; or
(E) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor,
(F) it being agreed by each Domestic Subsidiary Guarantor that its obligations under this SECTION 12 shall not be discharged until the performance and payment in full of the Obligations. Each Domestic Subsidiary Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to the Obligations guaranteed hereunder.
12.2 WAIVERS BY DOMESTIC SUBSIDIARY GUARANTORS. Each Domestic Subsidiary Guarantor expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Agent or Lenders to marshall assets or to proceed in respect of the Obligations guaranteed hereunder against any other Obligor, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Domestic Subsidiary Guarantor. It is agreed among each Obligor, Agent and Lenders that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Loan Documents and that, but for the provisions of this SECTION 12 and such waivers, Agent and Lenders would decline to enter into this Agreement.
12.3 BENEFIT OF GUARANTY. Each Obligor agrees that the provisions of this
SECTION 12 are for the benefit of Agent and Lenders and their respective
successors, transferees, endorsees
and assigns, and nothing herein contained shall impair, as between any other Obligor and Agent or Lenders, the obligations of such other Obligor under the Loan Documents.
12.4 WAIVER OF SUBROGATION, ETC.Notwithstanding anything to the contrary
in this Agreement or in any other Loan Document, each Domestic Subsidiary
Guarantor hereby expressly and irrevocably agrees not to assert or enforce
(whether by or in a legal or equitable proceeding or otherwise) any and all
rights at law or in equity to subrogation, reimbursement, exoneration,
contribution, indemnification or set off and any and all defenses available to a
surety, guarantor or accommodation co-obligor until the final payment in full of
the Obligations and the termination of all Commitments. Each Domestic Subsidiary
Guarantor acknowledges and agrees that this waiver is intended to benefit Agent
and Lenders and shall not limit or otherwise affect such Domestic Subsidiary
Guarantor's liability hereunder or the enforceability of this SECTION 12, and
that Agent, Lenders and their respective successors and assigns are intended
third party beneficiaries of the waivers and agreements set forth in this
SECTION 12.4.
12.5 ELECTION OF REMEDIES. If Agent or any Lender may, under applicable law, proceed to realize its benefits under any of the Loan Documents giving Agent or such Lender a Lien upon any Collateral, whether owned by any Obligor or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, Agent or any Lender may, at its sole option, determine which or its remedies or rights it may pursue without affecting any of its rights and remedies under this SECTION 12. If, in the exercise of any of its rights and remedies, Agent or any Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Obligor or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, each Obligor hereby consents to such action by Agent or such Lender and waives any claim based upon such action, even if such action by Agent or such Lender shall result in a full or partial loss of any rights of subrogation which each Obligor might otherwise have had but for such action by Agent or such Lender. Any election of remedies which results in the denial or impairment of the right of Agent or any Lender to seek a deficiency judgment against any Obligor shall not impair any Domestic Subsidiary Guarantor's obligation to pay the full amount of the Obligations. In the event Agent or any Lender shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Agent or such Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Agent or such Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether Agent, Lender or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this SECTION 12, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Agent or any Lender might otherwise be entitled but for such bidding at any such sale.
12.6 LIMITATION. Notwithstanding any provision contained herein or in any other Loan Document to the contrary, each Domestic Subsidiary Guarantor's liability under this SECTION 12, shall be limited to an amount not to exceed as of any date of determination the greater of:
(A) the net amount of all Loans advanced to the Borrower under this Agreement and then re-loaned or otherwise transferred to, or for the benefit of, such Guarantor; and
(B) the amount which could be claimed by Agent and Lenders from such Domestic Subsidiary Guarantor under this SECTION 12, without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law after taking into account, among other things, all rights of subrogation, contribution, reimbursement, indemnity or similar rights of such Domestic Subsidiary Guarantor against any Loan Party or any other Person, including without limitation, such Domestic Subsidiary Guarantor's right of contribution and indemnification from each other Domestic Subsidiary under SECTION 12.7.
12.7 CONTRIBUTION WITH RESPECT TO GUARANTY OBLIGATIONS.
(A) To the extent that any Domestic Subsidiary Guarantor shall make a payment under this SECTION 12 of all or any of the Obligations (a "Guarantor Payment") which, taking into account all other Guarantor Payments then previously or concurrently made by any other Domestic Subsidiary Guarantor, exceeds the amount which such Domestic Subsidiary Guarantor would otherwise have paid if each Domestic Subsidiary Guarantor had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Domestic Subsidiary Guarantor's "Allocable Amount" (as defined below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Domestic Subsidiary Guarantors as determined immediately prior to the making of such Guarantor Payment, THEN, following the final payment in full of the Obligations and termination of all Commitments, such Domestic Subsidiary Guarantor shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Domestic Subsidiary Guarantor for the amount of such excess, PRO RATA based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment.
(B) As of any date of determination, the "Allocable Amount" of any
Domestic Subsidiary Guarantor shall be equal to the maximum amount of the claim
which could then be recovered from such Domestic Subsidiary Guarantor under this
SECTION 12 without rendering such claim voidable or avoidable under Section 548
of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or
common law.
(C) This SECTION 12.7 is intended only to define the relative rights of Domestic Subsidiary Guarantors. Nothing set forth in this SECTION 12.7 is intended to or shall impair the obligations of Domestic Subsidiary Guarantors, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement, including the other provisions of this SECTION 12. Nothing contained in this SECTION 12.7 shall limit the liability of any Domestic Subsidiary Guarantor to pay fees and expenses with respect thereto for which such Domestic Subsidiary Guarantor shall be primarily liable.
(D) The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Domestic Subsidiary Guarantor to which such contribution and indemnification is owing.
(E) The rights of any indemnifying Domestic Subsidiary Guarantor against other Domestic Subsidiary Guarantors under this SECTION 12.7 shall be exercisable upon the final payment in full of the Obligations and the termination of all Commitments.
12.8 LIABILITY CUMULATIVE. The liability of Domestic Subsidiary Guarantors under this SECTION 12 is in addition to and shall be cumulative with all liabilities of each Domestic Subsidiary Guarantor to Agent and Lenders under this Agreement and the other Loan Documents to which such Domestic Subsidiary Guarantor is a party or in respect of any Obligations or obligation of any other Domestic Subsidiary Guarantor, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.
SECTION 13.
RESTATEMENT OF ORIGINAL LOAN AGREEMENT
The parties hereto agree that on the Closing Date, the following transactions shall be deemed to occur automatically, without further action by any party hereto:
(1) The Existing Loan Agreement shall be deemed to be amended and restated in its entirety in the form of this Agreement;
(2) All Existing Obligations shall, to the extent not paid on the Closing Date, be deemed to be Obligations outstanding hereunder;
(3) the guaranties and Liens in favor of the Agent for the benefit of the Existing Lenders securing payment of the Existing Obligations shall remain in full force and effect with respect to the Obligations; and
(4) all references in the other Loan Documents to the Existing Loan Agreement shall be deemed to refer without further amendment to this Agreement.
The parties acknowledge and agree that this Agreement and the other Loan Documents do not constitute a novation, payment and reborrowing or termination of the Existing Obligations and that all such Existing Obligations are in all respects continued and outstanding as Obligations under this Agreement and the Notes with only the terms being modified from and after the effective date of this Agreement as provided in this Agreement, the Notes and the other Loan Documents. After giving effect to this Agreement, the aggregate outstanding principal balances of each Lender's Loans on the Closing Date are as set forth on SCHEDULE 13 hereto.
Witness the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above.
BEACON SALES ACQUISITION, INC.
By: /s/ Krista Hatcher
-------------------------------
Title: VP & Assistant Secretary
-------------------------------
FEIN: 36-4173366
|
QUALITY ROOFING SUPPLY COMPANY, INC.
By: /s/ Krista Hatcher
-------------------------------
Title: VP & Assistant Secretary
-------------------------------
FEIN: 23-2969912
|
BEACON CANADA, INC.
By: /s/ Krista Hatcher
-------------------------------
Title: VP & Assistant Secretary
-------------------------------
FEIN: 36-4304111
|
BEST DISTRIBUTING CO.
By: /s/ Krista Hatcher
-------------------------------
Title: VP & Assistant Secretary
-------------------------------
FEIN: 36-4378608
|
THE ROOF CENTER, INC.
By: /s/ Krista Hatcher
-------------------------------
Title: VP & Assistant Secretary
-------------------------------
FEIN: 04-3561558
|
WEST END LUMBER COMPANY, INC.
By: /s/ Krista Hatcher
-------------------------------
Title: VP & Assistant Secretary
-------------------------------
FEIN:
-------------------------------
|
[Obligor Signature Page to Loan and Security Agreement]
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent, an L/C Issuer and a Lender
By: /s/ Mark Hindson
-------------------------------
Title: Duly Authorized Signatory
-------------------------------
|
Revolving Loan Commitment: $37,904,040.40
Term Loan A Commitment: $4,797,979.79
Term Loan B Commitment: $4,797,979.79
Address: 500 West Monroe Street Chicago, Illinois 60606
[Signature Page to Loan and Security Agreement]
WACHOVIA BANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Elizabeth L. Schoen
-------------------------------
Title: Director
-------------------------------
|
Revolving Loan Commitment: $15,959,595.96
Term Loan A Commitment: $2,020,202.02
Term Loan B Commitment: $2,020,202.02
Address:
191 Peachtree Street, NE
Atlanta, Georgia 30303
[Signature Page to Loan and Security Agreement]
WASHINGTON MUTUAL BANK, as a Lender
By: /s/ Deborah Saffie
-------------------------------
Title: Vice President
-------------------------------
|
Revolving Loan Commitment: $15,959,595.96
Term Loan A Commitment: $2,020,202.02
Term Loan B Commitment: $2,020,202.02
Address:
3050 Highland Parkway
Downers Grove, IL 60515
Attn: Deborah Saffre
Vice President
[Signature Page to Loan and Security Agreement]
FLEET CAPITAL CORPORATION,
as Syndication Agent, and as a Lender
By: /s/ Jason Riley
-------------------------------
Title: VP
-------------------------------
|
Revolving Loan Commitment: $19,949,494.95
Term Loan A Commitment: $2,525,252.53
Term Loan B Commitment: $2,525,252.53
Address:
One South Wacker Drive
Suite 1400
Chicago, Illinois 60606
[Signature Page to Loan and Security Agreement]
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Grant Weiss
-------------------------------
Title: Vice President
-------------------------------
|
Revolving Loan Commitment: $15,959,595.96
Term Loan A Commitment: $2,020,202.02
Term Loan B Commitment: $2,020,202.02
Address:
5420 LBJ Freeway, Suite 200
Dallas, TX 75240
Attn: Regional Credit Manager
[Signature Page to Loan and Security Agreement]
LASALLE BANK NATIONAL ASSOCIATION,
a national banking association,
as a Lender
By: /s/ Andrew Heinz
-------------------------------
Title: Vice President
-------------------------------
|
Revolving Loan Commitment: $12,767,676.77
Term Loan A Commitment: $1,616,161.62
Term Loan B Commitment: $1,616,161.62
Address:
135 South LaSalle Street
Suite 425
Chicago, IL 60603
[Signature Page to Loan and Security Agreement]
EXHIBITS
A. Assignment and Acceptance Agreement B-1. Consolidated Borrowing Base Certificate B-2. Consolidating Borrowing Base Certificate C. [Intentionally Deleted] D. Compliance Certificate E. Notice of Borrowing F. Inventory Report G. [Intentionally Deleted] |
[Lender Signature Page to Loan and Security Agreement]
SCHEDULES
2.1 Initial Credit Memoranda Reserves
2.8 Commercial Tort Claims
3 List of Closing Documents
4.1(B) Capitalization of Loan Parties
4.6 Business and Trade Names (Present and Past Five Years); Location of
Principal Place of Business, Books and Records and Collateral
4.9 FEIN for each Obligor
4.12 Intellectual Property
4.19 Bank Accounts
4.20 Employee Matters
7.1 Indebtedness
7.2 Contingent Liabilities
7.8 Transactions with Affiliates
7.11 Subsidiaries
11.1(A) Mortgaged Property
11.1(B) Other Liens
11.1(C) Pro Forma
13 Outstanding Obligations
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RIDERS
A. Conditions Rider
B. Reporting Rider
C. Financial Covenants Rider
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CONDITIONS RIDER
This Conditions Rider is attached to and made a part of that certain
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Second Amended and Restated Loan and Security Agreement dated as of March 12, 2004 and entered into among Beacon Sales Acquisitions, Inc., Domestic Subsidiary Guarantors, Agent, L/C Issuer and Lenders.
(A) CLOSING DELIVERIES. Agent shall have received, in form and substance satisfactory to Agent and Lenders, all documents, instruments and information identified on SCHEDULE 3.1 and all other agreements, notes, certificates, orders, authorizations, financing statements, mortgages and other documents which Agent may at any time reasonably request.
(B) SECURITY INTERESTS. Agent shall have received satisfactory evidence that all security interests and liens granted to Agent for the benefit of Agent and Lenders pursuant to this Agreement or the other Loan Documents have been duly perfected and constitute first priority liens on the Collateral, subject only to Permitted Encumbrances.
(C) CLOSING DATE AVAILABILITY; TOTAL INDEBTEDNESS; LEVERAGE RATIO. After giving effect to the consummation of the transactions contemplated hereunder on the Closing Date and the payment by Borrower of all costs, fees and expenses relating thereto, (i) Excess Availability shall be at least $12,000,000, (ii) the sum of all outstanding Revolving Loans PLUS the balance of Letter of Credit Obligations shall not exceed $65,000,000, (iii) total Indebtedness of Holdings and its Subsidiaries on a consolidated basis shall not exceed $154,220,000 and (iv) the ratio of total Indebtedness of Holdings and its Subsidiaries on a consolidated basis to EBITDA shall not exceed 3.94.
(D) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained herein and in the Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except for any representation or warranty limited by its terms to a specific date and taking into account any amendments to the Schedules or Exhibits as a result of any disclosures made by Borrower to Agent after the Closing Date and approved by Agent.
(E) FEES. With respect to Loans or Letters of Credit to be made or issued on the Closing Date, Borrower shall have paid all fees due to Agent, L/C Issuer or any Lender and payable on the Closing Date.
(F) NO DEFAULT. No event shall have occurred and be continuing or would result from funding a Loan or issuing a Lender Letter of Credit requested by Borrower that would constitute an Event of Default or a Default.
(G) PERFORMANCE OF AGREEMENTS. Each Loan Party shall have performed in all material respects all agreements and satisfied all conditions which any Loan Document provides shall be performed by it on or before that Funding Date.
(H) NO PROHIBITION. No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain Agent or any Lender from making any Loans or issuing any Lender Letters of Credit.
(I) NO LITIGATION. There shall not be pending or, to the knowledge of Borrower, threatened, any material action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration by, against or affecting any Loan Party or any of its Subsidiaries or any property of any Loan Party or any of its Subsidiaries (including without limitation any tort claims in respect of asbestos products sold or distributed by any Loan Party) that has not been disclosed to Agent by Borrower in writing, and there shall have occurred no development in any such action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration that, in the opinion of Agent, would reasonably be expected to have a Material Adverse Effect.
REPORTING RIDER
This Reporting Rider is attached and made a part of that certain Second Amended and Restated Loan and Security Agreement, dated as of March 12, 2004 and entered into among Beacon Sales Acquisition, Inc., the Domestic Subsidiary Guarantors, Agent, L/C Issuer and Lenders.
(A) MONTHLY FINANCIALS. As soon as available and in any event within thirty (30) days after the end of each month, Borrower will deliver to Agent and Lenders (1) the consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such month and the related consolidated and consolidating statements of income, stockholders' equity and cash flow for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, and (2) a schedule of the outstanding Indebtedness for borrowed money of Holdings and its Subsidiaries describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan.
(B) [Intentionally Omitted.]
(C) YEAR-END FINANCIALS. As soon as available and in any event within ninety (90) days after the end of each Fiscal Year, Borrower will deliver to Agent and Lenders: (1) the consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such year and the related consolidated and consolidating statements of income, stockholders' equity and cash flow for such Fiscal Year; (2) a schedule of the outstanding Indebtedness of Holdings and its Subsidiaries describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan; and (3) a report with respect to the financial statements from Holdings' Accountants, which report shall be unqualified as to going concern and scope of audit of Holdings and its Subsidiaries and shall state that (a) such consolidated financial statements present fairly the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years and (b) that the examination by Holdings' Accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; and (4) copies of the consolidating financial statements of Holdings and its Subsidiaries, including (a) consolidating balance sheets of Holdings and its Subsidiaries as at the end of such Fiscal Year showing intercompany eliminations and (b) related consolidating statements of income of Holdings and its Subsidiaries showing intercompany eliminations.
(D) ACCOUNTANTS' CERTIFICATION AND REPORTS. Together with each delivery of consolidated and consolidating financial statements of Holdings and its Subsidiaries pursuant to paragraph (C) above, Borrower will deliver a written statement by Holdings' Accountants (1) stating that the examination has included a review of the terms of this Agreement as same relate to accounting matters and (2) stating whether, in connection with the examination, any condition or event that constitutes a Default or an Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof. Promptly upon receipt thereof, Borrower will deliver to Agent and Lenders copies of all
significant reports submitted to Holdings by Holdings' Accountants in connection with each annual, interim or special audit of the financial statements of Holdings made by Holdings' Accountants, including the comment letter submitted by Holdings' Accountants to management in connection with their annual audit.
(E) COMPLIANCE CERTIFICATE. (i) Together with the delivery of each set of financial statements referenced in paragraphs (A) and (C) above, Borrower will deliver to Agent and Lenders a Compliance Certificate, together with (in the case of financial statements delivered for any period ending on the last day of a fiscal quarter) copies of the calculations and work-up employed to determine Obligors' compliance or noncompliance with those financial covenants set forth in the Financial Covenants Rider.
(F) CONSOLIDATING AND CONSOLIDATED BORROWING BASE CERTIFICATES, REGISTERS AND JOURNALS. On the Closing Date and thereafter, within five (5) Business Days after the last day of each month (PROVIDED that (a) at any time during the months of January, February and March when the sum of the outstanding Revolving Loan PLUS the balance of Letter of Credit Obligations plus the outstanding balance of the Canadian facility Revolving Loans (converted from Canadian Dollars to an equivalent amount of US Dollars) exceeds the Consolidated Borrowing Base (calculated without giving effect to the Seasonal Inventory Advance Rate Percentage) and (b) at all times when Excess Availability is less than $15,000,000, such delivery shall also be made on each Monday following the end of the prior week), Borrower shall deliver to Agent for the last Business Day of such period: (1) a Consolidating Borrowing Base Certificate for each Obligor updated to reflect the most recent sales and collections of each Obligor and setting forth the Consolidating Borrowing Base of each Obligor together with a Consolidated Borrowing Base Certificate setting forth the Consolidated Borrowing Base; (2) an invoice register or sales journal (or a similar summary report satisfactory to Agent) describing all sales of Obligors, in form and substance satisfactory to Agent, and, if Agent so requests, copies of invoices evidencing such sales and proofs of delivery relating thereto; (3) a cash receipts journal (or a similar summary report satisfactory to Agent); (4) a credit memo journal (or a similar summary report satisfactory to Agent); and (5) an adjustment journal (or a similar summary report satisfactory to Agent), setting forth all adjustments to Obligors' accounts receivable. Borrower shall cause Beacon Canada to deliver to Agent copies of all deliveries required under paragraph F of the Reporting Rider to the Canadian Facility Credit Agreement (including without limitation, a copy of the Beacon Canada Borrowing Base Certificate expressed in U.S. Dollars), contemporaneously with providing such deliveries to Canadian Facility Agent.
(G) INVENTORY REPORTS AND LISTINGS AND AGINGS. On the Closing Date and within five (5) Business Days after the last day of each month and from time to time upon the request of Agent, Borrower will deliver to Agent: (1) an aged trial balance of all then existing Accounts; and (2) an Inventory Report duly executed by an officer of Borrower and substantially in the form of EXHIBIT F as of the last day of such period. As soon as available and in any event within five (5) Business Days after the last day of each month, and from time to time upon the request of Agent, Borrower will deliver to Agent: (1) an aged trial balance of all then existing accounts payable; and (2) a detailed inventory listing and cover summary report. All such reports shall be in form and substance satisfactory to Agent and, unless otherwise directed by Agent, may be transmitted to Agent pursuant to an electronic transmitting reporting system.
Borrower shall cause Beacon Canada to deliver to Agent copies of all deliveries required under paragraph G of the Reporting Rider to the Canadian Facility Credit Agreement, contemporaneously with providing such deliveries to Canadian Facility Agent.
(H) MANAGEMENT REPORT. Together with each delivery of financial statements of Holdings and its Subsidiaries pursuant to paragraphs (A) and (C) above, Borrower will deliver to Agent and Lenders a management report: (1) describing the operations and financial condition of Holdings and its Subsidiaries for the month then ended and the portion of the current Fiscal Year then elapsed; (2) setting forth in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the most recent Projections for the current Fiscal Year delivered to Lenders pursuant to paragraph (L) below; and (3) discussing the reasons for any significant variations. The information above shall be presented in reasonable detail and shall be certified on behalf of Borrower by the chief financial officer of Borrower to the effect that such information fairly presents in all material respects the results of operations and financial condition of Holdings and its Subsidiaries as at the dates and for the periods indicated.
(I) APPRAISALS. From time to time, upon the request of Agent, Borrower will obtain and deliver to Agent, at Borrower's expense, appraisal reports in form and substance and from appraisers satisfactory to Agent, stating the then current fair market and Orderly Liquidation Values of all or any portion of the Collateral and the Canadian Collateral; PROVIDED, HOWEVER, so long as no Default or Event of Default is continuing, Agent shall not request an appraisal as to any particular category of Collateral or Canadian Collateral to be performed more than once every Loan Year at Borrower's expense. Without limiting the generality of the foregoing, Agent shall request, and Borrower will obtain and deliver to Agent, at least once every Loan Year, an appraisal report stating the then current orderly liquidation value of Obligors' and Canadian Borrower's Inventory.
(J) GOVERNMENT NOTICES. Borrower will deliver to Agent and Lenders promptly after receipt copies of all notices, requests, subpoenas, inquiries or other writings received from any governmental agency concerning any Employee Benefit Plan, the violation or alleged violation of any Environmental Laws, the storage, use or disposal of any Hazardous Material, the violation or alleged violation of the Fair Labor Standards Act or any Loan Party's payment or non-payment of any taxes including any tax audit.
(K) EVENTS OF DEFAULT, ETC. Promptly upon any officer of Borrower
obtaining knowledge of any of the following events or conditions, Borrower shall
deliver copies of all notices given or received by any Loan Party with respect
to any such event or condition to Agent a certificate on behalf of Borrower
signed on behalf of Borrower by Borrower's chief executive officer specifying
the nature and period of existence of such condition or event and what action
such Loan Party has taken, is taking and proposes to take with respect thereto:
(1) any condition or event that constitutes an Event of Default or Default; (2)
any notice of default that any Person has given to any Loan Party or any other
action taken with respect to a claimed default; or (3) any Material Adverse
Effect or (4) any default or event of default with respect to any Indebtedness
of Holdings or any of its Subsidiaries.
(L) PROJECTIONS. As soon as available and in any event no later than 45 days after the end of each of Holdings' Fiscal Year, Borrower will deliver to Agent and Lenders consolidated and consolidating Projections of Holdings and its Subsidiaries for the forthcoming Fiscal Year, month by month.
(M) OTHER INFORMATION. With reasonable promptness, Borrower will deliver such other information and data as Agent or Lenders may reasonably request from time to time.
FINANCIAL COVENANTS RIDER
This Financial Covenants Rider is attached and made a part of that certain Second Amended and Restated Loan and Security Agreement, dated as of March 12, 2004 and entered into among Beacon Sales Acquisition, Inc., the Domestic Subsidiary Guarantors, Agent & Lenders.
A. EXCESS AVAILABILITY. Borrower shall at all times maintain Excess Availability of at least $5,000,000.
B. CAPITAL EXPENDITURE LIMITS. The aggregate amount of all Capital Expenditures, Capital Leases with respect to fixed assets of Borrower and its Subsidiaries (which shall be considered to be expended in full on the date such Capital Lease is entered into) and other contracts with respect to fixed assets initially capitalized on Borrower's or any Subsidiary's balance sheet prepared in accordance with GAAP (which shall be considered to be expended in full on the date such contract is entered into) (excluding, in each case, expenditures for trade-ins and replacement of assets to the extent funded with casualty insurance proceeds and excluding the purchase price allocated to fixed assets acquired in connection with a Permitted Acquisition) will not exceed $8,500,000 in any Fiscal Year. Fifty percent (50%) of the amount set forth above not made in any Fiscal Year may be carried over for one year only to the next Fiscal Year; PROVIDED, HOWEVER, any carried-over amount will be deemed used only after all otherwise permitted amounts for that Fiscal Year have been used.
C. FIXED CHARGE COVERAGE. Borrower shall not permit Fixed Charge Coverage for any twelve (12) month period ending as of any date set forth below to be less than the ratio set forth below for such date:
DATE RATIO ---- ----- March 31, 2004 1.10 June 30, 2004 1.10 September 30, 2004 1.10 December 31, 2004 1.05 March 31, 2005 1.05 June 30, 2005 and the last day of each 1.10 fiscal quarter thereafter |
D. SENIOR INDEBTEDNESS TO EBITDA. Borrower shall not permit the ratio of Senior Indebtedness calculated as of any date set forth below to EBITDA for the twelve (12) month period ending on such date to be greater than the ratio set forth below for such date:
DATE RATIO ---- ----- March 31, 2004 2.60 June 30, 2004 2.50 September 30, 2004 2.30 December 31, 2004 2.50 March 31, 2005 2.40 |
June 30, 2005 and the last day of each fiscal quarter thereafter 2.00 |
The aggregate balance of the Revolving Loan included in Senior Indebtedness as of any date of determination shall be equal to the average balance of the Revolving Loan for such date and the last day of the two immediately preceding months.
With respect to each Target acquired by Borrower during any such twelve month period, EBITDA shall be adjusted by an amount equal to the Pro Forma EBITDA of such Target for the portion of such twelve month period which precedes the acquisition of such Target.
E. LEASE LIMITS. Borrower will not and will not permit any of its Subsidiaries directly or indirectly to become or remain liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations of the lessee under any operating lease, synthetic lease or similar off-balance sheet financing, if the aggregate amount of all rents (or substantially equivalent payments) paid by Borrower and its Subsidiaries under all such leases would exceed $11,000,000 in any fiscal year of Borrower.
Exhibit 10.12
EXECUTION COPY
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
DATED AS OF MARCH 12, 2004
AMONG
BEACON ROOFING SUPPLY CANADA COMPANY
AS BORROWER,
GE CANADA FINANCE HOLDING COMPANY
AS AGENT AND AS LENDER, AND
THE FINANCIAL INSTITUTION(S) LISTED
ON THE SIGNATURE PAGES HEREOF,
AS LENDERS
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
EXECUTION COPY
TABLE OF CONTENTS
Page
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SECTION 1. DEFINITIONS AND ACCOUNTING TERMS.........................................................1
1.1 CERTAIN DEFINED TERMS......................................................................1
SECTION 2. LOANS AND COLLATERAL.....................................................................2
2.1 LOANS......................................................................................2
2.2 INTEREST...................................................................................8
2.3 FEES......................................................................................11
2.4 PAYMENTS AND PREPAYMENTS..................................................................11
2.5 APPLICATION OF PREPAYMENT PROCEEDS........................................................13
2.6 TERM OF THIS AGREEMENT....................................................................13
2.7 STATEMENTS................................................................................13
2.8 GRANT OF SECURITY INTEREST................................................................13
2.9 YIELD PROTECTION..........................................................................14
2.10 TAXES.....................................................................................15
2.11 REQUIRED TERMINATION AND PREPAYMENT.......................................................16
2.12 OPTIONAL PREPAYMENT/REPLACEMENT OF LENDERS................................................17
2.13 COMPENSATION..............................................................................17
2.14 BOOKING OF BA RATE LOANS..................................................................18
2.15 ASSUMPTIONS CONCERNING FUNDING OF BA RATE LOANS...........................................18
SECTION 3. CONDITIONS TO LOANS.....................................................................18
SECTION 4. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS.......................................18
4.1 ORGANIZATION, POWERS, CAPITALIZATION......................................................18
4.2 AUTHORIZATION OF BORROWING, NO CONFLICT...................................................19
4.3 FINANCIAL CONDITION.......................................................................19
4.4 INDEBTEDNESS AND LIABILITIES..............................................................20
4.5 ACCOUNT WARRANTIES AND COVENANTS..........................................................20
4.6 NAMES AND LOCATIONS.......................................................................20
4.7 TITLE TO PROPERTIES; LIENS................................................................21
4.8 LITIGATION; ADVERSE FACTS.................................................................21
4.9 PAYMENT OF TAXES..........................................................................21
4.10 PERFORMANCE OF AGREEMENTS.................................................................22
4.11 EMPLOYEE PENSION AND BENEFIT PLANS........................................................22
4.12 INTELLECTUAL PROPERTY.....................................................................22
4.13 BROKER'S FEES.............................................................................23
4.14 ENVIRONMENTAL MATTERS.....................................................................23
4.15 SOLVENCY..................................................................................24
4.16 DISCLOSURE................................................................................24
4.17 INSURANCE.................................................................................24
4.18 COMPLIANCE WITH LAWS......................................................................25
4.19 BANK ACCOUNTS.............................................................................25
4.20 EMPLOYEE MATTERS..........................................................................25
4.21 GOVERNMENTAL REGULATION...................................................................26
4.22 ACCESS TO ACCOUNTANTS AND MANAGEMENT......................................................26
4.23 INSPECTION................................................................................26
4.24 COLLATERAL RECORDS........................................................................26
4.25 COLLECTION OF ACCOUNTS AND PAYMENTS.......................................................26
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(i) SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
EXECUTION COPY
SECTION 5. REPORTING AND OTHER AFFIRMATIVE COVENANTS...............................................27 5.1 FINANCIAL STATEMENTS AND OTHER REPORTS....................................................27 5.2 ENDORSEMENT...............................................................................27 5.3 MAINTENANCE OF PROPERTIES.................................................................27 5.4 COMPLIANCE WITH LAWS......................................................................28 5.5 FURTHER ASSURANCES........................................................................28 5.6 MORTGAGES; TITLE INSURANCE AND TITLE OPINIONS; SURVEYS AND CERTIFICATES OF LOCATION.......28 5.7 USE OF PROCEEDS...........................................................................29 5.8 BAILEES...................................................................................29 5.9 THIRD PARTY INVENTORY.....................................................................29 5.10 ENVIRONMENTAL MATTERS.....................................................................29 5.11 CURRENCY RATE AGREEMENT...................................................................30 SECTION 6. FINANCIAL COVENANTS.....................................................................30 SECTION 7. NEGATIVE COVENANTS......................................................................31 7.1 INDEBTEDNESS AND LIABILITIES..............................................................31 7.2 CONTINGENT OBLIGATIONS....................................................................32 7.3 TRANSFERS, LIENS AND RELATED MATTERS......................................................33 7.4 INVESTMENTS AND LOANS.....................................................................34 7.5 RESTRICTED JUNIOR PAYMENTS................................................................34 7.6 RESTRICTION ON FUNDAMENTAL CHANGES........................................................36 7.7 CHANGES RELATING TO INDEBTEDNESS..........................................................37 7.8 TRANSACTIONS WITH AFFILIATES..............................................................37 7.9 CONDUCT OF BUSINESS.......................................................................37 7.10 TAX CONSOLIDATIONS........................................................................37 7.11 SUBSIDIARIES..............................................................................37 7.12 FISCAL YEAR; TAX DESIGNATION..............................................................37 7.13 PRESS RELEASE; PUBLIC OFFERING MATERIALS..................................................38 7.14 BANK ACCOUNTS.............................................................................38 7.15 HAZARDOUS MATERIALS.......................................................................38 7.16 SIGNA IMPRESS ACCOUNT.....................................................................38 SECTION 8. DEFAULT, RIGHTS AND REMEDIES............................................................38 8.1 EVENT OF DEFAULT..........................................................................38 8.2 SUSPENSION OF COMMITMENTS.................................................................42 8.3 ACCELERATION..............................................................................42 8.4 REMEDIES..................................................................................42 8.5 APPOINTMENT OF RECEIVER...................................................................43 8.6 COSTS OF ENFORCEMENT......................................................................43 8.7 APPOINTMENT OF ATTORNEY-IN-FACT...........................................................43 8.8 LIMITATION ON DUTY OF AGENT WITH RESPECT TO COLLATERAL....................................44 8.9 APPLICATION OF PROCEEDS...................................................................44 8.10 LICENSE OF INTELLECTUAL PROPERTY..........................................................44 8.11 WAIVERS; NON-EXCLUSIVE REMEDIES...........................................................45 SECTION 9. AGENT...................................................................................45 9.1 AGENT.....................................................................................45 9.2 NOTICE OF DEFAULT.........................................................................50 9.3 ACTION BY AGENT...........................................................................50 9.4 AMENDMENTS, WAIVERS AND CONSENTS..........................................................50 9.5 ASSIGNMENTS AND PARTICIPATIONS IN LOANS...................................................51 9.6 SET OFF AND SHARING OF PAYMENTS...........................................................53 9.7 DISBURSEMENT OF FUNDS.....................................................................54 |
(ii) SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
EXECUTION COPY
9.8 SETTLEMENTS, PAYMENTS AND INFORMATION.....................................................54 9.9 DISCRETIONARY ADVANCES....................................................................56 SECTION 10. MISCELLANEOUS..........................................................................56 10.1 EXPENSES AND LEGAL FEES...................................................................56 10.2 INDEMNITY.................................................................................57 10.3 NOTICES...................................................................................58 10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND CERTAIN AGREEMENTS.........................59 10.5 INDULGENCE NOT WAIVER.....................................................................59 10.6 MARSHALING; PAYMENTS SET ASIDE............................................................59 10.7 ENTIRE AGREEMENT..........................................................................60 10.8 SEVERABILITY..............................................................................60 10.9 LENDERS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.......................60 10.10 HEADINGS..................................................................................60 10.11 APPLICABLE LAW............................................................................60 10.12 SUCCESSORS AND ASSIGNS....................................................................60 10.13 NO FIDUCIARY RELATIONSHIP; NO DUTY; LIMITATION OF LIABILITIES.............................61 10.14 CONSENT TO JURISDICTION...................................................................61 10.15 WAIVER OF JURY TRIAL......................................................................62 10.16 WAIVER OF NOTICES.........................................................................62 10.17 JUDGMENT CURRENCY.........................................................................62 10.18 CONSTRUCTION..............................................................................63 10.19 COUNTERPARTS; EFFECTIVENESS...............................................................63 10.20 CONFIDENTIALITY...........................................................................63 SECTION 11. DEFINITIONS AND ACCOUNTING TERMS.......................................................63 11.1 CERTAIN DEFINED TERMS.....................................................................63 11.2 ACCOUNTING TERMS..........................................................................80 11.3 OTHER DEFINITIONAL PROVISIONS.............................................................81 SECTION 12. RESTATEMENT OF ORIGINAL LOAN AGREEMENT.................................................81 |
(iii) SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
EXECUTION COPY
INDEX OF DEFINED TERMS
Defined Term Defined in Section ------------ ------------------ Accounting Changes Section 11.2 Accounts Section 11.1 Additional Mortgaged Property Section 11.1 Affected Lender Section 2.12 Affiliate Section 11.1 Agent Section 11.1 Agent's Account Section 11.1 Agreed Currency Section 10.17 Agreement Section 11.1 Asset Disposition Section 11.1 Assignment and Acceptance Agreement Section 11.1 BA Loans Section 11.1 BA Period Section 11.1 BA Rate Section 11.1 Bank Rate Section 11.1 Beacon Canada Holdings Section 11.1 Best Distributing Section 11.1 Best Purchase Agreements Section 11.1 Best Seller Notes Section 11.1 Best Subordination Agreement Section 11.1 Blocked Accounts Section 4.25 Borrower Recitals Borrower Collateral Section 2.8 Borrowing Base Certificates Section 11.1 Business Day Section 11.1 Canadian Benefit Plans Section 11.1 Canadian Borrowing Base Section 2.1(A) Canadian Borrowing Base Certificate Section 11.1 Canadian Dollars and C$ Section 11.1 Canadian GAAP Section 11.1 Canadian Pension Plans Section 11.1 Capital Expenditures Section 11.1 Capital Lease Section 11.1 Capitalization/Acquisition Documents Section 11.1 Cash Equivalents Section 11.1 CHS Section 11.1 CHS Indemnity Agreement Section 11.1 CIGNA Impress Account Section 11.1 Closing Date Section 11.1 Collateral Section 11.1 |
(i) SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Defined Term Defined in Section ------------ ------------------ Collecting Banks Section 4.25 Commitment(s) Section 11.1 Compliance Certificate Section 11.1 Consolidated Borrowing Base Section 2.1(A) Consolidated Borrowing Base Certificate Section 11.1 Contingent Obligation Section 11.1 Credit Memoranda Reserve Section 2.1(A) Currency Rate Agreement Section 5.10 Daily Interest Amount Section 9.8(A)(3)(c) Daily Interest Rate Section 9.8(A)(3)(b) Daily Loan Balance Section 9.8(A)(3)(a) Default Section 11.1 Default Rate Section 2.2(A) Defaulted Amount Section 11.1 Defaulting Lender Section 11.1 Dilution Reserve Section 2.1(A) Discretionary Advances Section 9.9 Domestic Subsidiary Section 11.1 EBITDA Section 11.1 Eligible Accounts Section 2.1(B) Eligible Assignee Section 11.1 Eligible Inventory Section 2.1(B) Employee Benefit Plan Section 11.1 Environmental Claims Section 11.1 Environmental Laws Section 11.1 Environmental Liabilities Section 11.1 Environmental Permits Section 11.1 Equipment Section 11.1 Equity Documents Section 11.1 Equivalent Amount Section 11.1 ERISA Section 11.1 ERISA Affiliate Section 11.1 Event of Default Section 8.1 Excess Availability Section 11.1 Existing Agent Recitals Existing Lenders Recitals Existing Loan Agreement Recitals First Agency Assignment Agreement Recitals Fiscal Year Section 11.1 Fixed Charge Coverage Section 11.1 Fixed Charges Section 11.1 Funding Date Section 11.1 |
(ii) SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Defined Term Defined in Section ------------ ------------------ GE Capital Section 11.1 GE Canada Finance Recitals Hazardous Material Section 11.1 Holdings Section 11.1 Holdings' Accountants Section 11.1 Indebtedness Section 11.1 Indemnified Liabilities Section 10.2 Indemnitees Section 10.2 Index Rate Section 11.1 Index Rate Loans Section 11.1 Insolvency Law Section 11.1 Intellectual Property Section 11.1 Intercreditor Agreement Section 11.1 Interest Expense Section 11.1 Interest Rate Section 2.2(A) Interest Rate Agreement Section 11.1 Interest Ratio Section 9.8(A)(3)(d) Interest Settlement Date Section 9.8(A)(4) Inventory Section 11.1 Inventory Advance Rate Percentage Section 2.1(A) Inventory Appraisal Section 2.1(A) Investor Subordinated Notes Section 11.1 Investor Subordination Agreement Section 11.1 IRC Section 11.1 ITA Section 11.1 Lender(s) Recitals Liabilities Section 11.1 Lien Section 11.1 Loan or Loans Section 11.1 Loan Documents Section 11.1 Loan Party Section 11.1 Loan Year Section 11.1 Material Adverse Effect Section 11.1 Maximum Revolving Loan Amount Section 2.1(A) Moody's Section 11.1 Mortgage Section 11.1 Mortgage Policies Section 5.6(A) Mortgaged Property Section 11.1 Net Proceeds Section 11.1 Notes Section 11.1 Notice of Conversion/Continuation Section 11.1 Notice of Borrowing Section 11.1 |
(iii) SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Defined Term Defined in Section ------------ ------------------ Obligations Section 11.1 Operating Cash Flow Section 11.1 Orderly Liquidation Value Section 2.1(A) Original Agent Recitals Original Obligations Recitals Other Currency Section 10.17 Other Loan Party Collateral Section 11.1 Papillon Section 11.1 Permitted Acquisition Section 11.1 Permitted Encumbrances Section 11.1 Person Section 11.1 Personal Property Security Legislation Section 11.1 PPSA Section 11.1 Prior Claims Section 2.1(A) Pro Forma Section 11.1 Pro Forma EBITDA Section 11.1 Pro Rata Share Section 11.1 Projections Section 11.1 Quality Section 11.1 Real Estate Section 11.1 Receiver Section 8.5 Register Section 9.5(E) Related Fund Section 9.5(D) Related Transactions Section 11.1 Related Transactions Documents Section 11.1 Release Section 11.1 Replacement Lender Section 2.12(A) Requisite Lenders Section 11.1 Reserves Section 11.1 Restricted Junior Payment Section 11.1 Revolving Advance Section 11.1 Revolving Credit Exposure Section 11.1 Revolving Loan Section 11.1 Revolving Loan Commitment Section 11.1 Revolving Note Section 11.1 Seasonal Inventory Advance Rate Percentage Section 2.1(A) RFC Section 11.1 Security Documents Section 11.1 Second Agency Assignment Agreement Recitals Senior Indebtedness Section 11.1 Senior Subordinated Loan Documents Section 11.1 Senior Subordination Agreement Section 11.1 |
(iv) SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Defined Term Defined in Section ------------ ------------------ Settlement Date Section 9.8(A)(2) Stated Rate Section 2.2(B) Stockholder Notes Section 11.1 Subordinated Loan Documents Section 11.1 Subsidiary Section 11.1 Target Section 11.1 Tax Liabilities Section 2.10(A) Termination Date Section 2.5 Unused Line Fee Margin Section 11.1 US Dollars or US$ Section 11.1 US Facility Agent Section 11.1 US Facility Lenders Section 11.1 US Facility Letter of Credit Obligations Section 11.1 US Facility Loan Agreement Section 11.1 US Facility Loan Documents Section 11.1 US Facility Revolving Loan Commitment Section 11.1 US Facility Revolving Loans Section 11.1 US Facility Term Loans Section 11.1 US GAAP Section 11.1 US Obligors Section 11.1 US Obligors Consolidating Borrowing Base Section 2.1(A) US Obligors Consolidating Borrowing Base Certificate Section 11.1 West End Section 11.1 |
(v) SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
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SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated as of March 12, 2004 and entered into among BEACON ROOFING SUPPLY CANADA COMPANY, a Nova Scotia unlimited liability company ("Borrower"), the financial institution(s) listed on the signature pages hereof, and their respective successors and Eligible Assignees (each, individually, a "Lender", and, collectively, "Lenders"), and GE CANADA FINANCE HOLDING COMPANY (in its individual capacity, "GE Canada Finance"), for itself as a Lender and as Agent.
WHEREAS, Borrower, Heller Financial Canada, Ltd. ("Original Agent"), as agent and lender, and the other financial institutions party thereto as lenders (together with Original Agent, the "Original Lenders") are parties to that certain Amended and Restated Loan and Security Agreement dated as of June 8, 2001 (as in effect on the date hereof, the "Existing Loan Agreement") pursuant to which the Original Lenders agreed to extend credit to the Borrower pursuant to the terms and conditions thereof; and
WHEREAS, pursuant to an assignment agreement dated as of January 30, 2004 (the "First Agency Assignment Agreement") between Original Agent and Heller Financial Canada Holding Company ("Existing Agent"), Original Agent assigned all of its rights, duties and obligations as Agent under the Existing Loan Agreement and the other Loan Documents to Existing Agent; and
WHEREAS, immediately prior to entering into this Agreement, Existing Agent assigned all of its rights, duties and obligations as Agent under the Existing Loan Agreement to Agent pursuant to that certain assignment agreement dated as of the date hereof (the "Second Agency Assignment Agreement") between Existing Agent and Agent; and
WHEREAS, the parties hereto desire to restate and to further amend the provisions of the Existing Loan Agreement for the purposes of (i) restating the terms of the Existing Obligations and the security interests granted under the Existing Loan Agreement and (ii) providing funding for the repayment of certain indebtedness of Borrower and for working capital and other general corporate purposes.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrower, Agent and Lenders agree as follows:
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS
1.1 CERTAIN DEFINED TERMS. The capitalized terms not otherwise defined in this Agreement and the accounting terms used in this Agreement shall have the meanings set forth in SECTION 11 of this Agreement.
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SECTION 2. LOANS AND COLLATERAL
2.1 LOANS.
(A) REVOLVING LOAN. Each Lender, severally, agrees to lend to Borrower from time to time its Pro Rata Share of each Revolving Advance under the Revolving Loan Commitment. The aggregate amount of the Revolving Loan Commitment shall not exceed at any time C$15,000,000. Amounts borrowed under this SUBSECTION 2.1(A) may be repaid and reborrowed at any time prior to the earlier of (i) the termination of the Revolving Loan Commitment pursuant to SUBSECTION 8.3 or (ii) the Termination Date. Except as otherwise provided herein, no Lender shall have any obligation to make a Revolving Advance to the extent such Revolving Advance would cause the Revolving Loan (after giving effect to any immediate application of the proceeds thereof) to exceed the Maximum Revolving Loan Amount. For the purpose of determining borrowing availability hereunder on any date, the outstanding balance of the US Facility Revolving Loans, the US Facility Letter of Credit Reserve and the US Obligors Consolidating Borrowing Base shall be converted into the Equivalent Amount thereof in Canadian Dollars (1) as of the date of the Canadian Borrowing Base Certificate most recently required to be delivered to Agent hereunder or (2) in light of currency exchange rate fluctuations, as of such date if Agent exercises its discretion to make the determination as of such date.
"Canadian Borrowing Base" means, for Borrower, as of any date of determination, an amount equal to the sum of (a) up to 85% of Borrower's Eligible Accounts less Borrower's Dilution Reserve and less Borrower's Credit Memoranda Reserve, plus (b) up to the Inventory Advance Rate Percentage (the Seasonal Inventory Advance Rate Percentage during the period from January 1 through March 31 of each year) of Borrower's Eligible Inventory, and, less, in each case, without duplication, Prior Claims and such other Reserves (excluding Credit Memoranda Reserves and Dilution Reserves included in the definition thereof) as Agent in its reasonable credit judgment may elect to establish with prior or contemporaneous written notice to Borrower.
"Consolidated Borrowing Base" means, as of any date of determination, an amount equal to the sum of the aggregate US Obligors Consolidating Borrowing Base plus the Canadian Borrowing Base.
"Credit Memoranda Reserve" means, for Borrower as of any date of determination, a reserve equal to the aggregate credits to account debtors provided under credit memoranda issued by Borrower more than thirty (30) days after the creation of the Accounts giving rise to such credits. The Credit Memoranda Reserve for Borrower as of the Closing Date shall be in the amount set forth for Borrower on SCHEDULE 2.1 hereto and shall thereafter be adjusted after each field examination audit of the Borrower Collateral conducted by Agent or any duly authorized representative of Agent.
"Dilution Reserve" means, for Borrower as of any date of determination, a reserve for the amount by which the total dilution of Borrower's Accounts exceeds five percent (5%); with dilution referring to all actual and potential offsets to an Account of Borrower, including,
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without limitation, customer payment and/or volume discounts, write-offs, credit memoranda, returns and allowances, and billing errors. The Dilution Reserve for Borrower shall be adjusted after each field examination audit of the Borrower Collateral conducted by Agent or any authorized representative designated by Agent.
"Inventory Advance Rate Percentage" means, initially, 64.5%, as such percentage may hereafter be adjusted in the manner set forth below; PROVIDED, that the Inventory Advance Rate Percentage shall never exceed 64.5%.
"Maximum Revolving Loan Amount" means, as of any date of determination, the lesser of (a) the Revolving Loan Commitments of all Lenders and (b) the Consolidated Borrowing Base LESS the sum of (i) the outstanding balance of the US Facility Revolving Loans and (ii) the US Facility Letter of Credit Obligations.
"Prior Claims" means the aggregate of all amounts that are secured by Liens created by applicable law (in contrast with Liens voluntarily granted) which rank or are capable of ranking prior or PARI PASSU with Agent's Liens against all or part of the Borrower Collateral; including for amounts owing for employee source deductions and contributions, vacation pay, goods and services taxes, sales taxes, realty taxes, business taxes, workers' compensation, pension fund or plan obligations, overdue rents and Quebec corporate taxes.
"Seasonal Inventory Advance Rate Percentage" means, initially, 69.5%, as such percentage may hereafter be adjusted in the manner set forth below; PROVIDED, that the Seasonal Inventory Advance Rate Percentage shall never exceed 69.5%.
With reasonable promptness following Agent's receipt of each Inventory appraisal obtained pursuant to PARAGRAPH H of the Reporting Rider (each such appraisal, an "Inventory Appraisal"), Agent shall determine the aggregate net orderly liquidation value of all Inventory of Borrower as of the date of such Inventory Appraisal, such determination to be made by Agent in good faith based upon the net orderly liquidation values set forth in such Inventory Appraisal (such aggregate net orderly liquidation value, the "Orderly Liquidation Value"). Effective five (5) Business Days following delivery by Agent to Borrower of written notice of such determination (and any resulting adjustments to the Inventory Advance Rate Percentage and the Seasonal Inventory Advance Rate Percentage):
(i) the Inventory Advance Rate Percentage shall be adjusted (if necessary) by Agent to a percentage equal to the lower of (x) 64.5% and (y) that percentage which, when multiplied by the aggregate Eligible Inventory of Borrower as of the date of such Inventory Appraisal (determined at the lower of cost, excluding intercompany charges or profits included in cost, on a weighted average basis, or market), results in an amount not exceeding 85% of the Orderly Liquidation Value of all Eligible Inventory of Borrower as of such date;
(ii) the Seasonal Inventory Advance Rate Percentage shall be adjusted (if necessary) by Agent to a percentage equal to the lower of (x) 69.5% and
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(y) that percentage which, when multiplied by the aggregate Eligible Inventory of Borrower as of the date of such Inventory Appraisal (determined at the lower of cost, excluding intercompany charges or profits included in cost, on a weighted average basis, or market), results in an amount not exceeding 95% of the Orderly Liquidation Value of all Inventory of Borrower as of such date.
All such adjustments to the Inventory Advance Rate Percentage and the Seasonal Inventory Advance Rate Percentage made by Agent hereunder shall be final and binding upon the Loan Parties and Lenders absent demonstrable error by Agent.
"US Obligors Consolidating Borrowing Base" has the meaning assigned to the term "Consolidating Borrowing Base" in the US Facility Loan Agreement.
(B) ELIGIBLE COLLATERAL.
"Eligible Accounts" means, for Borrower as at any date of determination, the aggregate of all Accounts of Borrower that Agent, in its reasonable credit judgment, deems to be eligible for borrowing purposes. Without limiting the generality of the foregoing, the Agent may determine that the following Accounts are not Eligible Accounts:
(1) Accounts which, at the date of issuance of the respective invoice therefor, were payable more than ninety (90) days after the date of issuance;
(2) Accounts which remain unpaid for more than the earlier of sixty (60) days after the due date specified in the original invoice or one hundred twenty (120) days after invoice date;
(3) Accounts which are otherwise eligible with respect to which the account debtor is owed a credit by Borrower, but only to the extent of such credit;
(4) Accounts due from an account debtor whose principal place of business is located outside the United States of America or Canada (excluding the Northwest Territories and the Territory of Nunavut) unless such Account is backed by a letter of credit, in form and substance acceptable to Agent and issued or confirmed by a bank that is organized under the laws of Canada or the United States of America or a state thereof, that is acceptable to Agent; PROVIDED that such letter of credit has been delivered to Agent as additional Borrower Collateral;
(5) Accounts due from an account debtor which Agent, in the exercise of its reasonable credit judgment, has notified Borrower does not have a satisfactory credit standing;
(6) Accounts which, together with all Accounts of the US Obligors, exceed US$20,000 or the Equivalent Amount thereof in Canadian Dollars in the aggregate and, with respect to which, the account debtor is the federal government of Canada (Her Majesty in Right of Canada), the United States of America, any province, state or municipality, or any
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department, agency or instrumentality thereof, unless Borrower has, with respect to such Accounts, complied with THE FINANCIAL ADMINISTRATION ACT (Canada), the FEDERAL ASSIGNMENT OF CLAIMS ACT OF 1940, as amended (31 U.S.C. Section 3727 et. seq.) or any applicable statute or municipal ordinance of similar purpose and effect;
(7) Accounts with respect to which the account debtor is an Affiliate of Borrower or a director, officer, agent, shareholder or employee of Borrower or any of its Affiliates;
(8) Accounts due from an account debtor if more than fifty percent (50%) of the aggregate amount of Accounts of such account debtor owing to one or more of Borrower and the US Obligors have at the time remained unpaid for more than the earlier of sixty (60) days after due date or one hundred twenty (120) days after the invoice date;
(9) Accounts with respect to which there is any unresolved dispute with the respective account debtor (but only to the extent of such dispute);
(10) Accounts evidenced by an "instrument" or "chattel paper" (as defined in the PPSA) not in the possession of Agent, on behalf of itself and Lenders;
(11) Accounts with respect to which Agent, on behalf of itself and Lenders, does not have a valid and fully perfected security interest (or the applicable equivalent thereof), subject only to, with respect to priority, Prior Claims;
(12) Accounts subject to any Lien except those in favour of Agent, on behalf of itself and Lenders, those in favour of US Facility Agent, on behalf of itself and US Facility Lenders, and Prior Claims;
(13) Accounts with respect to which the account debtor is the subject of any bankruptcy, reorganization or other insolvency proceeding;
(14) Accounts due from an account debtor to the extent that such Accounts exceed in the aggregate an amount equal to ten percent (10%) of the aggregate of all Accounts of Borrower and the US Obligors at said date;
(15) Accounts with respect to which the account debtor's obligation to pay is conditional or subject to a repurchase obligation or right to return or with respect to which the goods or services giving rise to such Account have not been delivered (or performed, as applicable) and accepted by such account debtor, including progress billings, bill and hold sales, guarantied sales, sale or return transactions, sales on approval or consignment sales;
(16) Accounts with respect to which the account debtor is located in any province or state denying creditors access to its courts in the absence of a return and applicable notices of change or Notice of Business Activities Report or other similar filing(s), unless Borrower is qualified to transact business in such province or state;
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(17) Accounts with respect to which the account debtor is a creditor of Borrower; PROVIDED, HOWEVER, that any such Account shall only be ineligible as to that portion of such Account which is less than or equal to the amount owed by Borrower to such Person; and
(18) that portion of Accounts which represents taxes, service charges, late fees or similar charges.
"Eligible Inventory" means, for Borrower as at any date of determination, the value (determined at the lower of cost, excluding intercompany charges or profits included in cost, on a weighted average cost basis, or market) of all Inventory owned by Borrower and located in Canada or the United States of America that Agent, in its reasonable credit judgment, deems to be eligible for borrowing purposes. Without limiting the generality of the foregoing, Agent may determine that the following is not Eligible Inventory:
(1) work-in-process that is not readily marketable in its current form;
(2) finished goods which do not meet the specifications of the purchase order for such goods and which are not readily saleable in their current form by Borrower in the ordinary course of business;
(3) Inventory which Agent determines, in the exercise of its reasonable credit judgment, is unacceptable for borrowing purposes due to age, quality, type, category and/or quantity, including, without limitation, (a) Inventory on hand for more than twelve (12) months and (b) Inventory purchased or otherwise acquired more than three (3) months prior to any date of determination which is in excess of a twelve (12) month supply;
(4) packaging, shipping materials or supplies consumed in the applicable Borrower's business;
(5) Inventory with respect to which Agent, on behalf of itself and Lenders, does not have a valid and fully perfected security interest (or the applicable equivalent thereof) subject only to, with respect to priority, Prior Claims;
(6) Inventory with respect to which there exists any Lien in favour of any Person other than Agent, on behalf of itself and Lenders, and US Facility Agent, on behalf of itself and US Facility Lenders, and excluding Prior Claims;
(7) Inventory produced in violation of the United States FAIR LABOR STANDARDS ACT and subject to the so-called "hot goods" provisions contained in Title 29 U.S.C. 215 (a)(i) or any replacement statute;
(8) Inventory located at any location other than those identified pursuant to SUBSECTION 4.6;
(9) Inventory located at a vendor's location or with a consignee;
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(10) Inventory located with a warehouseman, bailee, processor or similar third party, unless such Person has executed a waiver of interest satisfactory to Agent; and
(11) unless otherwise agreed by Agent, Inventory in any location for which Agent has not received an agreement, in form and substance acceptable to Agent, acknowledging Agent's rights and waiving its own interest in such Inventory from each lessor and sublessor and each mortgagee of such location.
(C) BORROWING MECHANICS. (1) BA Rate Loans made on any
Funding Date shall be in an aggregate minimum amount of C$2,500,000 and integral
multiples of C$500,000 in excess of such amount. (2) On any day when Borrower
desires a Revolving Advance under this SUBSECTION 2.1, Borrower shall give Agent
written or telephonic notice of the proposed borrowing by 1:00 p.m. Toronto time
on the Funding Date of an Index Rate Loan less than C$5,000,000 and written or
telephonic notice by 1:00 p.m. Toronto time one (1) Business Day prior to the
Funding Date of an Index Rate Loan equal to or greater than C$5,000,000, and
three (3) Business Days in advance of the funding date of a BA Rate Loan, which
notice shall specify the proposed Funding Date (which shall be a Business Day),
whether such Loans shall consist of Index Rate Loans or BA Rate Loans, and, for
BA Rate Loans, the BA Period applicable thereto. Any such telephonic notice
shall be confirmed with a Notice of Borrowing on the same day as such request.
Neither Agent nor any Lender shall incur any liability to Borrower for acting
upon any telephonic notice or a Notice of Borrowing Agent believes in good faith
to have been given by a duly authorized officer or other person authorized to
borrow on behalf of Borrower or for otherwise acting in good faith under this
SUBSECTION 2.1(C). Neither Agent nor any Lender will be required to make any
Revolving Advance pursuant to any telephonic or written notice or a Notice of
Borrowing, unless all of the terms and conditions set forth in SECTION 3 and the
Conditions Rider have been satisfied and Agent has also received the most recent
Canadian Borrowing Base Certificate and Consolidated Borrowing Base Certificate
and all other documents required under SECTION 5 and the Reporting Rider by 1:00
p.m. Toronto time on the date of such funding request. Each Revolving Advance
shall be deposited by wire transfer in immediately available funds in such
account as Borrower may from time to time designate to Agent in writing. The
becoming due of any amount required to be paid under this Agreement or any of
the other Loan Documents as principal, accrued interest, fees, compensation or
any other amounts shall be deemed irrevocably to be an automatic request by
Borrower for a Revolving Advance, which shall be an Index Rate Loan on the due
date of, and in the amount required to pay (as set forth on Agent's books and
records), such principal, accrued interest, fees, compensation or any other
amounts.
(D) NOTES. Borrower shall execute and deliver to each Lender, with appropriate insertions, a Note to evidence the Revolving Advances made by such Lender. Such Note shall be in the principal amount of such Lenders Pro Rata Share of the aggregate Revolving Loan Commitment. In the event of an assignment under SUBSECTION 9.5, Borrower shall, upon surrender of the assigning Lender's Note, issue new Notes to reflect the interest held by the assigning Lender and its Eligible Assignee.
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(E) AVAILABILITY OF A LENDER'S PRO RATA SHARE.
(1) LENDER'S AMOUNTS AVAILABLE ON A FUNDING DATE. Unless Agent receives written notice from a Lender on or prior to any Funding Date that such Lender will not make available to Agent as and when required such Lender's Pro Rata Share of any requested Revolving Advance, Agent may assume that each Lender will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower on such date a corresponding amount.
(2) LENDER'S FAILURE TO FUND. A Defaulting Lender shall pay interest to Agent at the Bank Rate on the Defaulted Amount from the Business Day following the applicable Funding Date of such Defaulted Amount until the date such Defaulted Amount is paid to Agent. A notice of Agent submitted to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is not paid when due to Agent, Agent, at its option, may notify Borrower of such failure to fund and, upon demand by Agent, Borrower shall pay the unpaid amount to Agent for Agent's account, together with interest thereon for each day elapsed since the date of such borrowing, at a rate per annum equal to the interest rate applicable at the time to the Revolving Advance made by the other Lenders on such Funding Date. The failure of any Lender to make available any portion of its Revolving Loan Commitment on any Funding Date shall not relieve any other Lender of any obligation hereunder to fund such Lender's Revolving Loan Commitment on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to honour its Revolving Loan Commitment on any Funding Date.
(3) PAYMENTS TO A DEFAULTING LENDER. Agent shall not be obligated to transfer to a Defaulting Lender any payment made by Borrower to Agent or any amount otherwise received by Agent for application to the Obligations nor shall a Defaulting Lender be entitled to the sharing of any interest, fees or payments hereunder.
(4) DEFAULTING LENDER'S RIGHT TO VOTE. For purposes of voting or consenting to matters with respect to (i) the Loan Documents or (ii) any other matter concerning the Revolving Loan, a Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Revolving Loan Commitment and outstanding Revolving Advances shall be deemed to be zero.
2.2 INTEREST.
(A) RATE OF INTEREST. From the date the Revolving Advances are made and the date the other Obligations become due, the Revolving Loan and the other Obligations shall bear interest (the "Interest Rate") at the applicable rates set forth below:
(1) If an Index Rate Loan, then at the sum of the Index Rate PLUS three quarters of one percent (0.75%).
(2) If a BA Rate Loan, then at the sum of the BA Rate PLUS two percent (2.00%).
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Subject to the provisions of SUBSECTION 2.1(C), Borrower shall designate to Agent whether a Loan shall be an Index Rate Loan or a BA Rate Loan at the time a Notice of Borrowing is given pursuant to SUBSECTION 2.1(C). Such designation may be changed from time to time pursuant to SUBSECTION 2.2(D). If on any day a Loan or portion of any Loan is outstanding with respect to which notice has not been delivered to Agent in accordance with the terms of this Agreement specifying the basis for determining the rate of interest or if the BA Rate has been specified and no BA Rate quote is available, then for that day that Loan or portion thereof shall bear interest determined by reference to the Index Rate.
After the occurrence and during the continuance of an Event of Default, subject to applicable law (i) the Revolving Loan and all other Obligations shall, at the election of Requisite Lenders, bear interest at a rate per annum equal to (1) two percent (2%) plus (2) the applicable Interest Rate (collectively, the "Default Rate"), (ii) each BA Rate Loan shall automatically convert to an Index Rate Loan at the end of any applicable BA Period and (iii) no Loans may be made or continued as, or converted to, BA Rate Loans.
(B) COMPUTATION AND PAYMENT OF INTEREST. Interest on the Revolving Loan and all other Obligations shall be computed on the daily principal balance on the basis of a three hundred and sixty-five (365) day year for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of funding of the Loan or the first day of the BA Period applicable to such Loan or, with respect to an Index Rate Loan being converted from a BA Loan, the date of conversion of such BA Rate Loan to such Index Rate Loan, shall be included; and the date of payment of such Loan or the expiration date of the BA Period applicable to such Loan, or with respect to an Index Rate Loan being converted to a BA Rate Loan, the date of conversion of such Index Rate Loan to such BA Rate Loan, shall be excluded; provided that if a Revolving Advance is repaid on the same day on which it is made, one (1) day's interest shall be charged on that Revolving Advance. Interest on Index Rate Loans and all other Obligations other than BA Rate Loans shall be payable to Agent for the benefit of Lenders monthly in arrears on the first day of each month, on the date of any prepayment of Loans, and at maturity, whether by acceleration or otherwise. Interest on BA Rate Loans shall be payable to Agent for the benefit of Lenders on the last day of the applicable BA Period for such BA Rate Loan, on the date of any prepayment of the Loans, and at maturity, whether by acceleration or otherwise. For purposes of disclosure under the INTEREST ACT (Canada), where interest or fees are calculated pursuant hereto at a rate based upon a 365 day year (the "Stated Rate"), it is hereby agreed that the rate or percentage of interest on a yearly basis is equivalent to such Stated Rate multiplied by the actual number of days in the year divided by 365. The parties agree that (i) the principle of deemed reinvestment of interest shall not apply to any interest calculation under this Agreement or any of the other Loan Documents and (ii) the rates of interest stipulated in this Agreement are intended to be nominal rates and not effective rates or yields.
(C) LIMITATIONS ON INTEREST. If any provision of this Agreement or any of the other Loan Documents would obligate any Loan Party to make any payment of interest or other amount payable to any Lender in an amount or calculated at a rate which would be prohibited by applicable law or would result in a receipt by that Lender of interest at a criminal rate (as such terms are construed under the CRIMINAL CODE (Canada)) then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the
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maximum amount or rate of interest, as the case may be, as would not be so
prohibited by applicable law or so result in a receipt by that Lender of
interest at a criminal rate, such adjustment to be effected, to the extent
necessary, as follows: (a) firstly, by reducing the amount or rate of interest
required to be paid to that Lender under SUBSECTION 2.2(A); and (b) thereafter,
by reducing any fees, commissions, premiums and other amounts required to be
paid to the affected Lender which would constitute interest for purposes of
Section 347 of the CRIMINAL CODE (Canada). Notwithstanding the foregoing, and
after giving effect to all adjustments contemplated thereby, if any Lender shall
have received an amount in excess of the maximum permitted by that section of
the CRIMINAL CODE (Canada), then the applicable Loan Party shall be entitled, by
notice in writing to the affected Lender, to obtain reimbursement from that
Lender in an amount equal to such excess, and pending such reimbursement, such
amount shall be deemed to be an amount payable by that Lender to such Loan
Party. Any amount or rate of interest referred to in this SUBSECTION 2.2(C)
shall be determined in accordance with generally accepted actuarial practices
and principles as an effective annual rate of interest over the term that the
Revolving Loan remains outstanding on the assumption that any charges, fees or
expenses that fall within the meaning of "interest" (as defined in the CRIMINAL
CODE (Canada)) shall, if they relate to a specific period of time, be pro-rated
over that period of time and otherwise be pro-rated over the period from the
Closing Date to the Termination Date or, if all the Obligations are not
irrevocably repaid on such date, such later date on which all of the Obligations
of Borrower are irrevocably paid and, in the event of a dispute, a certificate
of a Fellow of the Canadian Institute of Actuaries appointed by Agent shall be
conclusive for the purposes of such determination.
(D) CONVERSION OR CONTINUATION. Subject to the other
provisions of this Agreement, Borrower shall have the option to (1) convert at
any time all or any part of outstanding Loans equal to C$2,500,000 and integral
multiples of C$250,000 in excess of that amount from Index Rate Loans to BA Rate
Loans or (2) upon the expiration of any BA Period applicable to a BA Rate Loan,
to (a) continue all or any portion of such BA Rate Loan equal to C$2,500,000 and
integral multiples of C$250,000 in excess of that amount as a BA Rate Loan or
(b) convert all or any portion of such BA Rate Loan to an Index Rate Loan. The
succeeding BA Period(s) of such continued or converted Loan commence on the last
day of the BA Period of the Loan to be continued or converted; provided that no
outstanding Loan may be continued as, or be converted into, a BA Rate Loan
having a BA Period of more than 30 days, when any Default has occurred and is
continuing; PROVIDED FURTHER, that no outstanding Loan may be continued as, or
be converted into, a BA Rate Loan, when any Event of Default has occurred and is
continuing.
Borrower shall deliver a Notice of Conversion/Continuation with respect to any such conversion/continuation to Agent no later than 12:00 noon (Toronto time) at least three (3) Business Days in advance of the proposed conversion/continuation date. The Notice of Conversion/Continuation with respect to such conversion/continuation shall certify: (1) the proposed conversion/continuation date (which shall be a Business Day); (2) the amount of the Loan to be converted/continued; (3) the nature of the proposed conversion/continuation; (4) in the case of conversion to, or a continuation of, a BA Rate Loan, the requested BA Period; and (5) that no Default or Event of Default has occurred and is continuing or would result from the proposed conversion/continuation.
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In lieu of delivering a Notice of Conversion/Continuation with respect to any such conversion/continuation, Borrower may give Agent telephonic notice by the required time of any proposed conversion/continuation under this SUBSECTION 2.2(D); provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation (in form and substance described herein) with respect to such conversion/continuation to Agent on or before the proposed conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to Borrower in acting upon any telephonic notice or a Notice of Conversion/Continuation referred to above that Agent believes in good faith to have been given by an officer or other person authorized to act on behalf of Borrower or for otherwise acting in good faith under this SUBSECTION 2.2(D).
2.3 FEES.
(A) UNUSED LINE FEE. Borrower shall pay to Agent, for the benefit of Lenders, a fee in an amount equal to the Revolving Loan Commitment less the average daily balance of the Revolving Loan during the preceding month, multiplied by the Unused Line Fee Margin per annum. Such fee to be calculated on the basis of a three hundred sixty-five (365) day year for the actual number of days elapsed and to be payable monthly in arrears on the first day of each month following the Closing Date.
(B) AUDIT FEES. Borrower agrees to pay all fees and expenses of the firm or individual(s) engaged by Agent to perform audits of Borrower's operations. Notwithstanding the foregoing, if Agent uses its internal auditors to perform any such audit, Borrower agrees to pay to Agent, for its own account, an audit fee with respect to each such audit equal to US$750 per internal auditor per day or any portion thereof, together with all out of pocket expenses.
(C) OTHER FEES AND EXPENSES. Borrower shall pay to Agent, for its own account, all charges for returned items and all other bank charges incurred by Agent, as well as Agent's standard wire transfer charges for each wire transfer made under this Agreement.
(D) FEE LETTER. Borrower shall pay to GE Canada Finance, individually, the fees specified in that certain letter agreement dated as of the Closing Date among Borrower, US Borrower, GE Capital and GE Canada Finance, in the amounts and at the times specified therein.
2.4 PAYMENTS AND PREPAYMENTS.
(A) MANNER AND TIME OF PAYMENT. In its sole discretion, Agent may elect to honour the automatic requests by Borrower for Revolving Advances for all principal, interest, fees, compensation and any other amounts due hereunder or under any of the other Loan Documents on their applicable due dates pursuant to SUBSECTION 2.1(C), up to the Revolving Loan Commitment of all Lenders, and the proceeds of each such Revolving Advance, if made, shall be applied as a direct payment of the relevant Obligation. To the extent such amounts exceed the Revolving Loan Commitment of all Lenders, or if Agent elects to bill Borrower for any amount due hereunder or under any of the other Loan Documents, such amount shall be immediately due and payable with interest thereon as provided herein. All payments made by Borrower with
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respect to the Obligations shall be made in the currency in which such Obligations are denominated and without deduction, defense, setoff or counterclaim. All payments to Agent hereunder shall, unless otherwise directed by Agent, be made to Agent's Account or in accordance with SUBSECTION 4.25, in each case in immediately available funds. All payments remitted to Agent's Account in immediately available funds shall be credited to the Obligations on the Business Day received; PROVIDED, that, solely for the purpose of computing interest, payments received in accordance with this sentence for application to the Revolving Loan shall be applied to the Revolving Loan one (1) Business Day following Agent's receipt thereof in immediately available funds. If Agent receives a payment or proceeds of realization in a currency other than the currency in which the Obligations are denominated, Agent may in its discretion convert the amount received into the currency of the applicable Obligations and such Obligations shall be reduced solely to the extent of the amount received upon such conversion and applied to such Obligations.
(B) MANDATORY PREPAYMENTS.
(1) OVERADVANCE. At any time that the Revolving Loan exceeds the Maximum Revolving Loan Amount, Borrower shall, immediately repay the Revolving Loan to the extent necessary to reduce the aggregate principal balance to an amount equal to or less than the Maximum Revolving Loan Amount.
(2) PREPAYMENTS FROM PROCEEDS OF ASSET DISPOSITIONS. Immediately upon receipt by Borrower or any of its Subsidiaries of any Net Proceeds in excess of US$100,000 or the Equivalent Amount thereof in the aggregate during any Fiscal Year, Borrower shall prepay the Obligations in an amount equal to such proceeds. All such prepayments shall be applied to the Loans in accordance with SUBSECTION 2.5; PROVIDED, HOWEVER, that if Borrower reasonably expects the Net Proceeds of any Asset Disposition to be reinvested within one hundred eighty (180) days to repair or replace such assets with like assets, Borrower shall deliver the proceeds to Agent to be applied to the Revolving Loan and Agent shall establish a reserve against available funds for borrowing purposes under the Revolving Loan for such amount, until such time as such proceeds have been re-borrowed or applied to other Obligations as set forth herein. If as contemplated by the immediately preceding sentence, Borrower elects to deliver such proceeds to Agent, Borrower may, so long as no Default or Event of Default shall have occurred and be continuing, reborrow such proceeds only for such repair or replacement.
(3) PREPAYMENTS FROM ISSUANCE OF SECURITIES. Immediately upon the receipt by Borrower or any of its Subsidiaries of the proceeds of the issuance of equity securities (other than (i) proceeds of the issuance of equity securities to Borrower or any Subsidiary of Borrower and (ii) proceeds of the issuance of equity securities to US Borrower or any Subsidiary of US Borrower in an amount not to exceed C$3,000,000), Borrower shall prepay the Revolving Loan in an amount equal to such proceeds, net of underwriting discounts and commissions and other reasonable costs associated therewith; provided that, such prepayment shall not permanently reduce the aggregate Revolving Loan Commitment. All such prepayments shall be applied to the Loans in accordance with SUBSECTION 2.5.
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(C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. Borrower may, at any time upon not less than three (3) Business Days prior notice to Agent, terminate the Revolving Loan Commitment; PROVIDED, HOWEVER, the Revolving Loan Commitment may not be terminated by Borrower until all Obligations are paid in full and unless the US Facility Revolving Loan Commitment is contemporaneously terminated in accordance with the US Facility Loan Agreement. Any prepayment of the Obligations permitted in this SUBSECTION 2.4(C) shall be subject to the payment of all fees set forth in SUBSECTION 2.3, and the payment of any amounts owing pursuant to subsection 2.13 resulting from such prepayment. All such prepayments shall be applied to the Loans in accordance with SUBSECTION 2.5.
(D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the payment may be made on the next succeeding Business Day and such extension of time shall be included in the computation of the amount of interest or fees due hereunder.
2.5 APPLICATION OF PREPAYMENT PROCEEDS.
With respect to the prepayments described in subsections 2.4(B) and 2.4(C), any such prepayment shall be applied first to Index Rate Loans before application to BA Rate Loans, in each case in any manner which minimizes any resulting BA Rate breakage fees.
2.6 TERM OF THIS AGREEMENT.
This Agreement shall be effective until the earliest of (a) December 31, 2006, (b) the acceleration of all Obligations pursuant to SUBSECTION 8.3 and (c) the date of termination of US Facility Lenders' obligations to make the US Facility Revolving Loans or permit existing US Facility Revolving Loans to remain outstanding (the "Termination Date"). The Commitments shall terminate (unless earlier terminated pursuant to the terms hereunder) upon the Termination Date and all Obligations shall become immediately due and payable without notice or demand. Notwithstanding any termination, until all Obligations (other than contingent indemnity obligations to the extent no unsatisfied claim has been asserted) have been fully paid and satisfied, Agent, on behalf of itself and Lenders, shall be entitled to retain Liens upon all Collateral, and even after payment of all Obligations hereunder, Borrower's obligation to indemnify Agent and each Lender in accordance with the terms hereof shall continue.
2.7 STATEMENTS.
Agent shall render a monthly statement of account to Borrower within twenty (20) days after the end of each month. Such statement of account shall constitute an account stated unless Borrower makes written objection thereto within thirty (30) days from the date such statement is mailed to Borrower. Agent shall record in its books and records, including computer records, (a) all Revolving Advances, interest charges and payments thereof, (b) the charging and payment of all fees, costs and expenses and (c) all other debits and credits pursuant to this Agreement. The balance in the loan accounts shall constitute presumptive evidence, absent demonstrable error, of the accuracy of the information contained therein; PROVIDED, HOWEVER, that any failure by Agent to so record shall not limit or affect the Borrower's obligation to pay.
2.8 GRANT OF SECURITY INTEREST.
To secure the payment and performance of the Borrower's Obligations, including all renewals, extensions, restructurings and refinancings of any or all of Borrower's Obligations, Borrower hereby grants to Agent, on behalf of Agent and
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Lenders, a continuing security interest, lien, hypothec and mortgage in and to all right, title and interest of Borrower in all of Borrower's personal and real property, whether now owned or existing or hereafter acquired or arising and regardless of where located (all being collectively referred to as the "Borrower Collateral") including, without limitation, (A) Accounts, and all guarantees and security therefor, and all goods and rights represented thereby or arising therefrom, including the rights of stoppage in transit, replevin and reclamation; (B) Inventory; (C) intangibles (as defined in the PPSA) including, without limitation, all Intellectual Property; (D) documents of title (as defined in the PPSA) or other receipts covering, evidencing or representing goods; (E) instruments (as defined in the PPSA); (F) chattel paper (as defined in the PPSA); (G) Equipment; (H) Mortgaged Property; (I) securities (as defined in the PPSA) including, without limitation, certificated and uncertificated securities, security accounts, security entitlements, commodity contracts and commodity accounts; (J) all deposit accounts of Borrower maintained with any bank or financial institution; (K) all cash and other money and property of Borrower in the possession or under the control of Agent, any Lender or any participant; (L) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the property described above or are otherwise necessary or helpful in the collection thereof or realization thereon; and (M) proceeds and products of all or any of the property described above, including, without limitation, the proceeds of any insurance policies covering any of the above described property. Notwithstanding the foregoing, Borrower Collateral shall not include (a) the last day of the term of any lease (but upon the enforcement of Agent's rights hereunder, Agent shall stand possessed of such last day in trust to assign the same to any person acquiring such term) or (b) any consumer goods (as defined in the PPSA).
2.9 YIELD PROTECTION.
(A) CAPITAL ADEQUACY AND OTHER ADJUSTMENTS. In the event
Agent or any Lender shall have determined that the adoption after the date
hereof of any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy, reserve requirements
or similar requirements or compliance by Agent or such Lender or any corporation
controlling Agent or such Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) from any central bank or governmental agency or body having
jurisdiction does or shall have the effect of increasing the amount of capital,
reserves or other funds required to be maintained by Agent or such Lender or any
corporation controlling Agent or such Lender and thereby reducing the rate of
return on Agent's or such Lender's or such corporation's capital as a
consequence of its obligations hereunder, then Borrower shall within fifteen
(15) days after notice and demand from such Lender (with a copy to Agent) or
Agent (together with the certificate referred to in the next sentence and with a
copy to Agent) pay to Agent, for the account of Agent or such Lender, as
applicable, additional amounts sufficient to compensate Agent or such Lender, as
applicable, for such reduction. A certificate as to the amount of such cost and
showing the basis of the computation of such cost submitted by Agent or such
Lender to Borrower shall, absent demonstrable error, be final, conclusive and
binding for all purposes.
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(B) INCREASED BA FUNDING COSTS. If, after the date hereof, the introduction of, change in or interpretation of any law, rule, regulation, treaty or directive would impose or increase reserve requirements (other than as taken into account in the definition of BA Rate) or otherwise increase the cost to any Lender of making or maintaining a BA Rate Loan, then Borrower shall from time to time within fifteen (15) days after notice and demand from such affected Lenders (together with the certificate referred to in the next sentence and with a copy to Agent) pay to Agent, for the account of such affected Lenders, additional amounts sufficient to compensate such Lenders for such increased cost. A certificate as to the amount of such cost and showing the basis of the computation of such cost submitted by such affected Lenders to Borrower and Agent shall, absent demonstrable error, be final, conclusive and binding for all purposes.
2.10 TAXES.
(A) NO DEDUCTIONS. Any and all payments or reimbursements made hereunder shall be made free and clear of and without deduction for any and all taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto (all such taxes, levies, imposts, deductions, charges or withholdings and all liabilities with respect thereto referred to herein as "Tax Liabilities"; excluding, however, net income taxes, or franchise taxes imposed in lieu of net income taxes, to the extent imposed on the net income of any Lender or Agent by the jurisdiction under the laws of which Agent or such Lender is organized or is resident or carrying on business). If Borrower shall be required by law to deduct any such Tax Liabilities from or in respect of any sum payable hereunder or any other Loan Document to Agent or any Lender, then (i) the sum payable hereunder shall be increased as may be necessary so that after making all required withholdings and deductions (including withholdings and deductions applicable to additional sums payable under this SUBSECTION 2.10), Agent or such Lender receives an amount equal to the sum it would have received had no such withholdings or deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law.
(B) CHANGES IN TAX LAWS. In the event that, subsequent to the Closing Date, (i) any changes in any existing law, regulation, treaty or directive or in the interpretation or application thereof, (ii) any new law, regulation, treaty or directive enacted or any interpretation or application thereof, or (iii) compliance by Agent or Lender with any request or directive (whether or not having the force of law) from any governmental authority, agency or instrumentality:
(1) does or shall subject Agent or any Lender to any tax of any kind whatsoever or causes the withdrawal or termination of a previously granted tax exemption with respect to this Agreement, the other Loan Documents or any Revolving Advances made hereunder, or change the basis of taxation of payments to Agent or such Lender of principal, fees, interest or any other amount payable hereunder (except for net income taxes or franchise taxes imposed in lieu of net income taxes, imposed generally by federal, provincial or local taxing authorities with respect to interest or commitment or other fees payable hereunder or changes in the rate of tax on the overall net income of Agent or such Lender); or
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(2) does or shall impose on Agent or any Lender any other condition or increased cost in connection with the transactions contemplated hereby or participations herein;
and the result of any of the foregoing is to increase the cost to Agent or such Lender of making or continuing any Revolving Advance hereunder or to reduce any amount receivable hereunder, then, in any such case, Borrower shall promptly pay to Agent or such Lender, upon its notice and demand, any additional amounts necessary to compensate Agent or such Lender, on an after-tax basis, for such additional cost or reduced amount receivable, as determined by Agent or such Lender with respect to this Agreement or the other Loan Documents. If Agent or any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify Borrower of the event by reason of which Agent or such Lender has become so entitled (with any such Lender concurrently notifying Agent). A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Agent or any Lender to Borrower shall, absent demonstrable error, be final, conclusive and binding for all purposes.
(C) Without prejudice to the survival of any agreement of Borrower under this Agreement, the agreement and obligations of Borrower contained in this SUBSECTION 2.10 shall survive the Termination Date.
(D) FOREIGN LENDERS. Each Lender, and the successors and assignees of such Lender, organized under the laws of a jurisdiction outside of Canada (each, a "Foreign Lender"), to whom payments to be made under this Agreement or under the Notes may be exempt from Canadian withholding tax under the law of the jurisdiction in which the relevant Lender is located or under any tax treaty to which such jurisdiction is a party shall, at the time or times prescribed by applicable law, provide to Borrower (with a copy to Agent) any applicable form, certificate or document, in each case certifying as to such Foreign Lender's entitlement to such exemption (a "CERTIFICATE OF EXEMPTION"). Prior to becoming a Lender under this Agreement and within fifteen (15) days after a reasonable written request of Borrower or Agent from time to time thereafter, each Foreign Lender that becomes a Lender under this Agreement shall provide a Certificate of Exemption to Borrower and Agent; PROVIDED that no Person who would otherwise be a Foreign Lender shall become a Lender hereunder unless such Person is able to deliver a Certificate of Exception at the time it becomes a Lender.
If a Foreign Lender is entitled to an exemption with respect to payments to be made to such Foreign Lender under this Agreement and does not provide a Certificate of Exemption to Borrower and Agent within the time periods set forth in the preceding paragraph, Borrower shall withhold taxes from payments to such Foreign Lender at the applicable statutory rates and Borrower shall not be required to pay any additional amounts as a result of such withholding; PROVIDED, HOWEVER, that all such withholding shall cease upon delivery by such Foreign Lender of a Certificate of Exemption to Borrower and Agent.
2.11 REQUIRED TERMINATION AND PREPAYMENT.
Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law, rule, regulation, treaty or directive (or any change in the interpretation
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thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any Loan, then, unless that Lender is able to make or to continue to fund or to maintain such Loan at another branch or office of that Lender without, in that Lender's opinion, adversely affecting it or its Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to Borrower through Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain Loans shall terminate and (ii) Borrower shall forthwith prepay in full all outstanding Loans owing to such Lender, together with interest accrued thereon.
2.12 OPTIONAL PREPAYMENT/REPLACEMENT OF LENDERS. Within fifteen
(15) days after receipt by Borrower of (i) written notice and demand from any
Lender for payment of additional costs as provided in SUBSECTION 2.9 or
SUBSECTION 2.10 or (ii) written notice of any Lender's inability to make Loans
as provided in SUBSECTION 2.11 (any such Lender demanding such payment or having
such inability being referred to herein as an "Affected Lender"), Borrower may,
at its option notify Agent and such Affected Lender of its intention to take one
of the actions set forth herein in SUBPARAGRAPH (A) or (B) below, provided that,
in the case of an Affected Lender's inability to make Loans as provided in
SUBSECTION 2.11, Borrower's option is conditional upon the Affected Lender not
being required by law to terminate its Revolving Commitment hereunder prior to
the expiry of the ninety (90) day period contemplated in SUBPARAGRAPHS (A) and
(B) below:
(A) REPLACEMENT OF AN AFFECTED LENDER. Borrower may obtain, at Borrower's expense, a replacement Lender ("Replacement Lender") for an Affected Lender, which Replacement Lender shall be reasonably satisfactory to Agent. In the event that Borrower obtains a Replacement Lender that will purchase all outstanding Obligations owed to such Affected Lender and assume its Revolving Loan Commitment hereunder within ninety (90) days following notice of Borrower's intention to do so, the Affected Lender shall sell and assign its Revolving Advances and Revolving Loan Commitment to such Replacement Lender in accordance with the provisions of SUBSECTION 9.5; PROVIDED, HOWEVER, Borrower has (i) reimbursed such Affected Lender for any administrative fee payable by such Affected Lender to Agent pursuant to SUBSECTION 9.5 and, (ii) in any case where such replacement occurs as the result of a demand for payment of certain costs pursuant to SUBSECTION 2.9 or SUBSECTION 2.10, paid all increased costs for which such Affected Lender is entitled to under SUBSECTION 2.9 or SUBSECTION 2.10 through the date of such sale and assignment; or
(B) PREPAYMENT OF AN AFFECTED LENDER. Borrower may prepay
in full all outstanding Obligations owed to an Affected Lender and terminate
such Affected Lender's Revolving Loan Commitment. Borrower shall, within ninety
(90) days following notice of its intention to do so, prepay in full all
outstanding Obligations owed to such Affected Lender, including such Affected
Lender's increased costs for which it is entitled to reimbursement under this
Agreement through the date of such prepayment, and terminate such Affected
Lender's Revolving Loan Commitment.
2.13 COMPENSATION.
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Borrower shall promptly compensate Agent for the benefit of Lenders (Agent's calculation of such amounts shall, absent manifest error, be conclusive and binding upon all parties hereto), for any losses, expenses and liabilities including, without limitation, any loss (including interest paid) sustained by such Lender in connection with the re-employment of such funds: (i) if for any reason (other than a default by any Lender) a borrowing of any BA Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request of borrowing by Borrower; (ii) if any prepayment of any of its BA Rate Loans occurs on a date that is not the last day of an Interest Period applicable to that Loan (regardless of the source of such prepayment and whether voluntary, by acceleration or otherwise); (iii) if any prepayment of any of its BA Rate Loans is not made on any date specified in a notice of prepayment given by Borrower; or (iv) as a consequence of any other default by Borrower to repay its BA Rate Loans when required by the terms of this Agreement; provided that during the period while any such amounts have not been paid, Agent may, in its sole discretion, (a) in accordance with subsection 2.4(A) and upon contemporaneous notice to Borrower, elect to honor the automatic request by Borrower for a Revolving Advance for such amount pursuant to SUBSECTION 2.1(C) or (b) reserve an equal amount from amounts otherwise available to be borrowed under the Revolving Loan.
SECTION 3. CONDITIONS TO LOANS
The obligations of Agent and each Lender to make Revolving Advances on each Funding Date are subject to satisfaction of all of the terms and conditions set forth in this Agreement and in the Conditions Rider attached hereto, and the accuracy of all the representations and warranties of Borrower and the other Loan Parties (as applicable) set forth herein and in the other Loan Documents.
SECTION 4.
REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS
To induce Agent and each Lender to enter into the Loan Documents and to make and to continue to make Revolving Advances, Borrower represents, warrants and covenants to Agent and each Lender that the following statements are and (when deemed remade hereunder) will be true, correct and complete and, unless specifically limited, shall remain so for so long as the Revolving Loan Commitment shall be in effect and until payment in full of all Obligations:
4.1 ORGANIZATION, POWERS, CAPITALIZATION.
(A) ORGANIZATION AND POWERS. Each of the Loan Parties is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and qualified to do business in all jurisdictions where such qualification is required except where failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. Each of the Loan Parties has all requisite organizational power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted and to enter into each Loan Document.
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(B) CAPITALIZATION. As of the Closing Date, the authorized share capital or capital stock of each of the Loan Parties and its respective Subsidiaries is as set forth on SCHEDULE 4.1(B), including all preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from any Loan Party of any shares of capital or other securities of any such entity. All issued and outstanding shares of capital of each of US Borrower and its Subsidiaries are duly authorized and validly issued, fully paid, nonassessable, free and clear of all Liens other than those in favour of Agent for the benefit of Agent and Lenders, and those in favour of US Facility Agent, for the benefit of US Facility Agent and US Facility Lenders, and such shares were issued in compliance with all applicable state, provincial, Canadian and US federal laws concerning the issuance of securities. Borrower will promptly notify Lender of any change in the ownership or corporate structure of any Loan Party that would result in the occurrence of an Event of Default pursuant to SUBSECTION 8.1.
4.2 AUTHORIZATION OF BORROWING, NO CONFLICT. Each of the Loan Parties has the organizational power and authority to incur the Obligations and to grant security interests (or applicable equivalents) in the Collateral (in which it has any right, title or interest). On the Closing Date, the execution, delivery and performance of the Loan Documents by each Loan Party signatory thereto will have been duly authorized by all necessary corporate and shareholder action. The execution, delivery and performance by each Loan Party of each Loan Document to which it is a party and the consummation of the transactions contemplated by the Loan Documents by each Loan Party do not contravene any applicable law, the constating documents, corporate charter or bylaws or other organizational documents of any Loan Party or any agreement or order by which any Loan Party or any Loan Party's property is bound. The Loan Documents are the legally valid and binding obligations of the applicable Loan Parties respectively, each enforceable against the Loan Parties, as applicable, in accordance with their respective terms.
4.3 FINANCIAL CONDITION. All financial statements concerning the Loan Parties which have been or will hereafter be furnished to Agent or any Lender pursuant to this Agreement have been or will be prepared in accordance with US GAAP consistently applied throughout the periods involved (except as disclosed therein and, in the case of interim financial statements, except for the absence of footnotes and non-material year-end adjustments) and do or will present fairly in all material respects the financial condition of the entities covered thereby as at the dates thereof and the results of their operations for the periods then ended. The Pro Forma was prepared by US Borrower based on the unaudited consolidated balance sheet of Holdings and its Subsidiaries dated February 28, 2004.
The Projections delivered by Borrower will be prepared in light of the past operations of the business of Holdings and its Subsidiaries, and such Projections will represent the good faith estimate of Borrower and its senior management concerning the reasonably expected course of the Loan Parties' business as of the date such Projections are delivered; it being recognized that the Projections (as they relate to future events) are not to be viewed as fact and that actual results during the period or periods covered by the Projections may differ by a material amount from the Projections.
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Since September 30, 2003, there have been no events or changes in facts or circumstances affecting any Loan Party which, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect and that have not been disclosed herein or in the attached Schedules.
4.4 INDEBTEDNESS AND LIABILITIES. As of the Closing Date, neither Holdings nor any of its Subsidiaries has (a) any Indebtedness except as reflected on the Pro Forma; or (b) any Liabilities other than as reflected on the Pro Forma or as incurred in the ordinary course of business following the date of the Pro Forma. Borrower shall promptly deliver copies of all notices given or received by Holdings and any of its Subsidiaries with respect to noncompliance with any term or condition related to any Indebtedness in an amount exceeding US$100,000 or the Equivalent Amount thereof, and shall promptly notify Agent of any potential or actual Event of Default with respect to any such Indebtedness.
4.5 ACCOUNT WARRANTIES AND COVENANTS. Except as otherwise disclosed to Agent in writing, as to each Account of Borrower (excluding Accounts of Borrower and US Obligors in an aggregate amount not exceeding US$100,000 or the Equivalent Amount thereof at any time) that, at the time of its creation, the Account is a valid, bona fide account, representing an undisputed indebtedness incurred by the named account debtor for goods actually sold and delivered or for services completely rendered; there are no setoffs, offsets or counterclaims, genuine or otherwise, against the Account; the Account does not represent a sale to an Affiliate or a consignment, sale or return or a bill and hold transaction; no agreement exists permitting any deduction or discount (other than the discount stated on the invoice); Borrower is the lawful owner of the Account and has the right to assign the same to Agent, for the benefit of Agent and Lenders; the Account is free of all Liens other than those in favour of Agent, on behalf of itself and Lenders, and US Facility Agent, on behalf of itself and the US Facility Lenders, and Prior Claims and the Account is due and payable in accordance with its terms. Borrower shall, at its own expense: (a) cause all invoices evidencing Accounts and all copies thereof to bear a notice that such invoices are payable to the lockboxes established in accordance with SUBSECTION 4.25 and (b) use its diligent efforts to assure prompt payment of all amounts due or to become due under the Accounts. No discounts, credits or allowances will be issued, granted or allowed by Borrower to customers and no returns will be accepted without Agent's prior written consent; PROVIDED, HOWEVER, until Agent notifies Borrower to the contrary, Borrower may presume consent. Borrower will immediately notify Agent in the event that a customer alleges any dispute or claim with respect to an Account or of any other circumstances known to Borrower that may impair the validity or collectibility of an Account. Agent shall have the right, at any time or times hereafter, to verify the validity, amount or any other matter relating to an Account, by mail, telephone or in person. After the occurrence of an Event of Default and upon notice from Agent to Borrower, Borrower shall not, without the prior consent of Agent, adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any customer or obligor thereof, or allow any credit or discount thereon.
4.6 NAMES AND LOCATIONS. SCHEDULE 4.6 sets forth, as of the Closing Date, all names, trade names, fictitious names and business names under which each Loan Party currently conducts business or has at any time during the past five years conducted business and the name of any entity which any Loan Party has acquired in whole or in part or from whom any Loan
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Party has acquired a significant amount of assets within the past five years and
sets forth the location of each Loan Party's chief executive office, principal
place of business, domicile (within the meaning of the QUEBEC CIVIL CODE), the
location of each Loan Party's books and records, the location of all other
offices of each Loan Party and all locations of Collateral and any of the real
or personal property of any of the other Loan Parties, and such locations are
the applicable Loan Party's sole locations for its business and its real or
personal property. Borrower will give Agent at least thirty (30) days advance
written notice of: (a) any change of name or of any new trade name or fictitious
business name of any Loan Party, (b) change of chief executive office, principal
place of business, or domicile (within the meaning of the QUEBEC CIVIL CODE),
(c) any change in the location of such Person's books and records or personal or
real property, or (d) any new location for such Person's books and records or
other personal or real property.
4.7 TITLE TO PROPERTIES; LIENS. Borrower and each of its Subsidiaries has good, sufficient and legal title to all of its respective material properties and assets, in each case, free and clear of all Liens except Permitted Encumbrances.
4.8 LITIGATION; ADVERSE FACTS. There are no judgments outstanding against any Loan Party or affecting any property of any Loan Party nor is there any action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration now pending or, to the best knowledge of Borrower after due inquiry, threatened against or affecting any Loan Party or any property of any Loan Party (including without limitation any tort claim in respect of asbestos products sold or distributed by any Loan Party) which could reasonably be expected to result in any Material Adverse Effect. Promptly upon any officer of any Loan Party obtaining knowledge of (a) the institution of any material action, suit, proceeding, governmental investigation or arbitration against or affecting any Loan Party or any property of any Loan Party not previously disclosed by Borrower to Agent or (b) any material development in any action, suit, proceeding, governmental investigation or arbitration at any time pending against or affecting any Loan Party or any property of any Loan Party which could reasonably be expected to have a Material Adverse Effect, Borrower will promptly give notice thereof to Agent and provide such other information as may be reasonably available to enable Agent and its counsel to evaluate such matter.
4.9 PAYMENT OF TAXES. All material tax returns and reports of each Loan Party required to be filed by any of them have been timely filed and are complete and accurate in all material respects. All taxes, assessments, fees and other governmental charges which are due and payable by each Loan Party have been paid when due; PROVIDED that no such tax need be paid if the applicable Loan Party is contesting same in good faith by appropriate proceedings promptly instituted and diligently conducted, such Loan Party has established appropriate reserves as shall be required in conformity with US GAAP and, if such taxes are Prior Claims, the amount thereof has been reserved by Borrower in its calculation of the Canadian Borrowing Base. As of the Closing Date, none of the income tax returns of any Loan Party are under audit and Borrower shall promptly notify Agent in the event that any Loan Party's tax returns become the subject of an audit . No tax liens have been filed against any Loan Party. The charges, accruals and reserves on the books of each Loan Party in respect of any taxes or other governmental charges are in accordance with US GAAP. The federal tax identification number of each Loan Party is set forth on SCHEDULE 4.9 hereto.
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4.10 PERFORMANCE OF AGREEMENTS. None of the Loan Parties and none of their respective Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any material contractual obligation of any such Person, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, in any case which could reasonably be expected to have a Material Adverse Effect. Borrower shall promptly notify Agent of (a) the occurrence of any material default or breach under any material contractual obligation of any Loan Party, (b) the termination of any material contractual obligation of any Loan Party in a manner adverse in any material respect to any Loan Party, or (c) the material amendment or modification of any material contractual obligation of any Loan Party, in a manner adverse in any material respect to any Loan Party.
4.11 EMPLOYEE PENSION AND BENEFIT PLANS.
(A) Except as specifically disclosed in SCHEDULE 4.11, each Canadian Pension Plan is duly registered under the ITA and all other applicable laws which require registration and no event has occurred which is reasonably likely to cause the loss of such registered status; all material obligations of each Loan Party (including fiduciary, funding, investment and administration obligations) required to be performed in connection with the Canadian Pension Plans and the funding agreements therefor have been performed in a timely fashion; there have been no improper withdrawals or applications of the assets of the Canadian Pension Plans or the Canadian Benefit Plans; there are no outstanding disputes concerning the assets of the Canadian Pension Plans or the Canadian Benefit Plans; and each of the Canadian Pension Plans is fully funded on a solvency basis (using actuarial methods and assumptions which are consistent with the valuations last filed with the applicable governmental authorities, agency or instrumentality and which are consistent with generally accepted actuarial principles). Each Loan Party, after diligent inquiry, has neither any knowledge, nor any grounds for believing, that any of the Canadian Pension Plans or Canadian Benefit Plans are the subject of an investigation, any other proceeding, an action or a claim. There exists no state of facts which after notice or lapse of time or both could reasonably be expected to give rise to any such proceeding, action or claim.
(B) Each Loan Party and each ERISA Affiliate, as the case may be, is in compliance, and will continue to remain in compliance, in all material respects with all applicable provisions of ERISA, the IRC and all other applicable laws and the regulations and interpretations thereof with respect to all Employee Benefit Plans. No material liability has been incurred by any Loan Party or any ERISA Affiliate, as the case may be, which remains unsatisfied for any funding obligation, taxes or penalties with respect to any Employee Benefit Plan.
4.12 INTELLECTUAL PROPERTY.
Each Loan Party owns, is licensed to use or otherwise has the right to use, all Intellectual Property used in or necessary for the conduct of its business as currently conducted, and, as of the Closing Date, all patents, trademarks, industrial designs and registered copyrights owned by any Loan Party and all licenses in respect of Intellectual Property to which any Loan Party is a party, are identified on SCHEDULE 4.12. All US or Canadian federally registered Intellectual Property owned by any Loan Party is valid, subsisting and enforceable and
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all filings necessary to maintain the effectiveness of such registrations have been made, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
4.13 BROKER'S FEES. No broker's or finder's fee or commission will be payable with respect to any of the transactions contemplated hereby.
4.14 ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 4.14,
as of the Closing Date: (i) the Real Estate is free of contamination from any
Hazardous Material except for such contamination that could not reasonably be
expected to adversely impact the value or marketability of such Real Estate and
that could not reasonably be expected to result in Environmental Liabilities of
the Loan Parties or their Subsidiaries in excess of US$250,000 in the aggregate;
(ii) no Loan Party and no Subsidiary of a Loan Party has caused or suffered to
occur any Release of Hazardous Materials on, at, in, under, above, to, from or
about any of their Real Estate that could reasonably be expected to result in
Environmental Liabilities of the Loan Parties or their Subsidiaries in excess of
US$250,000 in the aggregate; (iii) the Loan Parties and their Subsidiaries are
and have been in compliance with all Environmental Laws, except for such
noncompliance that could not reasonably be expected to result in Environmental
Liabilities of the Loan Parties or their Subsidiaries in excess of US$250,000 in
the aggregate (iv) the Loan Parties and their Subsidiaries have obtained, and
are in compliance with, all Environmental Permits required by Environmental Laws
for the operations of their respective businesses as presently conducted or as
proposed to be conducted, except where the failure to so obtain or comply with
such Environmental Permits could not reasonably be expected to result in
Environmental Liabilities of the Loan Parties or their Subsidiaries in excess of
US$250,000 in the aggregate, and all such Environmental Permits are valid,
uncontested and in good standing; (v) no Loan Party and no Subsidiary of a Loan
Party is involved in operations or knows of any facts, circumstances or
conditions, including any Releases of Hazardous Materials, that are likely to
result in any Environmental Liabilities of such Loan Party or Subsidiary which
could reasonably be expected to be in excess of US$250,000 in the aggregate, and
no Loan Party or Subsidiary of a Loan Party has permitted any current or former
tenant or occupant of the Real Estate to engage in any such operations; (vi)
there is no Litigation arising under or related to any Environmental Laws,
Environmental Permits or Hazardous Material that seeks damages, penalties,
fines, costs or expenses in excess of US$250,000 in the aggregate or injunctive
relief against, or that alleges criminal misconduct by any Loan Party or any
Subsidiary of a Loan Party; (vii) no notice has been received by any Loan Party
or any Subsidiary of a Loan Party identifying any of them as a "potentially
responsible party" or requesting information under CERCLA or analogous state or
provincial statutes, and to the knowledge of the Loan Parties, there are no
facts, circumstances or conditions that may result in any of the Loan Parties or
their Subsidiaries being identified as a "potentially responsible party" under
CERCLA or analogous state or provincial statutes except for matters that could
not reasonably be expected to result in Environmental Liabilities of the Loan
Parties or their Subsidiaries in excess of US$250,000 in the aggregate; and
(viii) the Loan Parties have provided to Agent copies of all existing
environmental reports, reviews and audits known to the Loan Parties and all
written information known to the Loan Parties pertaining to actual or potential
Environmental Liabilities, in each case relating to any of the Loan Parties or
their Subsidiaries.
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(B) Borrower hereby acknowledges and agrees that (i) to its knowledge, Agent is not now, and has not ever been, in control of any of the Real Estate or affairs of any Loan Party or its Subsidiaries, and (ii) Agent does not have the capacity through the provisions of the Loan Documents or otherwise to influence any Loan Party's or its Subsidiaries' conduct with respect to the ownership, operation or management of any of their Real Estate or compliance with Environmental Laws or Environmental Permits.
4.15 SOLVENCY. Borrower and each of its Subsidiaries: (a) owns and will own assets, the aggregate of which is, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would be sufficient to enable payment of all of their respective obligations, due and arising due; (b) are paying their current obligations in the ordinary course of business as they generally become due; and (c) are able to meet their respective obligations as they generally become due. US Borrower and each of its Domestic Subsidiaries: (a) owns and will own assets the fair saleable value of which on a going concern basis are (i) greater than the total amount of its liabilities (including contingent liabilities) and (ii) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to it; (b) has capital that is not unreasonably small in relation to its business as presently conducted or after giving effect to any contemplated or undertaken transaction; and (c) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due.
4.16 DISCLOSURE. No representation or warranty of any Loan Party contained in this Agreement, the financial statements, the other Loan Documents, or any other document, certificate or written statement furnished to Agent or any Lender by or on behalf of any such Person for use in connection with the Loan Documents contains any untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. There is no material fact known to any Loan Party that has had or could have a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to Agent or any Lender for use in connection with the transactions contemplated hereby.
4.17 INSURANCE. Each Loan Party maintains adequate insurance policies for public liability, property damage, product liability, and business interruption with respect to its business and properties and the business and properties of its Subsidiaries against loss or damage of the kinds customarily carried or maintained by corporations of established reputation engaged in similar businesses and in amounts acceptable to Agent. Borrower shall cause Agent to be named as loss payee on all insurance policies relating to any
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Collateral and shall cause Agent to be named as additional insured under all liability policies of each Loan Party, in each case pursuant to appropriate endorsements in form and substance satisfactory to Agent and shall, and shall cause each other Loan Party to, collaterally assign to Agent, for itself and on behalf of Lenders, as security for the payment of Obligations of the applicable Loan Party all business interruption insurance of each Loan Party. No notice of cancellation has been received with respect to such policies and each Loan Party is in compliance with all conditions contained in such policies. Borrower shall apply any proceeds received from any policies of insurance relating to any Collateral to the Obligations as set forth in SUBSECTION 2.4. In the event Borrower fails to provide Agent with evidence of the insurance coverage required by this Agreement, Agent may, but is not required to, purchase insurance at Borrower's expense to protect Agent's and the Lenders' interests in the Collateral. This insurance may, but need not, protect each Loan Party's interests. The coverage purchased by Agent may not pay any claim made by any Loan Party or any claim that is made against any Loan Party in connection with the Collateral. Borrower may later cancel any insurance purchased by Agent, but only after providing Agent with evidence that the applicable Loan Party has obtained insurance as required by this Agreement. If Agent purchases insurance for the Collateral, Borrower will be responsible for the costs of that insurance, including interest thereon and other charges imposed on Agent in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance, and such costs may be added to the Obligations of Borrower. The costs of the insurance may be more than the cost of insurance any Loan Party is able to obtain on its own.
4.18 COMPLIANCE WITH LAWS. No Loan Party is in violation of any law, ordinance, rule, regulation, order, policy, guideline or other requirement of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of its business or the ownership of its properties, including, without limitation, any Environmental Law, which violation would subject any Loan Party or any of its Subsidiaries, or any of their respective officers to criminal liability or have a Material Adverse Effect and no such violation which could reasonably be expected to have a Material Adverse Effect has been alleged.
4.19 BANK ACCOUNTS. SCHEDULE 4.19 sets forth the account numbers and locations of all bank accounts of each Loan Party. Neither Borrower nor its Subsidiaries shall establish any new bank accounts, or amend or terminate any Blocked Account or lockbox agreement without Agent's prior written consent. Neither Borrower nor any of its Subsidiaries will deposit or maintain in any disbursement account or operating account amounts in excess of outstanding cheques written on such account, payroll amounts and bank administration fees coming due.
4.20 EMPLOYEE MATTERS. Except as set forth on SCHEDULE 4.20, (a) as
of the Closing Date, no Loan Party or Subsidiary of a Loan Party nor any of
their respective employees is subject to any collective bargaining agreement,
(b) as of the Closing Date, no petition for certification or union election is
pending with respect to the employees of any Loan Party or any of their
Subsidiaries and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any Loan Party or
any of their Subsidiaries, (c) as of the Closing Date, there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
any Loan Party after due inquiry, threatened between any Loan Party or any of
their Subsidiaries and its respective employees, other than employee grievances
arising in the ordinary course of business which would not reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect; (d) hours worked by and payment made to employees of each Loan Party and
each of their Subsidiaries comply in all material respects with the Fair Labor
Standards Act and each other federal, state, provincial, local or foreign law
applicable to such matters, and (e) each Loan Party has withheld all employee
withholdings and has made all employer contributions to be withheld and made by
it pursuant to applicable law on account of the Canada and Quebec Pension plans,
employment insurance and employee income taxes; all payments due from any Loan
Party for U.S. employee health and
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welfare insurance have been paid or accrued as a liability on the books of such Loan Party. Except as set forth on SCHEDULE 4.20, as of the Closing Date, neither Borrower nor any other Loan Party is party to an employment contract.
4.21 GOVERNMENTAL REGULATION. None of the Loan Parties is subject to regulation under the United States PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, FEDERAL POWER ACT or INVESTMENT COMPANY ACT OF 1940 or to any US or Canadian federal, state or provincial statute or regulation limiting its ability to incur indebtedness for borrowed money.
4.22 ACCESS TO ACCOUNTANTS AND MANAGEMENT. Borrower authorizes Agent and Lenders to discuss the financial condition and financial statements of the Loan Parties with Holdings' Accountants upon reasonable notice to Borrower of its intention to do so, and authorizes Holdings' Accountants to respond to all of Agent's inquiries. Agent and each Lender may, with the consent of Agent, which will not be unreasonably denied, and upon prior notice (in the absence of an Event of Default), confer with Loan Parties' management directly regarding Loan Parties' business, operations and financial condition.
4.23 INSPECTION. Borrower shall permit Agent and any authorized representatives designated by Agent and shall cause each other Loan Party to permit such representatives to visit and inspect any of the properties of Borrower or any other Loan Party, including their financial and accounting records, and, in conjunction with such inspection, to make copies and take extracts therefrom, and to discuss their affairs, finances and business with their officers and Holdings' Accountants, upon prior notice (in the absence of an Event of Default) and at such reasonable times during normal business hours and as often as may be reasonably requested. Each Lender may, with the consent of Agent, which will not be unreasonably denied, accompany Agent on any such visit or inspection (at such Lender's expense in the absence of a continuing Event of Default described in either of SUBSECTION 8.1(A) or 8.1(C) (as a result of any breach of the Financial Covenants Rider)).
4.24 COLLATERAL RECORDS. Borrower shall keep, and cause each Loan Party to keep, full and accurate books and records relating to the Collateral and shall mark such books and records to indicate Agent's security interests and other Liens thereon, for the benefit of Agent and Lenders.
4.25 COLLECTION OF ACCOUNTS AND PAYMENTS. As promptly as practicable and, in any event, within 60 days following the Closing Date, Borrower shall close or convert its operating accounts into depository or disbursement accounts and establish lockboxes and blocked accounts (collectively, "Blocked Accounts") in its name with such banks ("Collecting Banks") as are acceptable to Agent (subject to irrevocable instructions acceptable to Agent as hereinafter set forth) to which all account debtors of Borrower shall directly remit all payments on Accounts of Borrower and in which Borrower will immediately deposit all payments made for Inventory or other payments constituting proceeds of Borrower Collateral in the identical form in which such payment was made, whether by cash or cheque The Collecting Banks shall acknowledge and agree, in a manner satisfactory to Agent, that all payments made to the Blocked Accounts are the sole and exclusive property of Agent, for its benefit and for the benefit of Lenders, and US Facility Agent, for its benefit and for the benefit of US Lenders, and that the Collecting Banks
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have no right to setoff against the Blocked Accounts and that all such payments received will be promptly transferred to Agent's Account. Borrower hereby agrees that all payments made to such Blocked Accounts or otherwise received by Agent and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of Agent, for the benefit of itself and Lenders, and US Facility Agent, for its benefit and for the benefit of US Lenders. Borrower shall irrevocably instruct each Collecting Bank to promptly transfer all payments or deposits to the Blocked Accounts into Agent's Account. If Borrower, or any if its Affiliates, employees, agents or other Person acting for or in concert with Borrower, shall receive any money, cheques, notes, drafts or any other payments relating to and/or proceeds of Accounts of Borrower or other Borrower Collateral, Borrower shall cause such Person to hold such instrument or funds in trust for Agent, and, immediately upon receipt thereof, shall remit the same or cause the same to be remitted, in kind, to the Blocked Accounts or to Agent at its address set forth in SUBSECTION 10.3 below.
Borrower may amend any one or more of the Schedules referred in this SECTION 4 (subject to prior notice to Agent, as applicable) and any representation, warranty, or covenant contained herein which refers to any such Schedule shall from and after the date of any such amendment refer to such Schedule as so amended; PROVIDED HOWEVER, that in no event shall the amendment of any such Schedule constitute a waiver by Agent and Lenders of any Default or Event of Default that exists notwithstanding the amendment of such Schedule.
SECTION 5.
REPORTING AND OTHER AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as the Revolving Loan Commitment shall be in effect and until payment in full of all Obligations, Borrower shall perform, and shall cause the other Loan Parties to perform, all covenants in this SECTION 5 applicable to such Person.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
Borrower will deliver to Agent and each Lender (unless specified to be delivered solely to Agent) the financial statements and other reports contained in the Reporting Rider attached hereto.
5.2 ENDORSEMENT.
Borrower hereby constitutes and appoints Agent and all Persons designated by Agent for that purpose as Borrower's true and lawful attorney-in-fact, with power to endorse Borrower's name to any of the items of payment or proceeds described in SUBSECTION 4.25 above and all proceeds of Collateral that come into Agent's possession or under Agent's control. Both the appointment of Agent as Borrower's attorney and Agent's rights and powers are coupled with an interest and are irrevocable until payment in full and complete performance of all of the Obligations (other than contingent indemnity obligations to the extent no unsatisfied claim has been asserted).
5.3 MAINTENANCE OF PROPERTIES.
Each Loan Party will maintain or cause to be maintained in good repair, working order and condition all material properties used in the businesses of Loan Parties and their Subsidiaries and will make or cause to be made all appropriate repairs, renewals and replacements thereof.
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5.4 COMPLIANCE WITH LAWS.
Each Loan Party will, and will cause its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority as now in effect and which may be imposed in the future in all jurisdictions in which the Loan Parties or any of their Subsidiaries is now doing business or may hereafter be doing business, other than those laws the noncompliance with which would not have a Material Adverse Effect.
5.5 FURTHER ASSURANCES.
Each Loan Party shall, and shall cause its Subsidiaries to, from time to time, execute such guaranties, financing, financing change or continuation statements, documents, security agreements, reports and other documents or deliver to Agent such instruments, certificates of title, mortgages, deeds of trust, deeds of hypothecs, or other documents as Agent at any time may reasonably request to evidence, perfect, publish or otherwise implement the guaranties and security for repayment of the Obligations provided for in the Loan Documents. Without limiting the foregoing, Borrower shall, and shall cause the other Loan Parties to, execute and file such financing, financing change and continuation statements, or amendments thereto, and such other instruments, documents or notices, as may be necessary or desirable, or as Agent may request, in order to create, preserve and protect the security interests, hypothecs or liens granted or purported to be granted hereby or pursuant to any other Loan Document.
5.6 MORTGAGES; TITLE INSURANCE AND TITLE OPINIONS; SURVEYS AND CERTIFICATES OF LOCATION.
(A) TITLE INSURANCE. On the Closing Date in respect of the Mortgaged Property located in the United States (or within thirty (30) days following delivery of any Mortgage with respect to any Additional Mortgaged Property, regardless of where located), Borrower shall, except as otherwise agreed by Agent, deliver or cause to be delivered to Agent ALTA lender's title insurance policies or date down endorsement to any existing title insurance policies issued by title insurers reasonably satisfactory to Agent (the "Mortgage Policies") in form and substance and in amounts reasonably satisfactory to Agent assuring Agent that the Mortgages are valid and enforceable first priority mortgage liens (or the equivalent thereof under applicable law) on the respective Mortgaged Property or Additional Mortgaged Property, free and clear of all defects and encumbrances except Permitted Encumbrances. The Mortgage Policies shall be in form and substance reasonably satisfactory to Agent and shall include an endorsement insuring against the effect of future advances under this Agreement, for mechanics' liens and for any other matter that Agent may reasonably request.
(B) TITLE OPINIONS. On the Closing Date, Borrower shall deliver or cause to be delivered to Agent an opinion of counsel acceptable to Agent, acting reasonably, opining as to Borrower's good and marketable registered freehold title to its Mortgaged Property, and that the Mortgages granted by Borrower thereon are valid and enforceable published first ranking hypothecs thereon free and clear of all defects and encumbrances except Permitted Encumbrances.
(C) ADDITIONAL MORTGAGED PROPERTY. Borrower shall as promptly as possible (and in any event within sixty (60) days after such designation) deliver to Agent a fully executed
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Mortgage, in form and substance satisfactory to Agent, together with title insurance policies and surveys or, in case of real property in the Province of Quebec, certificates of location, on any Additional Mortgaged Property designated by Agent.
(D) LEASEHOLDS. In the case of each leasehold constituting Mortgaged Property or Additional Mortgaged Property, Agent shall have received such estoppel letters, consents and waivers from the landlords and non-disturbance agreements from any holders of mortgages, deeds of trust or deeds of hypothec on such real property as may have been requested by Agent, which letters shall be in form and substance satisfactory to Agent.
(E) SURVEYS AND CERTIFICATES OF LOCATION. On or before the Closing Date (or within thirty (30) days following delivery of any Mortgage with respect to Additional Mortgaged Property), Borrower shall, to the extent necessary to obtain the Mortgage Policies, deliver or cause to be delivered to Agent current surveys or certificates of location, as applicable, certified or executed by a licensed surveyor, for all real property that is the subject of the Mortgage Policies including Additional Mortgaged Property for which a Mortgage Policy is issued. All such surveys and certificates of location or equivalents thereof shall be sufficient to allow the issuer of the Mortgage Policy to remove the general survey exception (or the applicable equivalent thereof). For the purpose of the title opinions required under SUBSECTION 5.6(B), legal counsel may rely on the certificates of location relied on by such counsel for the purpose of their title opinions delivered in connection with the Original Credit Agreement, as supplemented by a certificate of an officer of Borrower certifying that there have not been any changes to the legal descriptions of the real properties to which such title opinions relate.
5.7 USE OF PROCEEDS. Borrower shall use the proceeds of all Revolving Advances for proper business purposes (as described in the recitals to this Agreement) consistent with all applicable laws, statutes, rules and regulations.
5.8 BAILEES. If any Collateral is at any time in the possession or control of any warehouseman, bailee or US Obligor's agents or processors, upon the request of Agent, Borrower shall notify, or arrange the notification of, such warehouseman, bailee, agent or processor of the security interests (or applicable equivalents thereof) in favour of Agent, for the benefit of Agent and Lenders, created hereby or the other Loan Documents, and shall instruct such Person to hold all such Collateral for Agent's Account subject to Agent's instructions.
5.9 THIRD PARTY INVENTORY. All inventory and products owned by Persons other than a Loan Party and located on any premises owned, leased or controlled by any Loan Party, shall be separately and conspicuously identified as such and shall be segregated from such Loan Party's own Inventory located at such premises.
5.10 ENVIRONMENTAL MATTERS.
Each Loan Party shall and shall cause each Person within its control to: (a) conduct its operations and keep and maintain its Real Estate in compliance with all Environmental Laws and Environmental Permits other than noncompliance that would not reasonably be expected to have a Material Adverse Effect; (b) implement any and all
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investigation, remediation, removal and response actions that are appropriate or necessary to maintain the value and marketability of the Real Estate or to otherwise comply with Environmental Laws and Environmental Permits pertaining to the presence, generation, treatment, storage, use, disposal, transportation or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its Real Estate, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect; (c) notify Agent promptly after such Loan Party or any Person within its control becomes aware of any violation of Environmental Laws or Environmental Permits or any Release on, at, in, under, above, to, from or about any Real Estate that is reasonably likely to result in a Material Adverse Effect; and (d) promptly forward to Agent a copy of any order, notice, request for information or any communication or report received by such Loan Party or any Person within its control in connection with any such violation, Release or order or any other matter relating to any Environmental Laws or Environmental Permits that would reasonably be expected to result in a Material Adverse Effect. If Agent at any time has a reasonable basis to believe that there may be a violation of any Environmental Laws or Environmental Permits by any Loan Party or any Person under its control, or any Environmental Liability arising thereunder, or a Release of Hazardous Materials on, at, in, under, above, to, from or about, any of its Real Estate that, in each case, would reasonably be expected to have a Material Adverse Effect, then each Loan Party and its Subsidiaries shall, upon Agent's written request (i) cause the performance of such environmental audits including subsurface sampling of soil and groundwater, and preparation of such environmental reports, at Borrower's expense, as Agent may from time to time reasonably request, which shall be conducted by reputable environmental consulting firms reasonably acceptable to Agent and shall be in form and substance reasonably acceptable to Agent, and (ii) permit Agent or its representatives to have access to all Real Estate for the purpose of conducting such environmental audits and testing as Agent reasonably deems appropriate, including subsurface sampling of soil and groundwater. Borrower shall reimburse Agent for the costs of such audits and tests and the same will constitute a part of the Obligations secured hereunder.
5.11 CURRENCY RATE AGREEMENT. If Agent shall determine in its reasonable credit judgment that Borrower and its Subsidiaries at any time hereafter have a material currency exchange risk exposure relative to Borrower's Obligations hereunder, then, within sixty (60) days after a request by Agent to do so, Borrower shall enter into (and thereafter maintain) Currency Rate Agreements to hedge such currency exchange exposure in a manner, and upon terms and conditions, reasonably satisfactory to Agent.
"Currency Rate Agreement" means any currency rate swap agreement, currency forward purchase contract or similar agreement or arrangement designed to protect Borrower against fluctuations in currency exchange rates entered into in accordance with this SUBSECTION 5.10.
SECTION 6. FINANCIAL COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan Commitment remains in effect and until indefeasible payment in full of all Obligations, Borrower and each other Loan Party shall comply with all covenants contained in the Financial Covenants Rider.
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SECTION 7. NEGATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan Commitment remains in effect and until indefeasible payment in full of all Obligations, Borrower shall not and will not permit any other Loan Party (except where indicated) to:
7.1 INDEBTEDNESS AND LIABILITIES.
Directly or indirectly create, incur, assume, guarantee, or otherwise become or remain directly or indirectly liable, on a fixed or contingent basis, with respect to any Indebtedness except:
(a) the Obligations;
(b) intercompany Indebtedness (i) outstanding on the Closing Date and (ii) arising from loans made by US Borrower to its Subsidiaries following the Closing Date to fund working capital requirements of such Subsidiaries in the ordinary course of business and to fund Permitted Acquisitions; PROVIDED, HOWEVER, that the aggregate outstanding principal amount of intercompany loans from US Borrower to Beacon Canada Holdings and Borrower shall not exceed an amount equal to the outstanding balance of such intercompany loan as of the Closing Date (after giving effect to the Related Transactions on the Closing Date) plus US$3,000,000 or the Equivalent Amount thereof in Canadian Dollars at any time; PROVIDED, FURTHER, that upon the request of Agent at any time, such Indebtedness shall be evidenced by promissory notes having terms reasonably satisfactory to Agent, the sole originally executed counterparts of which shall be delivered to US Facility Agent and shall be pledged to (i) US Facility Agent, for the benefit of US Facility Agent and US Facility Lenders, as security for the obligations under the US Facility Loan Documents and (ii) Agent, for the benefit of Agent and Lenders, as security for the payee Loan Party's Obligations;
(c) unsecured, subordinated Indebtedness of US Borrower in the principal amount of US$16,032,000 (plus deferred interest thereon in accordance with the terms of the Senior Subordinated Notes) pursuant to the Senior Subordinated Loan Documents;
(d) [Intentionally Omitted];
(e) unsecured, subordinated Indebtedness of Holdings pursuant to (i) the Investor Subordinated Notes outstanding on the Closing Date in the aggregate principal amount of US$12,165,881, (ii) Investor Subordinated Notes issued after the Closing Date to individuals who hereafter become employees of the Loan Parties and who purchase such Investor Subordinated Notes together with common stock of Holdings (which additional Investor Subordinated Notes shall be in the form of the Investor Subordinated Notes outstanding on the Closing Date) and (iii) Investor Subordinated Notes issued after the Closing Date in connection with Permitted Acquisitions (including Investor Subordinated Notes issued to stockholders of Holdings to provide funds for Permitted Acquisitions) (which additional Investor Subordinated Notes shall be in the form of the Investor Subordinated Notes outstanding on the Closing Date);
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(f) unsecured, subordinated Indebtedness of Holdings in the aggregate principal amount of US$7,000,000 pursuant to the Best Seller Notes;
(g) [Intentionally Omitted];
(h) [Intentionally Omitted];
(i) [Intentionally Omitted];
(j) Indebtedness of US Borrower pursuant to the US Facility Loan Documents;
(k) in the case of the Loan Parties, other than Borrower and its Subsidiaries, Indebtedness permitted under the US Facility Loan Agreement;
(l) unsecured, subordinated Indebtedness evidenced by the Stockholder Notes;
(m) Indebtedness not to exceed US$8,000,000, or the Equivalent Amount thereof, in the aggregate for all Loan Parties at any time outstanding secured by purchase money Liens or incurred with respect to Capital Leases;
(n) unsecured Indebtedness not to exceed US$500,000, or the Equivalent Amount thereof, in the aggregate for all Loan Parties at any time outstanding which is subordinated to the Obligations in a manner satisfactory to Agent and Requisite Lenders;
(o) Indebtedness existing on the Closing Date and identified on SCHEDULE 7.1; and
(p) unsecured Indebtedness of Holdings incurred in connection with any Permitted Acquisition in an amount not to exceed ten percent (10%) of the purchase price for such Permitted Acquisition; PROVIDED, HOWEVER, that any such Indebtedness shall (i) have a maturity date no earlier than ninety (90) days after the date set forth in clause (a) of the definition of "Termination Date", (ii) shall be fully subordinated to the Obligations in a manner satisfactory to Agent and (iii) be otherwise issued pursuant to terms and conditions reasonably satisfactory to Agent.
Loan Parties will not, and will not permit the other Loan Parties to, incur any Liabilities except for Indebtedness permitted herein and trade payables and normal accruals in the ordinary course of business not yet due and payable or with respect to which any Loan Party is contesting in good faith the amount or validity thereof by appropriate proceedings and then only to the extent that such Loan Party has established adequate reserves therefor under US GAAP.
7.2 CONTINGENT OBLIGATIONS.
Directly or indirectly create or become or be liable with respect to any Contingent Obligation (other than in respect of the Obligations) except:
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(a) those resulting from Currency Rate Agreements and Interest Rate Agreements entered into by Borrower with Agent's prior written approval;
(b) those resulting from endorsement of negotiable instruments for collection in the ordinary course of business;
(c) those existing on the Closing Date and described in SCHEDULE 7.2 annexed hereto;
(d) those arising under indemnity agreements to title insurers to cause such title insurers to issue to Agent mortgagee title insurance policies;
(e) those arising with respect to customary indemnification obligations incurred in connection with Asset Dispositions or Permitted Acquisitions;
(f) those incurred in the ordinary course of business with respect to surety and appeal bonds, performance and return-of-money bonds and other similar obligations not exceeding at any time outstanding US$100,000, or the Equivalent Amount thereof, in aggregate liability for all Loan Parties;
(g) those incurred with respect to Indebtedness permitted by CLAUSES (a), (c), (j) , (k), (l) and (m) of SUBSECTION 7.1, and those with respect to the "put" obligations of Holdings under the Stock Purchase Warrants issued pursuant to the Senior Subordinated Loan Agreement and the "Prior Purchase Agreement" (as defined in the Senior Subordinated Loan Agreement) provided that any guaranty of Indebtedness that is subordinated to the Obligations shall be subordinated to the same extent that such Indebtedness is subordinated to the Obligations, and any guaranty of the above-referenced "put" obligations of Holdings shall be subordinated to the Obligations in accordance with the Senior Subordination Agreement;
(h) in the cases of the Loan Parties, other than Borrower and its Subsidiaries, those that are permitted under the US Facility Loan Agreement; and
(i) any other Contingent Obligation not expressly permitted by CLAUSES (a) through (h) above, so long as any such other Contingent Obligations, in the aggregate at any time outstanding for all Loan Parties, do not exceed US$250,000, or the Equivalent Amount thereof.
7.3 TRANSFERS, LIENS AND RELATED MATTERS.
(a) TRANSFERS. Sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with respect to any
of the Collateral or the assets or property of any other Loan Party, except that
Borrower, US Borrower and its other Subsidiaries may (i) sell Inventory to
customers in the ordinary course of business and dispose of obsolete equipment
not used or useful in the business for fair value; and (ii) make Asset
Dispositions if all of the following conditions are met: (1) the aggregate
market value of assets sold or otherwise disposed of in any Fiscal Year does not
exceed US$500,000 or the Equivalent Amount thereof (for all such Loan Parties);
(2) the consideration received is at least equal to the fair market value
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of such assets; (3) at least 75% of the consideration received is cash; (4) the net proceeds of such Asset Disposition are applied as required by SUBSECTION 2.4 or the US Facility Loan Agreement, as applicable; (5) after giving effect to the sale or other disposition of the assets included within the Asset Disposition and the repayment of the Obligations or the obligations under the US Facility Loan Documents, as applicable, with the proceeds thereof, each Loan Party is in compliance on a pro forma basis with the covenants set forth in the Financial Covenants Rider recomputed for the most recently ended fiscal quarter or fiscal month (as applicable) for which information is available and is in compliance with all other terms and conditions contained in this Agreement; and (6) no Default or Event of Default shall then exist or result from such sale or other disposition.
(b) LIENS. Except for Permitted Encumbrances, directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of the Collateral or the assets of any other Loan Party or any proceeds, income or profits therefrom.
(c) NO NEGATIVE PLEDGES. Enter into or assume any agreement (other than the Loan Documents, the US Facility Loan Documents and the Senior Subordinated Loan Documents) prohibiting the creation or assumption of any Lien upon the properties or assets of any Loan Party, whether now owned or hereafter acquired.
(d) NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Except as provided herein and in the US Facility Loan Documents and the Senior Subordinated Loan Documents, directly or indirectly create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Borrower to: (1) pay dividends or make any other distribution on any of such Subsidiary's shares or capital stock owned by Borrower or any Subsidiary of Borrower; (2) pay any indebtedness owed to Borrower or any Subsidiary of Borrower; (3) make loans or advances to Borrower or any Subsidiary of Borrower; or (4) transfer any of its property or assets to Borrower or any Subsidiary of Borrower.
7.4 INVESTMENTS AND LOANS. Make or permit to exist investments in or loans to any other Person, except: (a) Cash Equivalents; (b) intercompany loans by US Borrower to its Subsidiaries to the extent permitted under SUBSECTION 7.1; (c) loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business in an aggregate outstanding amount not in excess of US$200,000, or the Equivalent Amount thereof, for all employees of all Loan Parties, at any time; (d) promissory notes of employees issued to Holdings in consideration for shares of capital stock of Holdings and Investor Subordinated Notes issued by Holdings to such employees in an aggregate outstanding amount not exceeding US$500,000, or the Equivalent Amount thereof, at any time; and (e) Permitted Acquisitions consummated by US Obligors.
7.5 RESTRICTED JUNIOR PAYMENTS. Directly or indirectly declare, order, pay, make or set apart any sum for any Restricted Junior Payment, except that:
(a) Borrower may make payments and distributions to Beacon Canada Holdings that are used by Beacon Canada Holdings to make payments and distributions
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to US Borrower, the proceeds of which payments and distributions US Borrower uses to make payments and distributions to Holdings in order that Holdings may pay US federal and state income taxes then due and owing, franchise taxes and other similar licensing expenses incurred in the ordinary course of business; PROVIDED, that Borrower's aggregate contribution to taxes as a result of the filing of a consolidated or combined return by Holdings shall not be greater, nor the aggregate receipt of tax benefits less, than they would have been had Borrower and its Subsidiaries not filed a consolidated or combined return with Holdings;
(b) Subsidiaries of Borrower may make Restricted Junior Payments to Borrower;
(c) US Borrower may, on the Closing Date, prepay a portion of the outstanding Indebtedness under the Senior Subordinated Loan Documents in an aggregate amount equal to US$22,411,238.75 (consisting of principal in the aggregate amount of US$15,968,000, capitalized interest in the aggregate amount of US$5,533,199 and accrued interest in the aggregate amount of USD$910,039) and thereafter may make regularly scheduled cash interest payments (and may accrue deferred interest) pursuant to the terms of the Senior Subordinated Loan Documents as in effect on the date hereof, subject to the subordination provisions set forth in the Senior Subordination Agreement;
(d) [Intentionally Omitted];
(e) US Borrower may make distributions to Holdings to permit Holdings to make (and Holdings may make) scheduled payments principal of, and of accrued and unpaid interest on the Best Seller Notes, in each case on an unaccelerated basis, provided all of the following conditions are satisfied:
(i) no Default or Event of Default shall have occurred and be continuing or would arise as a result of such distribution and payment; and
(ii) after giving effect to such distribution and payment, each of the Loan Parties shall be in compliance on a pro forma basis with all covenants and agreements set forth in the Financial Covenants Rider (excluding PARAGRAPH A thereof) recomputed for the twelve month period ending on the last day of the most recent fiscal quarter or fiscal month (as applicable) for which Agent has received the monthly financial statements required to be delivered pursuant to PARAGRAPH (A) to the Reporting Rider;
(f) US Borrower may make distributions to Holdings to permit Holdings to redeem (and Holdings may redeem) shares of its capital stock (or warrants or options to acquire any such shares) from employees of US Borrower and its Subsidiaries upon the death or other termination of employment of such employees, or to permit Holdings to pay interest or principal in respect of any Stockholder Notes issued by Holdings to any such employees or their executors or administrators in payment of all or any portion of such redemption price, provided all of the following conditions are satisfied:
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(i) no Default or Event of Default shall have occurred and be continuing or would arise as a result of such distribution or redemption;
(ii) after giving effect to such distribution and redemption, the Loan Parties shall be in compliance on a pro forma basis with all covenants and agreements set forth in the Financial Covenants Rider (excluding PARAGRAPH A thereof) recomputed for the twelve-month period ending on the last day of the most recent fiscal quarter for which Agent has received the monthly financial statements required to be delivered pursuant to PARAGRAPH (A) of the Reporting Rider;
(iii) the aggregate amount of such distributions permitted in any fiscal year of the US Borrower shall not exceed US$500,000; and
(iv) after giving effect to such distribution and payment and the making of any US Facility Revolving Loan to fund such distribution, Excess Availability is at least US$7,500,000;
(g) [Intentionally Omitted];
(h) [Intentionally Omitted];
(i) US Borrower may make Restricted Junior Payments to Holdings in an amount sufficient to permit Holdings to pay (and Holdings may pay) regularly scheduled installments of accrued and unpaid interest on Investor Subordinated Notes issued to, and held by, individuals who are directors and employees of any Loan Party (excluding any partner, principal, director or employee of Code Hennessy & Simmons III, L.P., Code Hennessy & Simmons L.L.C., CHS Management III, L.P. or any holder of Senior Subordinated Notes) in an amount not to exceed forty-four percent (44%) of the accrued and unpaid interest on such Investor Subordinated Notes, so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom and subject to the subordination provisions set forth in such Investor Subordinated Notes or the Investor Subordination Agreement (as applicable);
(j) [Intentionally Omitted];
(k) Subsidiaries of the US Borrower, other than Borrower and its Subsidiaries, may make Restricted Junior Payments permitted under the US Facility Loan Agreement; and
(l) The Loan Parties may pay to CHS the management fees and closing fee set forth on SCHEDULE 7.8 to the extent permitted under SUBSECTION 7.8.
7.6 RESTRICTION ON FUNDAMENTAL CHANGES.
(a) Enter into any transaction of amalgamation, merger or consolidation; (b) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its business or assets, or the capital stock or shares of
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any of its Subsidiaries, whether now owned or hereafter acquired; or (d) acquire by purchase or otherwise all or any substantial part of the business or assets of, or stock, shares or other beneficial ownership of, any Person, except pursuant to a Permitted Acquisition.
7.7 CHANGES RELATING TO INDEBTEDNESS. Change or amend the terms of any of its Indebtedness permitted by CLAUSES (b) through (p) of SUBSECTION 7.1 if the effect of such amendment is an attempt to: (a) increase the interest rate on such Indebtedness; (b) change the dates upon which payments of principal of or interest on such Indebtedness are due; (c) change any event of default or add any covenant with respect to such Indebtedness; (d) change the payment provisions of such Indebtedness; (e) change the subordination provisions thereof; or (f) change or amend any other term if such change or amendment would materially increase the obligations of the obligor or confer additional material rights on the holder of such Indebtedness in a manner adverse to any Loan Party, Agent or any Lender.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale or exchange of property or the rendering of any service) with any Affiliate or with any officer, director or employee of any Loan Party, except (a) as set forth on SCHEDULE 7.8, (b) for transactions in the ordinary course of and pursuant to the reasonable requirements of the business of any Loan Party and upon fair and reasonable terms which are fully disclosed to Agent and are no less favourable to such Loan Party than would be obtained in a comparable arm's length transaction with a Person that is not an Affiliate, (c) for payment of reasonable compensation to officers and employees for services actually rendered to such Loan Party and (d) for payment of outside directors' fees not to exceed US$150,000 or the Equivalent Amount thereof in the aggregate for all Loan Parties for any fiscal year of Borrower. Notwithstanding the foregoing, upon written notice to Borrower from Agent or Requisite Lenders, no payments may be made with respect to any items set forth on SCHEDULE 7.8 (other than reasonable out-of-pocket expenses of CHS which are reimbursable by Borrower, as set forth in the Management Agreement referred to in SCHEDULE 7.8) after the occurrence and during the continuation of an Event of Default or if an Event of Default would result therefrom, provided such items may continue to accrue following such notice and be payable once such Event of Default has been cured or waived or would not otherwise result from such payment.
7.9 CONDUCT OF BUSINESS. From and after the Closing Date, engage in any business other than businesses of the type engaged in by such Loan Party on the Closing Date.
7.10 TAX CONSOLIDATIONS. File or consent to the filing of any consolidated income tax return with any Person other than the Loan Parties; PROVIDED that the contribution of Borrower and its Subsidiaries with respect to taxes as a result of the filing of a consolidated return with Holdings shall not be greater, nor the receipt of tax benefits less, than they would have been had Borrower and its Subsidiaries not filed a consolidated return with Holdings.
7.11 SUBSIDIARIES. Other than the Subsidiaries set forth on SCHEDULE 7.11, establish, create or acquire any new Subsidiaries other than in connection with a Permitted Acquisition.
7.12 FISCAL YEAR; TAX DESIGNATION. Change its Fiscal Year; or, in the case of the Loan Parties other than Borrower, elect to be designated as an entity other than a C corporation or, in
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the case of Borrower, elect to be designated as an entity other than an unlimited liability company.
7.13 PRESS RELEASE; PUBLIC OFFERING MATERIALS. Borrower agrees that none of it, the other Loan Parties or any of their respective Affiliates will in the future issue any press releases or other public disclosure, including any prospectus, proxy statement or other materials filed with any Governmental Authority relating to a public offering of the Stock of any Loan Party or any of its Subsidiaries, using the name of GE Canada Finance or GE Capital or its Affiliates or referring to this Agreement, the other Loan Documents or the Related Transactions Documents without at least two (2) Business Days' prior notice to GE Canada Finance and without the prior written consent of GE Canada Finance unless (and only to the extent that) such Loan Party or Affiliate is required to do so under law and then, in any event, such Loan Party or Affiliate will consult with GE Canada Finance before issuing such press release or other public disclosure. Borrower consents to the publication by Agent or any Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement. Agent or such Lender shall provide a draft of any such tombstone or similar advertising material to each Loan Party for review and comment prior to the publication thereof. Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.
7.14 BANK ACCOUNTS. In the case of Borrower and its Subsidiaries, establish any new bank accounts, or attempt to amend or terminate any Blocked Account or lockbox agreement without Agent's prior written consent.
7.15 HAZARDOUS MATERIALS. Borrower shall not and shall not cause or permit any Loan Party or any of their respective Subsidiaries to cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any of the Real Estate where such Release would (a) violate in any respect, or form the basis for any Environmental Liabilities by the Loan Parties or any of their Subsidiaries under, any Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or marketability of any of the Real Estate or any of the Collateral, other than such violations, Environmental Liabilities or adverse impact on value or marketability that could not reasonably be expected, in either case, to have a Material Adverse Effect.
7.16 CIGNA IMPRESS ACCOUNT. Maintain more than US$125,000 on deposit in the CIGNA Impress Account.
SECTION 8. DEFAULT, RIGHTS AND REMEDIES
8.1 EVENT OF DEFAULT. "Event of Default" shall mean the occurrence or existence of any one or more of the following (for each subsection a different grace or cure period may be
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specified, if no grace or cure period is specified, such occurrence or existence constitutes an immediate Event of Default):
(A) PAYMENT. (1) Failure to pay any payments of principal of the Revolving Loan when due, or to repay the Revolving Loan to reduce its balance to the Maximum Revolving Loan Amount or (2) failure to pay, within (5) days after the due date, any interest on the Revolving Loan or any other amount due (other than principal of the Revolving Loan) under this Agreement or any of the other Loan Documents; or
(B) DEFAULT IN OTHER AGREEMENTS. (1) Failure of any Loan Party to pay when due any principal or interest on any Indebtedness (other than the Obligations) or (2) breach or default of any Loan Party with respect to any Indebtedness (other than the Obligations); if such failure to pay, breach or default entitles the holder to cause such Indebtedness having an individual principal amount in excess of US$150,000, or the Equivalent Amount thereof or having an aggregate principal amount in excess of US$250,000, or the Equivalent Amount thereof, to become or be declared due prior to its stated maturity; or
(C) BREACH OF CERTAIN PROVISIONS. (1) Failure of any Loan
Party to perform or comply with any term or condition contained in PARAGRAPH (A)
or (B) of the Reporting Rider, that portion of SUBSECTION 4.17 relating to Loan
Parties' obligations to maintain insurance or SUBSECTION 5.1, or contained in
SECTION 7 or the Financial Covenants Rider; or (2) failure of any Loan Party to
perform or comply with any term or condition contained in PARAGRAPH (D), (E) or
(K) of the Reporting Rider and such failure is not remedied or waived within
five (5) Business Days (two (2) Business Days in the case of any term or
condition contained in PARAGRAPH (E) of the Reporting Rider to be performed on a
weekly basis) after the date such failure first occurs; or
(D) BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by any Loan Party in any Loan Document or in any statement or certificate at any time given by such Person in writing pursuant to or in connection with any Loan Document is false in any material respect on the date made; or
(E) OTHER DEFAULTS UNDER LOAN DOCUMENTS. Borrower or any other Loan Party defaults in the performance of or compliance with any term contained in this Agreement, other than those otherwise set forth in this SUBSECTION 8.1, or defaults in the performance of or compliance with any term contained in any other Loan Document and such default is not remedied or waived within fifteen (15) days after notice from Agent, as required, or Requisite Lenders, to Borrower of such default; or
(F) CHANGE IN CONTROL. (1) CHS ceases to beneficially and
of record own and control, directly or indirectly, free and clear of all Liens,
at least fifty-one percent (51%) of the issued and outstanding shares of each
class of capital stock or other equity securities of Holdings entitled (without
regard to the occurrence of any contingency) to vote for the election of a
majority of the members of the board of directors of Holdings; or (2) Holdings
ceases to beneficially and of record own and control all of the issued and
outstanding capital stock or other equity securities of US Borrower free and
clear of all Liens other than Liens in favour of Agent and US Facility Agent; or
(3) US Borrower ceases to beneficially own and control, directly or
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indirectly, free and clear of all Liens other than Liens in favour of Agent and US Facility Agent, 100% of the issued and outstanding shares of each class of capital stock or other equity securities entitled (without regard to the occurrence of any contingency) to vote for the election of a majority of the members of the boards of directors of any Loan Party other than US Borrower and Holdings; or (4) any "Change of Control" as defined in the Senior Subordinated Loan Agreement shall occur; or
(G) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(1) A court enters a decree or order for relief with respect to any Loan Party
in an involuntary case under any applicable Insolvency Law now or hereafter in
effect, which decree or order is not stayed or other similar relief is not
granted under any applicable law; or (2) the continuance of any of the following
events for forty-five (45) days unless dismissed, bonded or discharged: (a) an
involuntary case is commenced against any Loan Party, under any applicable
Insolvency Law now or hereafter in effect; or (b) a receiver, interim receiver,
receiver and manager, liquidator, sequestrator, trustee, monitor, custodian or
other Person having similar powers over any Loan Party, or over all or a
substantial part of their respective property, is appointed; or
(H) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(1) Any Loan Party commences a voluntary case or proceeding under any applicable
Insolvency Law now or hereafter in effect, or consents to the entry of an order
for relief in an involuntary case or proceeding or to the conversion of an
involuntary case or proceeding to a voluntary case or proceeding under any such
law or consents to the appointment of or taking possession by a receiver,
interim receiver, receiver and manager, trustee, monitor, custodian or other
similar Person for all or a substantial part of its property; or (2) any Loan
Party makes any assignment for the benefit of creditors; or (3) the board of
directors of any Loan Party adopts any resolution or otherwise authorizes action
to approve any of the actions referred to in this SUBSECTION 8.1(H); or
(I) LIENS. Any lien, levy or assessment is filed or recorded with respect to or otherwise imposed upon all or any part of the Collateral or the assets of US Borrower or any of its Subsidiaries by Canada (Her Majesty in Right of Canada) or the United States or any department, agency or instrumentality thereof or by any province, state, county, municipality or other governmental agency (other than Permitted Encumbrances) and such lien, levy or assessment is not stayed, vacated, paid or discharged within ten (10) days; or
(J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or
warrant of execution or attachment, or similar process involving (1) an amount
in any individual case in excess of US$150,000, or the Equivalent Amount
thereof, or (2) an amount in the aggregate at any time in excess of US$250,000,
or the Equivalent Amount thereof (in either case not adequately covered by
insurance as to which the insurance company has acknowledged coverage) is
entered or filed against any Loan Party or any of their respective assets and
remains undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days, but in any event not later than five (5) days prior to the date of
any proposed sale thereunder; or
(K) DISSOLUTION. Any order, judgment or decree is entered against any Loan Party decreeing the dissolution, winding-up or split up of such Loan Party and such order
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remains undischarged or unstayed for a period in excess of fifteen (15) days, but in any event not later than five (5) days prior to the date of any proposed dissolution, winding-up or split up; or
(L) SOLVENCY. Any Loan Party ceases to be solvent (as represented by the Loan Parties in SUBSECTION 4.15) or admits in writing its present or prospective inability to pay its debts as they become due; or
(M) INJUNCTION. Any Loan Party is enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or any material part of its business and such order continues for fifteen (15) days or more; or
(N) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for any reason, other than a partial or full release in accordance with the terms thereof, ceases to be in full force and effect or is declared to be null and void, or any Loan Party denies that it has any further liability under any Loan Document to which it is party, or gives notice to such effect; or
(O) FAILURE OF SECURITY. Agent, on behalf of itself and Lenders, does not have or ceases to have a valid and perfected first priority security interest (or the applicable equivalent thereof) in the Collateral (subject to Permitted Encumbrances), in each case, for any reason other than the failure of Agent or any Lender to take any action within its control; or
(P) INCOME TAX ACT. A requirement from the Minister of National Revenue for payment pursuant to Section 224 or any successor section of the INCOME TAX ACT (Canada) or Section 317, or any successor section of the EXCISE TAX ACT (Canada) or any comparable provision of similar legislation shall have been received by Lender or any other Person in respect of Borrower or any of its Subsidiaries or otherwise issued in respect of Borrower or any of its Subsidiaries; or
(Q) DAMAGE, STRIKE, CASUALTY. Any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labour dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of US Borrower or any of its Subsidiaries if any such event or circumstance could reasonably be expected to have a Material Adverse Effect; or
(R) LICENSES AND PERMITS. The loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by US Borrower or any of its Subsidiaries, if such loss, suspension, revocation or failure to renew could reasonably be expected to have a Material Adverse Effect; or
(S) FORFEITURE. There is filed against any Loan Party of any civil or criminal action, suit or proceeding, which action, suit or proceeding (1) is not dismissed within one hundred twenty (120) days; and (2) could reasonably be expected to result in the confiscation or forfeiture of any material portion of the Collateral; or
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(T) DEFAULT UNDER US FACILITY LOAN AGREEMENT. Any Event of Default (as defined under the US Facility Loan Agreement) shall occur under the US Facility Loan Agreement.
8.2 SUSPENSION OF COMMITMENTS. Upon the occurrence of any Default or Event of Default, notwithstanding any grace period or right to cure, Agent may, or upon demand by Requisite Lenders shall, without notice or demand, immediately cease making additional Revolving Advances and the Revolving Loan Commitment shall be suspended; PROVIDED, that in the case of a Default, if the subject condition or event is waived or cured within any applicable grace or cure period, the Revolving Loan Commitment shall be reinstated.
8.3 ACCELERATION. Upon the occurrence of any Event of Default described in the foregoing SUBSECTIONS 8.1(G) or 8.1(H), all Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Borrower, and the Revolving Loan Commitment shall thereupon terminate. Upon the occurrence and during the continuance of any other Event of Default, Agent may and, upon demand by Requisite Lenders, shall, by written notice to Borrower, declare all or any portion of the Obligations to be, and the same shall forthwith become, immediately due and payable and the Revolving Loan Commitment shall thereupon terminate.
8.4 REMEDIES. If any Event of Default shall have occurred and be continuing, in addition to and not in limitation of any other rights or remedies available to Agent and Lenders at law or in equity, Agent may, and shall upon the request of Requisite Lenders, exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or in the other Loan Documents or otherwise available to it, all the rights and remedies of a secured party on default under the Personal Property Security Legislation (whether or not such Personal Property Security Legislation applies to the affected Borrower Collateral) and may also (a) require Borrower to, and Borrower hereby agrees that it will, at its expense and upon request of Agent forthwith, assemble all or part of the Collateral as directed by Agent and make it available to Agent at a place to be designated by Agent which is reasonably convenient to both parties; (b) withdraw all cash in the Blocked Accounts and apply such monies in payment of the Obligations in the manner provided in SUBSECTION 8.7; and (c) without notice or demand or legal process, enter upon any premises of Borrower and take possession of Collateral. All rights and remedies may be exercised without notice to or consent by Borrower, except as such notice or consent is expressly provided for hereunder or required by applicable law. Borrower agrees that, to the extent notice of sale of the Borrower Collateral or any part thereof shall be required by law, at least fifteen (15) days notice to Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. At any sale of the Borrower Collateral (whether public or private), if permitted by law, Agent or any Lender may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase of the Borrower Collateral or any portion thereof for the account of Agent or such Lender. Agent shall not be obligated to make any sale of Borrower Collateral regardless of notice of sale having been given. Borrower shall remain liable for any deficiency. Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was
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so adjourned. To the extent permitted by law, Borrower hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter enacted. Agent shall not be required to proceed against any Collateral but may proceed against any Loan Party directly.
8.5 APPOINTMENT OF RECEIVER. Agent and Lenders may appoint, remove and reappoint any person or persons, including any employee or agent of Agent and Lenders to be an interim receiver or receiver (the "Receiver") which terms shall include a receiver and manager of, or agent for, all or any part of the Borrower Collateral. Any such Receiver shall, as far as concerns responsibility for his acts, be deemed to be the agent of Borrower and not of Agent or any Lender, and Agent and Lenders shall not in any way by responsible for any misconduct, negligence or non-feasance of such Receiver, its employees or agents. Except as otherwise directed by Agent and Lenders, all money received by such Receiver shall be received in trust for and paid to Agent for the benefit of Lenders. Such Receiver shall have all of the powers and rights of Agent and Lenders described in SUBSECTION 8.4. Agent may, either directly or through its agents or nominees, exercise any or all powers and right of a Receiver.
8.6 COSTS OF ENFORCEMENT. Borrower shall pay all costs, charges and expenses incurred by Agent, any Lender or any Receiver or any nominee or agent of Agent or any Lender, whether directly or for services rendered (including, without limitation, solicitor's costs on a solicitor and his own client basis, auditor's costs, other legal expenses and Receiver remuneration) in enforcing this Agreement or any other Loan Document and in enforcing or collecting Obligations and all such expenses together with any money owing as a result of any borrowing permitted hereby shall be a charge on the proceeds of realization and shall be secured hereby.
8.7 APPOINTMENT OF ATTORNEY-IN-FACT. Borrower hereby constitutes and appoints Agent as Borrower's attorney-in-fact with full authority in the place and stead of Borrower and in the name of Borrower, Agent or otherwise, from time to time in Agent's discretion while an Event of Default is continuing to take any action and to execute any instrument that Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any customer or Borrower thereunder or allow any credit or discount thereon; (c) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; (d) to file any claims or take any action or institute any proceedings that Agent may deem necessary or desirable for the collection of or to preserve the value of any of the Collateral or otherwise to enforce the rights of Agent and Lenders with respect to any of the Collateral; and (e) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, assignments, verifications and notices in connection with Accounts and other documents relating to the Collateral. The appointment of Agent as Borrower's attorney and Agent's rights and powers are coupled with an interest and are irrevocable until indefeasible payment in full and complete performance of all of the Obligations and termination of the Revolving Loan Commitment.
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8.8 LIMITATION ON DUTY OF AGENT WITH RESPECT TO COLLATERAL. Beyond the safe custody thereof, Agent and each Lender shall have no duty with respect to any Collateral in its possession or control (or in the possession or control of any agent or bailee) or with respect to any income thereon or the preservation of rights against prior parties or any other rights pertaining thereto. Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Agent accords its own property. Neither Agent nor any Lender shall be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee, broker or other agent or bailee selected by Borrower or selected by Agent in good faith.
8.9 APPLICATION OF PROCEEDS. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, (a) Borrower irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Agent from or on behalf of Borrower, and Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received at any time or times after the occurrence and during the continuance of an Event of Default against the Obligations in such manner as Agent may deem advisable notwithstanding any previous application by Agent and (b) subject to the Intercreditor Agreement, in the absence of a specific determination by Agent with respect thereto, the proceeds of any sale of, or other realization upon, all or any part of the Collateral shall be applied: FIRST, to all fees, costs and expenses incurred by or owing to Agent and then any Lender with respect to this Agreement, the other Loan Documents or the Borrower Collateral; SECOND, to accrued and unpaid interest on the Obligations (including any interest which but for the provisions of any Insolvency Law would have accrued on such amounts); THIRD, to the principal amounts of the Obligations outstanding (other than Obligations owed to any Lender under an Interest Rate Agreement or Currency Rate Agreement); and FOURTH, to any other Obligations or other obligations or indebtedness of Borrower owing to Agent or any Lender under the Loan Documents or any Interest Rate Agreement or Currency Rate Agreement. Any balance remaining shall be delivered to the Borrower or to whomever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct.
8.10 LICENSE OF INTELLECTUAL PROPERTY. Borrower hereby assigns, transfers and conveys to Agent, for the benefit of Agent and Lenders, effective upon the occurrence of any Event of Default hereunder, the non-exclusive right and license to use all Intellectual Property owned or used by Borrower, together with any goodwill associated therewith, all to the extent necessary to enable Agent to realize on the Collateral and any successor or assign to enjoy the benefits of the Collateral (subject, in the case of trade-marks, to sufficient rights of quality control and inspection in favour of the owner of such trade-marks as is reasonably necessary to avoid the risk of invalidation of such trade-marks). This right and license shall inure to the benefit of all successors, assigns and transferees of Agent and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge. Insofar as the terms of any agreement prohibit the assignment or sublicense of Borrower's rights under such contract,
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Borrower shall use its best efforts to obtain a consent to such assignment, conveyance or sublicense to Agent from the other parties to such contract.
8.11 WAIVERS; NON-EXCLUSIVE REMEDIES. No failure on the part of Agent or any Lender to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement or the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise by Agent or any Lender of any right under this Agreement or any other Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the other Loan Documents are cumulative and shall in no way limit any other remedies provided by law.
SECTION 9.
AGENT
9.1 AGENT.
(A) APPOINTMENT. Each Lender hereto and, upon obtaining an interest in any Loan, any participant, transferee or other assignee of any Lender irrevocably appoints, designates and authorizes GE Canada Finance as Agent to take such actions or refrain from taking such action as its agent on its behalf and to exercise such powers hereunder and under the other Loan Documents as are delegated by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. Neither the Agent nor any of its directors, officers, employees or agents shall be liable for any action so taken. The provisions of this SUBSECTION 9.1 are solely for the benefit of Agent and Lenders and no Loan Party shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and the other Loan Documents, Agent shall act solely as agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any Loan Party. Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. For the purposes of holding any security granted by any Loan Party pursuant to the laws of the Province of Quebec, Agent shall be the holder of an irrevocable power of attorney for all present and future Lenders. By executing an Assignment and Acceptance Agreement, any future Lender shall be deemed to ratify the power of attorney granted to Agent hereunder. Lenders and each Loan Party agree that notwithstanding Section 32 of "the Act respecting the Special Powers of Legal Persons (Quebec)", Agent may, as the person holding the power of attorney of Lenders, acquire any debentures or other title of indebtedness secured by any hypothec granted by any Loan Party to Agent pursuant to the laws of the Province of Quebec.
(B) NATURE OF DUTIES. Agent shall have no duties, obligations or responsibilities except those expressly set forth in this Agreement or in the Loan Documents. The duties of Agent shall be mechanical and administrative in nature. Agent shall not have by reason of this Agreement a fiduciary, trust or agency relationship with or in respect of any Lender or any Loan Party. Nothing in this Agreement or any of the Loan Documents, express or implied, is intended to or shall be construed to impose upon Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein or therein. Each Lender shall make its own appraisal of the credit worthiness of the Loan Parties, and shall
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have independently taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Loan Parties, and Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto (other than as expressly required herein), whether coming into its possession before the Closing Date or at any time or times thereafter. If Agent seeks the consent or approval of any Lenders to the taking or refraining from taking any action hereunder, then Agent shall send notice thereof to each Lender. Agent shall promptly notify each Lender any time that the Requisite Lenders have instructed Agent to act or refrain from acting pursuant hereto.
(C) RIGHTS, EXCULPATION, ETC. Neither Agent nor any of its officers, directors, employees or agents shall be liable to any Lender for any action taken or omitted by them hereunder or under any of the Loan Documents, or in connection herewith or therewith, except that Agent shall be liable to the extent of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction. Agent shall not be liable for any apportionment or distribution of payments made by it in good faith and if any such apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made, shall be to recover from other Lenders any payment in excess of the amount to which they are determined to be entitled (and such other Lenders hereby agree to return to such Lender any such erroneous payments received by them). In performing its functions and duties hereunder, Agent shall exercise the same care which it would in dealing with loans for its own account, but neither Agent nor any of its agents or representatives shall be responsible to any Lender for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the transactions contemplated thereby, or for the financial condition of any Loan Party. Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of any Loan Party, or the existence or possible existence of any Default or Event of Default. Agent may at any time request instructions from Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the Loan Documents Agent is permitted or required to take or to grant, and if such instructions are promptly requested, Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from Requisite Lenders or all or such other portion of the Lenders as shall be prescribed by this Agreement. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders in the absence of an express requirement for a greater percentage of Lender approval hereunder for such action.
(D) RELIANCE. Agent shall be under no duty to examine, inquire into, or pass upon the validity, effectiveness or genuineness of this Agreement, any other Loan Document, or any instrument, document or communication furnished pursuant hereto or in connection herewith. Agent shall be entitled to rely, and shall be fully protected in relying, upon any written or oral notices, statements, certificates, orders or other documents or any telephone message or other communication (including any writing, fax, telecopy or telegram) believed by it in good
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faith to be genuine, valid, effective and correct and to have been signed, sent or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder. Agent shall be entitled to rely upon the advice of legal counsel, independent accountants, and other experts selected by Agent in its sole discretion.
(E) INDEMNIFICATION. Each Lender, in proportion to its Pro Rata Share, severally and not jointly, agrees to reimburse and indemnify Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, legal fees and expenses), advances or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by Agent under this Agreement or any of the Loan Documents, in proportion to each Lender's Pro Rata Share, but only to the extent that any of the foregoing is not promptly reimbursed by Borrower; PROVIDED, HOWEVER, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, advances or disbursements resulting from Agent's gross negligence or willful misconduct as determined by a final non-appealable judgment by a court of competent jurisdiction. If any indemnity furnished to Agent for any purpose shall, in the opinion of Agent, be insufficient or become impaired, Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against, even if so directed by Lenders or Requisite Lenders, until such additional indemnity is furnished. The obligations of Lenders under this SUBSECTION 9.1(E) shall survive the payment in full of the Obligations and the termination of this Agreement.
(F) GE CANADA FINANCE INDIVIDUALLY. With respect to its Commitments and the Loans made by it, GE Canada Finance shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include GE Canada Finance in its individual capacity as a Lender or one of the Requisite Lenders. GE Canada Finance, either directly or through strategic affiliations, may lend money to, acquire equity or other ownership interests in, provide advisory services to and generally engage in any kind of banking, trust or other business with any Loan Party as if it were not acting as Agent pursuant hereto and without any duty to account therefor to Lenders. GE Canada Finance, either directly or through strategic affiliations, may accept fees and other consideration from any Loan Party for services in connection with this Agreement or otherwise without having to account for the same to Lenders. Each Lender acknowledges that GE Capital, of which GE Canada Finance is a Subsidiary, is the US Facility Agent and a US Facility Lender and has purchased certain equity interests in, and subordinated indebtedness of, Holdings and the potential conflict of interest of GE Canada Finance as Agent and as a Lender, and GE Capital, as the US Facility Agent, a US Facility Lender and a holder of an equity interest in, and subordinated indebtedness of, Holdings and consents thereto.
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(G) SUCCESSOR AGENT.
(1) RESIGNATION. Agent may resign from the performance of all its agency functions and duties hereunder at any time by giving at least thirty (30) Business Days' prior written notice to Borrower and the Lenders. Such resignation shall take effect upon the acceptance by a successor Agent of appointment as provided below.
(2) APPOINTMENT OF SUCCESSOR. Upon any such notice of resignation pursuant to clause (G)(1) above, Requisite Lenders shall appoint a successor Agent which, unless an Event of Default has occurred and is continuing, shall be reasonably acceptable to Borrower. If a successor Agent shall not have been so appointed within said thirty (30) Business Day period, the retiring Agent, upon notice to Borrower, shall then appoint a successor Agent who shall serve as Agent until such time, if any, as Requisite Lenders appoint a successor Agent as provided above.
(3) SUCCESSOR AGENT. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's resignation as Agent, the provisions of this SECTION 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.
(H) COLLATERAL MATTERS.
(1) RELEASE OF COLLATERAL. Lenders hereby irrevocably authorize Agent, at its option and in its discretion, to release any Lien granted to or held by Agent upon any Collateral (i) upon termination of the Revolving Loan Commitment and upon payment and satisfaction of all Obligations (other than contingent indemnification obligations to the extent no claims giving rise thereto have been asserted); or (ii) constituting property being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with the provisions of this Agreement (and Agent may rely in good faith conclusively on any such certificate, without further inquiry). In addition, with the consent of Requisite Lenders, Agent may release Liens granted to or held by Agent upon any Collateral having a book value of not greater than ten percent (10%) of the total book value of all Collateral, as determined by Agent, either in a single transaction or in a series of related transactions; PROVIDED, HOWEVER, in no event will Agent, acting under the authority granted to it pursuant to this sentence, release during any calendar year Liens granted to or held by Agent upon any Collateral having a total book value in excess of twenty percent (20%) of the total book value of all Collateral, as determined by Agent.
(2) CONFIRMATION OF AUTHORITY; EXECUTION OF RELEASES. Without in any manner limiting Agent's authority to act without any specific or further authorization or consent by Lenders (as set forth in SUBSECTION 9.1(H)(1) above), each Lender agrees to confirm in writing, upon request by Agent or Borrower, the authority to release any Collateral conferred upon Agent under clauses (i) and (ii) of SUBSECTION 9.1(H)(1). Upon receipt by Agent of confirmation from the requisite percentage of Lenders (as set forth in SUBSECTION 9.1(H)(1) above), if any, of Agent's authority to release any Liens upon any Collateral, and upon at least ten (10) Business Days prior
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written request by Borrower, Agent shall, and is hereby irrevocably authorized by Lenders to, execute such documents as may be necessary to evidence the release of the Liens granted to Agent, for the benefit of Agent and Lenders, upon such Collateral; PROVIDED, HOWEVER, that (i) Agent shall not be required to execute any such document on terms which, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens granted to Agent on behalf of Agent and Lenders upon (or obligations of any Loan Party, in respect of) all interests retained by any Loan Party, including, without limitation, the proceeds of any sale, all of which shall continue to constitute part of the property covered by this Agreement or the Loan Documents.
(3) ABSENCE OF DUTY. Agent shall have no obligation whatsoever to any Lender or any other Person to assure that the property covered by this Agreement or the Loan Documents exists or is owned by any Loan Party or is cared for, protected or insured or has been encumbered or that the Liens granted to Agent on behalf of Agent and Lenders herein or pursuant hereto have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Agreement or in any of the other Loan Documents, it being understood and agreed that in respect of the property covered by this Agreement or the other Loan Documents or any act, omission or event related thereto, Agent may act in any manner it may deem appropriate, in its discretion, given Agent's own interest in property covered by this Agreement or the other Loan Documents as one of the Lenders and that Agent shall have no duty or liability whatsoever to any of the other Lenders; PROVIDED, HOWEVER, that Agent shall exercise the same care which it would in dealing with loans for its own account.
(I) AGENCY FOR PERFECTION. Agent and each Lender hereby appoint each other Lender as agent for the purpose of perfecting Agent's security interest in assets which, in accordance with applicable law in any applicable jurisdiction, can be perfected only by possession. Should any Lender (other than Agent) obtain possession of any such assets, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor, shall deliver such assets to Agent or in accordance with Agent's instructions. Agent may file such proofs of claim or documents as may be necessary or advisable in order to have the claims of Agent and Lenders (including any claim for the reasonable compensation, expenses, disbursements and advances of Agent and Lenders, their respective agents, financial advisors and counsel), allowed in any judicial proceedings relative to any of the Loan Parties, or any of their respective creditors or property, and shall be entitled and empowered to collect, receive and distribute any monies, securities or other property payable or deliverable on any such claims. Any custodian in any judicial proceedings relative to any Loan Party is hereby authorized by each Lender to make payments to Agent and, in the event that Agent shall consent to the making of such payments directly to Lenders, to pay to Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agent, its agents, financial advisors and legal counsel, and any other amounts due Agent. Nothing contained in this Agreement or the other Loan Documents shall be deemed to authorize Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Loans,
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or the rights of any holder thereof, or to authorize Agent to vote in respect of the claim of any Lender in any such proceeding, except as specifically permitted herein.
(J) EXERCISE OF REMEDIES. Each Lender agrees that it will not have any right individually to enforce or seek to enforce this Agreement or any Loan Document or to realize upon any collateral security for the Loans, unless instructed to do so by Agent, it being understood and agreed that such rights and remedies may be exercised only by Agent.
9.2 NOTICE OF DEFAULT. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default except with respect to defaults in the payment of principal, interest and fees required to be paid to Agent for the account of Lenders, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". Agent will notify each Lender of its receipt of any such notice.
9.3 ACTION BY AGENT. Agent shall take such action with respect to any Default or Event of Default as may be requested by Requisite Lenders in accordance with SECTION 8. Unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to any Default or Event of Default as it shall deem advisable or in the best interests of Lenders.
9.4 AMENDMENTS, WAIVERS AND CONSENTS.
(A) PERCENTAGE OF LENDERS REQUIRED. Except as otherwise provided herein or in any of the other Loan Documents, no amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document, or consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Requisite Lenders (or, Agent, if expressly set forth herein or in any of the other Loan Documents) and the applicable Loan Party; PROVIDED HOWEVER, no amendment, modification, termination, waiver or consent shall be effective, unless in writing and signed by all Lenders (excluding Defaulting Lenders) and all US Facility Lenders (excluding "Defaulting Lenders", as such term is defined in the US Facility Loan Agreement): (i) increase the Revolving Loan Commitment or any Lender's Pro Rata Share of the Revolving Loan Commitment; (ii) reduce the principal of or the rate of interest on any Loan or reduce the fees payable with respect to any Loan; (iii) extend the Termination Date or the scheduled due date for all or any portion of principal of the Loans or any interest or fees due hereunder; (iv) amend the definitions of the term "Requisite Lenders" or the percentage of Lenders which shall be required for Lenders to take any action hereunder; (v) amend or waive this SUBSECTION 9.4 or the definitions of the terms used in this SUBSECTION 9.4 insofar as the definitions affect the substance of this SUBSECTION 9.4; (vi) increase the percentages contained in the definition of Canadian Borrowing Base (or in the definition of Consolidating Borrowing Base under the US Facility Loan Agreement) or amend the definitions of the terms "Canadian Borrowing Base", "Consolidated Borrowing Base" or "Consolidating Borrowing Base" (as defined under the US Facility Loan Agreement) or the definitions of the terms used therein insofar as those terms affect the substance of such terms; (vii) amend PARAGRAPH A of the Financial Covenants Rider or the definitions of the terms used therein insofar as the definitions affect the substance of such PARAGRAPH (A); (viii) release
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Collateral (except if the sale, disposition or release of such Collateral is
permitted under SUBSECTION 7.3 or SUBSECTION 9.1 or under any other Loan
Document); or (ix) amend the terms "Obligations" or the definitions of the terms
used therein insofar as those definitions affect the substance of such term; or
(x) consent to the assignment, delegation or other transfer by any Loan Party of
any of its rights and obligations under any Loan Document; PROVIDED, FURTHER,
that no amendment, modification, termination, waiver or consent affecting the
rights or duties of Agent under this SECTION 9 or under any Loan Document shall
in any event be effective, unless in writing and signed by Agent, in addition to
Lenders and other Persons (if any) required to take such action. Any amendment,
modification, termination, waiver or consent effected in accordance with this
SECTION 9 shall be binding upon each Lender or future Lender and, if signed by a
Loan Party, on such Loan Party.
(B) SPECIFIC PURPOSE OR INTENT. Each amendment, modification, termination, waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination, waiver or consent shall be required for Agent to take additional Collateral.
(C) FAILURE TO GIVE CONSENT; REPLACEMENT OF NON-CONSENTING LENDER. In the event Agent requests the consent of a Lender and does not receive a written consent or denial thereof within ten (10) Business Days after such Lender's receipt of such request, then such Lender will be deemed to have denied the giving of such consent. If, in connection with any proposed amendment, modification, termination or waiver of any of the provisions of this Agreement requiring the consent or approval of all Lenders under this SUBSECTION 9.4, the consent of Requisite Lenders is obtained but the consent of one or more other Lenders whose consent is required is not obtained, then Borrower shall have the right, so long as all such non-consenting Lenders are either replaced or prepaid as described in clauses (A) or (B) below, to either (A) replace the non-consenting Lenders with one or more Replacement Lenders pursuant to SUBSECTION 2.12(A), as if such Lender were an Affected Lender thereunder, but only so long as each such Replacement Lender consents to the proposed amendment, modification, termination or waiver, or (B) prepay in full the Obligations of the non-consenting Lenders and terminate the non-consenting Lenders' Commitments pursuant to SUBSECTION 2.12(B), as if such Lender were an Affected Lender thereunder.
Notwithstanding anything in this SUBSECTION 9.4, Agent and Borrower, without the consent of either Requisite Lenders or all Lenders, may execute amendments to this Agreement and the Loan Documents, which consist solely of the making of typographical corrections.
9.5 ASSIGNMENTS AND PARTICIPATIONS IN LOANS.
(A) ASSIGNMENTS. Each Lender may assign its rights and delegate its obligations under this Agreement to an Eligible Assignee; PROVIDED, HOWEVER, (1) such Lender (other than GE Canada Finance) shall first obtain the written consent of Agent and Borrower, which consent, in either case, shall not be unreasonably withheld; provided, that such consent of Borrower shall not be required at any time that an Event of Default exists), (2) the Pro Rata Share of the Revolving Loan Commitment being assigned shall in no event be less than the lesser of (a) C$7,500,000, or (b) the entire amount of the Pro Rata Share of the Revolving Loan Commitment
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of the assigning Lender, (3) (a) the parties to such assignment shall execute and deliver to Agent for acceptance and recording a Assignment and Acceptance Agreement together with (i) a processing and recording fee of US$3,500 or the Equivalent Amount thereof payable by the assigning Lender to Agent and (ii) each of the Notes originally delivered to the assigning Lender, and (4) if such assignee is a non-resident of Canada for the purpose of the ITA (and, for greater certainty, a Person who is deemed to be resident in Canada for the purpose of the ITA or is deemed by subsection 212 (13.3) of the ITA to be resident in Canada in respect of any amounts paid or credited under this Agreement is not such a non-resident of Canada), then, notwithstanding SUBSECTION 2.10, prior to the occurrence of an Event of Default that is continuing, Borrower shall not be obligated to gross-up payments of interest and fees payable hereunder to such assignee by the amounts of Canadian withholding tax that may be exigible on such interest or fees as a result of the assignee being a non-resident of Canada for the purpose of the ITA. The administrative fee referred to in clause (3) of the preceding sentence shall not apply to an assignment of a security interest in all or any portion of a Lender's rights under this Agreement or the other Loan Documents, as described in PARAGRAPH (D)(1) below. Upon receipt of all of the foregoing, Agent shall notify Borrower of such assignment and Borrower shall comply with its obligations under the last sentence of SUBSECTION 2.1(D). In the case of an assignment authorized under this SUBSECTION 9.5, the assignee shall be considered to be a "Lender" hereunder and Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of the Borrower to the assignee. The assigning Lender shall be relieved of its obligations to make Loans hereunder with respect to its Pro Rata Share of the Revolving Loan Commitment or assigned portion thereof.
(B) PARTICIPATIONS. Each Lender may sell participations in all or any part of its Pro Rata Share of the Revolving Loan Commitment made by it to another Person; PROVIDED, HOWEVER, such Lender shall first obtain the prior written consent of Agent, which consent shall not be unreasonably withheld, and any such participation shall be in a minimum amount of C$5,000,000. All amounts payable by Borrower hereunder shall be determined as if that Lender had not sold such participation and the holder of any such participation shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly effecting (1) any reduction in the principal amount or an interest rate on any Loan in which such holder participates; (2) any extension of the Termination Date or the date fixed for any payment of interest or principal payable with respect to any Loan in which such holder participates; and (3) any release of substantially all of the Collateral. Borrower hereby acknowledges and agrees that the participant under each participation shall for purposes of SUBSECTIONS 2.9, 2.10, 9.6 and 10.2 be considered to be a "Lender"; provided, that no such participant shall be entitled to receive any greater amount pursuant to such subsections from the participating Lender would have been entitled to receive in respect of the portion of such Revolving Loan or Revolving Loan Commitment in which such participation was sold.
(C) NO RELIEF OF OBLIGATIONS; COOPERATION; ABILITY TO MAKE BA RATE LOANS. Except as otherwise provided in SUBSECTION 9.5(A) no Lender shall, as between Borrower and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans or other Obligations owed to such Lender. Each Lender may furnish any information concerning the Loan Parties in the possession of that Lender from time to time to Eligible Assignees and
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participants (including prospective assignees and participants), subject to the provisions of SUBSECTION 10.20. Borrower agrees that it will use its diligent efforts to assist and cooperate with Agent and any Lender in any manner reasonably requested by Agent or such Lender to effect the sale of a participation or an assignment described above, including, without limitation, assistance in the preparation of appropriate disclosure documents or placement memoranda. Notwithstanding anything contained in this Agreement to the contrary, so long as the Requisite Lenders shall remain capable of making BA Rate Loans, no Person shall become a Lender hereunder unless such Person shall also be capable of making BA Rate Loans.
(D) SECURITY INTERESTS; ASSIGNMENT TO AFFILIATES.
Notwithstanding any other provision set forth in this Agreement, any Lender may
at any time following written notice to Agent (1) pledge the Obligations held by
it or create a security interest in all or any portion of its rights under this
Agreement or the other Loan Documents in favour of any Person; PROVIDED, HOWEVER
(a) no such pledge or grant of security interest to any Person shall release
such Lender from its obligations hereunder or under any other Loan Document and
(b) the acquisition of title to such Lender's Obligations pursuant to any
foreclosure or other exercise of remedies by such Person shall be subject to the
provisions of this Agreement and the other Loan Documents in all respects
including, without limitation, any consent required by SUBSECTION 9.5; and (2)
subject to complying with the provisions of SUBSECTION 9.5(A), assign all or any
portion of its funded loans to an Eligible Assignee which is a Subsidiary of
such Lender or its parent company, to one or more other Lenders, or to a Related
Fund. For purposes of this paragraph, a "Related Fund" shall mean, with respect
to any Lender, a fund or other investment vehicle that invests in commercial
loans and is managed by such Lender or by the same investment advisor that
manages such Lender or by an Affiliate of such investment advisor.
(E) RECORDING OF ASSIGNMENTS. Agent shall maintain at its office in Toronto, Ontario a copy of each Assignment and Acceptance Agreement delivered to it and a register for the recordation of the names and addresses of Lenders, and the commitments of, and principal amount of the Loans owing to each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be presumptive evidence of the amounts due and owing to Lenders in the absence of manifest error. Borrower, Agent and each Lender may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower and any Lender, at any reasonable time upon reasonable prior notice.
9.6 SET OFF AND SHARING OF PAYMENTS. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender is hereby authorized by Borrower at any time or from time to time, with reasonably prompt subsequent notice to Borrower (any prior or contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply any and all (a) balances held by such Lender at any of its offices for the account of Borrower or any of its Subsidiaries (regardless of whether such balances are then due to Borrower or its Subsidiaries), and (b) other property at any time held or owing by such Lender to or for the credit or for the account of Borrower or any of its Subsidiaries, against and on account of any of the Obligations; except that no Lender shall exercise any such right without the prior written consent of Agent. Any Lender exercising its right to set off shall purchase for cash
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(and the other Lenders shall sell) interests in each of such other Lender's Pro Rata Share of the Obligations as would be necessary to cause all Lenders to share the amount so set off with each other Lender in accordance with their respective Pro Rata Shares. Borrower agrees, to the fullest extent permitted by law, that any Lender may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Obligations and upon doing so shall deliver such amount so set off to Agent for the benefit of Agent and all Lenders in accordance with their Pro Rata Shares.
9.7 DISBURSEMENT OF FUNDS. Agent may, on behalf of Lenders, disburse funds to Borrower for Loans requested. Each Lender shall reimburse Agent on demand for all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender will remit to Agent its Pro Rata Share of any Loan or Revolving Advance before Agent disburses same to Borrower. If Agent elects to require that each Lender make funds available to Agent prior to a disbursement by Agent to Borrower, Agent shall advise each Lender by telephone, telex, fax or telecopy of the amount of such Lender's Pro Rata Share of the Loan requested by Borrower no later than 1:00 p.m. Toronto time on the Funding Date applicable thereto, and each such Lender shall pay Agent such Lender's Pro Rata Share of such requested Loan, in same day funds, by wire transfer to Agent's Account on such Funding Date. If any Lender fails to pay the amount of its Pro Rata Share within one (1) Business Day after Agent's demand, Agent shall promptly notify Borrower, and Borrower shall immediately repay such amount to Agent. Any repayment required pursuant to this SUBSECTION 9.7 shall be without premium or penalty. Nothing in this SUBSECTION 9.7 or elsewhere in this Agreement or the other Loan Documents, including without limitation the provisions of SUBSECTION 9.8, shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights that Agent or Borrower may have against any Lender as a result of any default by such Lender hereunder.
9.8 SETTLEMENTS, PAYMENTS AND INFORMATION.
(A) REVOLVING ADVANCES AND PAYMENTS; FEE PAYMENTS.
(1) FLUCTUATION OF REVOLVING LOAN BALANCE. The Revolving Loan balance may fluctuate from day to day through Agent's disbursement of funds to, and receipt of funds from, Borrower. In order to minimize the frequency of transfers of funds between Agent and each Lender notwithstanding terms to the contrary set forth in SECTION 2 and SUBSECTION 9.7, Revolving Advances and repayments will be settled according to the procedures described in this SUBSECTION 9.8. Notwithstanding these procedures, each Lender's obligation to fund its portion of any advances made by Agent to Borrower will commence on the date such advances are made by Agent. Such payments will be made by such Lender without set-off, counterclaim or reduction of any kind.
(2) SETTLEMENT DATES. Once each week for the Revolving Loan or more frequently (including daily), if Agent so elects (each such day being a "Settlement Date"), Agent will advise each Lender by telephone, fax or telecopy of the amount of each such Lender's Pro Rata Share of the Revolving Loan. In the event payments are necessary to adjust the amount of such Lender's required Pro Rata Share of the Revolving Loan balance to such Lender's actual
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Pro Rata Share of the Revolving Loan balance as of any Settlement Date, the party from which such payment is due will pay the other, in same day funds, by wire transfer to the other's account not later than 3:00 p.m. Toronto time on the Business Day following the Settlement Date.
(3) SETTLEMENT DEFINITIONS. For purposes of this SUBSECTION 9.8(A), the following terms and conditions will have the meanings indicated:
(a) "Daily Loan Balance" means an
amount calculated as of the end of each calendar day by subtracting (i)
the cumulative principal amount paid by Agent to a Lender on a Loan
from the Closing Date through and including such calendar day, from
(ii) the cumulative principal amount on a Loan advanced by such Lender
to Agent on that Loan from the Closing Date through and including such
calendar day.
(b) "Daily Interest Rate" means an amount calculated by dividing the interest rate payable to a Lender on a Loan (as set forth in SUBSECTION 2.2) as of each calendar day by three hundred sixty (360).
(c) "Daily Interest Amount" means an amount calculated by multiplying the Daily Loan Balance of a Loan by the associated Daily Interest Rate on that Loan.
(d) "Interest Ratio" means a number calculated by dividing the total amount of the interest on a Loan received by Agent with respect to the immediately preceding month by the total amount of interest on that Loan due from Borrower during the immediately preceding month.
(4) SETTLEMENT PAYMENTS. On the first Business
Day of each month ("Interest Settlement Date"), Agent will advise each Lender by
telephone, fax or telecopy of the amount of such Lender's share of interest and
fees on each of the Loans as of the end of the last day of the immediately
preceding month. Provided that such Lender has made all payments required to be
made by it under this Agreement, Agent will pay to such Lender, by wire transfer
to such Lender's account (as specified by such Lender on the signature page of
this Agreement or the applicable Assignment and Acceptance Agreement, as amended
by such Lender from time to time after the date hereof or in the applicable
Assignment and Acceptance Agreement) not later than 3:00 p.m. Toronto time on
the next Business Day following the Interest Settlement Date, such Lender's
share of interest and fees on each of the Loans. Such Lender's share of interest
on each Loan will be calculated for that Loan by adding together the Daily
Interest Amounts for each calendar day of the prior month for that Loan and
multiplying the total thereof by the Interest Ratio for that Loan. Such Lender's
share of the Unused Line Fee described in SUBSECTION 2.3(A) shall be an amount
equal to (a)(i) such Lender's average Revolving Loan Commitment during such
month, LESS such Lender's average Daily Loan Balance of the Revolving Loan for
the preceding month, MULTIPLIED by (b) the percentage required by SUBSECTION
2.3(A). Such Lender's share of all other fees paid to Agent for the benefit of
Lenders hereunder shall be paid and calculated based on such Lender's Commitment
with respect to the Loans on which such fees are associated. To the extent Agent
does not receive the total amount of any fee owing by Borrower under this
Agreement, each amount payable by Agent to a Lender under this SUBSECTION
9.8(A)(4)
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with respect to such fee shall be reduced on a pro rata basis. Any funds disbursed or received by Agent pursuant to this Agreement, including, without limitation, under SUBSECTIONS 9.7, 9.8(A)(1), and 9.9, prior to the Settlement Date for such disbursement or payment shall be deemed advances or remittances by GE Canada Finance, in its capacity as a Lender, for purposes of calculating interest and fees pursuant to this SUBSECTION 9.8(A)(4).
(B) RETURN OF PAYMENTS.
(1) RECOVERY AFTER NON-RECEIPT OF EXPECTED PAYMENT. If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrower and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or deduction of any kind together with interest thereon, for each day from and including the date such amount is made available by Agent to such Lender to but excluding the date of repayment to Agent, at the greater of the Bank Rate and a rate determined by Agent in accordance with banking industry rules on interbank compensation.
(2) RECOVERY OF RETURNED PAYMENT. If Agent determines at any time that any amount received by Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any requirement of law, court order or otherwise, then, notwithstanding any other term or condition of this Agreement, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower or such other Person, without set-off, counterclaim or deduction of any kind.
9.9 DISCRETIONARY ADVANCES. Notwithstanding anything contained herein to the contrary, Agent may, in its sole discretion make Revolving Advances in an aggregate amount of not more than C$1,000,000 in excess of the limitations set forth in the Canadian Borrowing Base for the purpose of preserving or protecting the Collateral or the value thereof or for incurring any costs associated with collection or enforcing rights or remedies against the Collateral, or incurred in any action to enforce this Agreement or any other Loan Document (such Revolving Advances, "Discretionary Advances"); PROVIDED, that Agent shall not make additional Discretionary Advances at any time when the Revolving Loan has exceeded the limitations set forth in the Consolidated Borrowing Base for more than sixty (60) consecutive days (and, for the purposes of this SECTION 9.9, the US Dollar amount of the Consolidated Borrowing Base shall be converted into the Equivalent Amount in Canadian Dollars).
SECTION 10. MISCELLANEOUS
10.1 EXPENSES AND LEGAL FEES. Whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to promptly pay all reasonable fees, costs and expenses incurred in connection with any matters contemplated by or arising out of this Agreement or the other Loan Documents including the following, and all such fees, costs and expenses shall be part of the Obligations, payable on demand and secured by the Collateral: (a) fees, costs and
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expenses incurred by Agent (including legal fees and expenses, the allocated costs of Agent's internal legal staff and fees of environmental consultants, accountants and other professionals retained by Agent) incurred in connection with the examination, review, due diligence investigation, documentation and closing of the financing arrangements evidenced by the Loan Documents; (b) fees, costs and expenses incurred by Agent (including legal fees and expenses, the allocated costs of Agent's internal legal staff and fees of environmental consultants, accountants and other professionals retained by Agent) incurred in connection with the review, negotiation, preparation, documentation, execution, syndication and administration of the Loan Documents, the Loans, and any amendments, waivers, consents, forbearances and other modifications relating thereto or any subordination or intercreditor agreements, including reasonable documentation charges assessed by Agent for amendments, waivers, consents and any other documentation prepared by Agent's internal legal staff; (c) fees, costs and expenses (including legal fees and allocated costs of internal legal staff) incurred by Agent or any Lender in creating, perfecting and maintaining perfection of Liens in favour of Agent, on behalf of Agent and Lenders; (d) fees, costs and expenses incurred by Agent in connection with forwarding to Borrower the proceeds of Loans including Agent's or any Lenders' standard wire transfer fee; (e) fees, costs, expenses and bank charges, including bank charges for returned cheques, incurred by Agent or any Lender in establishing, maintaining and handling lock box accounts, blocked accounts or other accounts for collection of the Collateral; (f) fees, costs and expenses (including legal fees and allocated costs of internal legal staff) of Agent or any Lender and costs of settlement incurred in collecting upon or enforcing rights against the Collateral or incurred in any action to enforce this Agreement or any of the other Loan Documents or to collect any payments due from Borrower or any other Loan Party under this Agreement or any other Loan Document or incurred in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement, whether in the nature of a "workout" or in connection with any insolvency or bankruptcy proceedings or otherwise.
10.2 INDEMNITY. In addition to the payment of expenses pursuant to SUBSECTION 10.1, whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to indemnify, pay and hold Agent and each Lender, and the officers, directors, employees, agents, consultants, auditors, persons engaged by Agent or any Lender to evaluate or monitor the Collateral, affiliates and legal counsel of Agent, Lender and such holders (collectively called the "Indemnitees") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the fees and disbursements of legal counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may be imposed on, incurred by, or asserted against that Indemnitee, in any manner relating to or arising out of this Agreement or any of the other Loan Documents, the consummation of the transactions contemplated by this Agreement, the statements contained in the commitment letters, if any, delivered by Agent or any Lender, Agent's and each Lender's agreement to make the Loans hereunder, the use or intended use of the proceeds of any of the Loans or the exercise of any right or remedy hereunder or under the other Loan Documents (the "Indemnified Liabilities"); PROVIDED, that Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of that
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Indemnitee as determined by a final non-appealable judgment by a court of competent jurisdiction.
10.3 NOTICES. Unless otherwise specifically provided herein, all
notices shall be in writing addressed to the respective party as set forth below
and may be personally served, faxed, telecopied or sent by overnight courier
service or United States mail (in the case where the sender's notice address is
in the United States of America) or Canadian mail (in the case where the
sender's notice address is in Canada) and shall be deemed to have been given:
(a) if delivered in person, when delivered; (b) if delivered by fax or telecopy,
on the date of transmission if transmitted on a Business Day before 4:00 p.m.
Toronto time or, if not, on the next succeeding Business Day; (c) if delivered
by overnight courier, two (2) days after delivery to such courier properly
addressed; or (d) if by mail, four (4) Business Days after deposit, with postage
prepaid and properly addressed.
If to Borrower: Beacon Roofing Supply Canada Company
13145 Prince-Arthur
Montreal, Quebec
H1A 1A9
Attn: Jean Guy Plante
Fax/Telecopy No.: (514) 642-4331
If to any Loan Party: Beacon Sales Acquisition, Inc.
50 Webster Avenue
Somerville, Massachusetts 02143
Attn: Andrew Logie
Fax/Telecopy No.: (617) 629-2939
With a copy to: Code Hennessy & Simmons III, L.P.
10 South Wacker Drive, Suite 3175
Chicago, Illinois 60606
Attn: Peter M. Gotsch
Fax/Telecopy No.: (312) 876-3854
If to Agent or to GE: GE CANADA FINANCE HOLDING COMPANY
Finance: 11 King Street West, Suite 1500
Toronto, Ontario
M5H 4C7
Attn: Account Manager - Corporate
Finance-Beacon
Fax/Telecopy No.: (416) 202-6216
With a copy to: GENERAL ELECTRIC CORPORATION
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Scott Garlinghouse
Fax: (312) 441-7920
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With a copy to: GENERAL ELECTRIC CAPITAL CORPORATION
201 High Ridge Road
Stamford, Connecticut 06927-5100
ATTN: Corporate Counsel -
Global Sponsor Finance
Fax: (203) 316-7899
and
GENERAL ELECTRIC CAPITAL CORPORATION
500 West Monroe Street
Chicago, Illinois 60661
ATTN: Corporate Counsel -
Global Sponsor Finance
Fax: (312) 441-6876
If to any Lender: Its address indicated on the signature page
hereto, in an Assignment and Acceptance
Agreement or in a notice to Agent and
Borrower or to such other address as the
party addressed shall have previously
designated by written notice to the serving
party, given in accordance with this
SUBSECTION 10.3.
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10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND CERTAIN AGREEMENTS. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Borrower, Agent and Lenders set forth in SUBSECTIONS 10.1, 10.2, 10.6, 10.11, 10.14 and 10.15 (Borrower's agreement to pay fees, costs and expenses, Borrower's agreement to indemnify Indemnitees, the reinstatement of Obligations, Liens, rights and remedies, the parties' agreement as to choice of law and submission to jurisdiction, and Borrower's and Lenders' waiver of a jury trial) shall survive the payment of the Loans and the termination of this Agreement.
10.5 INDULGENCE NOT WAIVER. No failure or delay on the part of Agent, any Lender or any holder of any Note in the exercise of any power, right or privilege hereunder or under any Note shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
10.6 MARSHALING; PAYMENTS SET ASIDE. Neither Agent nor any Lender shall be under any obligation to marshal any assets in payment of any or all of the Obligations. To the extent that any Loan Party makes a payment or payments to Agent and/or any Lender or Agent and/or any Lender enforces its security interests or exercises its rights of setoff, and such payment or
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payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy, insolvency or reorganization law, state, provincial or federal law, common law or equitable cause, then to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
10.7 ENTIRE AGREEMENT. This Agreement and the other Loan Documents embody the entire agreement among the parties hereto and supersede all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof, and may not be contradicted or varied by evidence of prior, contemporaneous, or subsequent oral agreements or discussions of the parties hereto.
10.8 SEVERABILITY. The invalidity, illegality or unenforceability in any jurisdiction of any provision in or obligation under this Agreement or the other Loan Documents shall not affect or impair the validity, legality or enforceability of the remaining provisions or obligations under this Agreement or any of the other Loan Documents.
10.9 LENDERS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The obligation of each Lender hereunder is several and not joint and neither Agent nor any Lender shall be responsible for the obligation or Commitment of any other Lender hereunder. In the event that any Lender at any time should fail to make a Loan as herein provided, the Lenders, or any of them, at their sole option, may make the Loan that was to have been made by the Lender so failing to make such Loan. Nothing contained in any Loan Document and no action taken by Agent or any Lender pursuant hereto or thereto shall be deemed to constitute Lenders to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and, provided Agent fails or refuses to exercise any remedies against Borrower after receiving the direction of the Requisite Lenders, each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
10.10 HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.
10.11 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE PROVINCE OF ONTARIO AND THE LAWS OF CANADA APPLICABLE THEREIN, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, PROVIDED, HOWEVER, Borrower shall not assign its rights or obligations hereunder without the written consent of Lenders.
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10.13 NO FIDUCIARY RELATIONSHIP; NO DUTY; LIMITATION OF LIABILITIES.
(A) NO FIDUCIARY RELATIONSHIP. No provision in this Agreement or in any of the other Loan Documents and no course of dealing between the parties shall be deemed to create any fiduciary duty by Agent or any Lender to Borrower.
(B) NO DUTY. All legal counsel, accountants, appraisers, and other professional Persons and consultants retained by Agent or any Lender shall have the right to act exclusively in the interest of Agent or such Lender and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to Borrower or any of Borrower's shareholders or any other Person.
(C) LIMITATION OF LIABILITIES. Neither Agent nor any Lender, nor any affiliate, officer, director, shareholder, employee, legal counsel, or agent of Agent or any Lender shall have any liability with respect to, and Borrower hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by Borrower in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Borrower hereby waives, releases, and agrees not to sue Agent or any Lender or any of Agent's or any Lender's affiliates, officers, directors, employees, counsel, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the transactions contemplated hereby.
10.14 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY COURT OF COMPETENT JURISDICTION LOCATED WITHIN
THE PROVINCE OF ONTARIO AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.
BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. TO THE EXTENT PERMITTED
BY LAW, BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED
OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER, AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN
(10) DAYS AFTER THE SAME HAS BEEN POSTED. IN ANY LITIGATION, TRIAL, ARBITRATION
OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF BORROWER
OR OF ITS AFFILIATES SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF
BORROWER FOR PURPOSES OF ALL APPLICABLE LAW OR COURT RULES REGARDING THE
PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A DEPOSITION, AT
TRIAL OR OTHERWISE). BORROWER AGREES THAT AGENT'S OR ANY LENDER'S
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COUNSEL IN ANY SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING AS IF IT WERE AN EVIDENCE DEPOSITION. BORROWER IN ANY EVENT WILL USE ALL COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH DISPUTE RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY AGENT OR ANY LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM) OR OTHER THINGS UNDER ITS CONTROL AND RELATING TO THE DISPUTE.
10.15 WAIVER OF JURY TRIAL. BORROWER, AGENT AND EACH LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. BORROWER, AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER, AGENT AND EACH LENDER WARRANT AND REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
10.16 WAIVER OF NOTICES. Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonour with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on Borrower or any Loan Party which Agent or any Lender may elect to give shall entitle Borrower or any Loan Party to any other or further notice or demand in the same, or other circumstances.
10.17 JUDGMENT CURRENCY. To the extent permitted by applicable law, the obligations of each Loan Party in respect of any amount due under this Agreement or any other Loan Document shall, notwithstanding any payment in any other currency (the "Other Currency") (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in the currency in which it is due (the "Agreed Currency") that Agent or any Lender may, in accordance with normal banking procedures, purchase with the sum paid in the Other Currency (after any premium and costs of exchange) on the Business Day immediately after the day on which Agent or such Lender receives the payment. If the amount in the Agreed Currency that may be so purchased for any reason falls short of the amount originally due, the applicable Loan Party shall pay additional amounts, in the Agreed Currency, as may be necessary to compensate for the shortfall. Any obligation of the applicable Loan Party not discharged by that payment shall, to the extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided in this SUBSECTION 10.17, continue in full force and effect.
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10.18 CONSTRUCTION. Borrower, Agent and each Lender each acknowledge that it has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by Borrower, Agent and each Lender.
10.19 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments, waivers, consents, or supplements may be executed via telecopier or facsimile transmission in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto.
10.20 CONFIDENTIALITY. Agent and each Lender agree to exercise their best efforts to keep confidential any non-public information delivered pursuant to the Loan Documents and identified as such by Borrower and not to disclose such information to Persons other than to: its respective affiliates, officers, directors and employees; or its potential assignees or participants; or Persons employed by or engaged by Agent, a Lender or a Lender's assignees or participants including, without limitation, legal counsel, auditors, professional consultants, rating agencies and portfolio management services; or to US Facility Agent or any US Facility Lender. The confidentiality provisions contained in this subsection shall not apply to disclosures (i) required to be made by Agent or any Lender to any regulatory or governmental agency or pursuant to legal process or (ii) consisting of general portfolio information that does not identify any Loan Party. The obligations of Agent and Lenders under this SUBSECTION 10.20 shall supersede and replace the obligations of Agent and Lenders under any confidentiality agreement in respect of this financing executed and delivered by Agent or any Lender prior to the date hereof. In no event shall Agent or any Lender be obligated or required to return any materials furnished by any Loan Party; PROVIDED, HOWEVER, each potential assignee or participant shall be required to agree that if it does not become an assignee (or participant) it shall return all materials furnished to it by any Loan Party in connection herewith.
SECTION 11. DEFINITIONS AND ACCOUNTING TERMS
11.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings:
"Accounts" means all "accounts" (as defined in the PPSA), accounts receivable, contract rights and general intangibles relating thereto, notes, drafts and other forms of obligations owed to or owned by any Loan Party, as applicable, arising or resulting from the sale of goods or the rendering of services, whether or not earned by performance.
"Additional Mortgaged Property" means all real property owned or leased by any Loan Party or any of its Subsidiaries in which after the Closing Date Agent requires a mortgage (or the equivalent thereof under applicable laws) to secure the Obligations.
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"Affiliate" means, with respect to any Person, any other Person (other than Agent or any Lender): (a) directly or indirectly controlling, controlled by, or under common control with, any such Person; (b) directly or indirectly owning or holding ten percent (10%) or more of any equity interest in such Person; or (c) ten percent (10%) or more of whose stock or other equity interest having ordinary voting power for the election of directors or the power to direct or cause the direction of management, is directly or indirectly owned or held by such Person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or other equity interest, or by contract or otherwise.
"Agent" means GE Canada Finance Holding Company in its capacity as agent for the Lenders under the Loan Documents and any successor in such capacity appointed pursuant to SUBSECTION 9.1(G).
"Agent's Account" means Transit No. 00002, Account No. 1209329 at Royal Bank of Canada, Main Branch, Toronto, Ontario, Reference: Canadian Dollar Receipt Account re Beacon Roofing Supply Canada Company.
"Agreement" means this Second Amended and Restated Loan and Security Agreement, as it may be amended, restated, supplemented or otherwise modified from time to time.
"Asset Disposition" means the disposition, whether by sale, lease, transfer, loss, damage, destruction, condemnation or otherwise, of any or all of the assets of any Loan Party or any of its Subsidiaries other than sales of Inventory in the ordinary course of business.
"Assignment and Acceptance Agreement" shall mean an Assignment and Acceptance Agreement substantially in the form of EXHIBIT A.
"BA Period" means with respect to any BA Rate Loan bearing interest at a rate based on the BA Rate, a period of thirty (30), sixty (60) or ninety (90) days commencing on a Business Day selected by Borrower in the Notice of Borrowing or Notice of Conversion/Continuation with respect to such BA Rate Loan delivered to Agent in accordance with Paragraph 2.1(C) or Paragraph 2.2(D) (as applicable), provided that the foregoing provision relating to BA Periods is subject to the following:
(a) any BA Period that would otherwise extend beyond the Commitment Termination Date shall end on the Business Day immediately preceding such Commitment Termination Date;
(b) Borrower shall select BA Periods so as not to require a payment or prepayment on any BA Rate Loan during a BA Period for such Revolving Loan; and
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(c) Borrower shall select BA Periods so there shall be no more than five (5) separate BA Periods in effect at any one time.
"BA Rate" means, with respect to any BA Rate Loan and applicable BA Period, the annual rate of interest which is the average of the "BA 1, 2 or 3 month or thirty (30), sixty (60) or ninety (90) day" rates, as applicable, applicable to Canadian Dollar bankers' acceptances displayed and identified as such on the "Reuters Monitor Screen Page CDOR" at approximately 11:00 a.m., Toronto time, on the date which is two (2) Business Days prior to the first day of such BA Period or, if such display or service ceases to exist, any other similar display and service designated by Agent in existence at the relevant time (as adjusted by Agent after such time to reflect any error in a posted rate or in the posted average rate of interest); provided, however, if no such rates are then provided by Reuters or a similar service designated by Agent, then the BA Rate at the relevant time shall be GE Canada Finance's cost of funds at such time for loans of a similar amount and term, as certified by GE Canada Finance, whose certification thereof shall be binding and conclusive for all purposes hereof.
"BA Rate Loan" means a Loan denominated in Canadian Dollars that bears interest at a rate based on the BA Rate.
"Bank Rate" means, as of any date of determination, the Bank of Canada Rate quoted or published on such date in the Report on Business section of THE GLOBE AND MAIL or such other daily Canadian nationally circulated newspaper; provided, that if such rate is not so quoted or published on any date of determination, then such rate most recently so quoted or published prior to such date of determination shall constitute the "Bank Rate" on such date.
"Beacon Canada Holdings" means Beacon Canada, Inc., a Delaware Corporation.
"Best Purchase Agreements" means (a) the Master Purchase Agreement dated as of September 6, 2000 among Best Acquisition I LLC, the Persons named therein as "Asset Sellers" and "Stock Targets", and the other signatories thereto, (b) the Reorganization Agreement dated as of September 6, 2000 among Holdings, Best Distributing, Best Distributing of Wilmington, Inc. and the other signatories thereto and (c) the letter agreement dated as of September 6, 2000 entered into among the parties to the foregoing Master Purchase Agreement and Reorganization Agreement.
"Best Distributing" means Best Distributing Co., a North Carolina corporation.
"Best Seller Notes" means those Nonnegotiable Subordinated Promissory Notes dated September 6, 2000 in the aggregate principal amount of US$7,000,000 issued by Holdings to certain of the sellers under the terms of the Best Purchase Agreements, as amended on the Closing Date.
"Best Subordination Agreement" means that Subordination and Intercreditor Agreement dated as of September 6, 2000 among Best Distributing, certain of the sellers under the Best Purchase Agreement, Agent, US Facility Agent and the purchasers under the Senior Subordinated Loan Agreement, as amended on the Closing Date.
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"Borrowing Base Certificates" means the US Obligors Consolidating Borrowing Base Certificates, the Consolidated Borrowing Base Certificate and the Canadian Borrowing Base Certificate.
"Business Day" means any day, excluding Saturday, Sunday and any day which is a legal holiday under the laws of the Province of Ontario or is a day on which banking institutions located in the Province of Ontario are closed.
"Canadian Benefit Plans" means all material employee benefit plans of any nature or kind whatsoever that are not Canadian Pension Plans and are maintained or contributed to by any Loan Party which has employees in Canada.
"Canadian Borrowing Base Certificate" means a certificate and schedule duly executed by an officer of Borrower appropriately completed and in substantially the form of EXHIBIT B.2.
"Canadian Dollars" and "C$" each means the lawful money of Canada.
"Canadian GAAP" means generally accepted accounting principles in Canada as set forth in the opinions and pronouncements of the relevant Canadian public and private accountings boards and institutions that are applicable to the circumstances as of the date of determination.
"Canadian Pension Plans" means each plan which is considered to be a pension plan for the purposes of any applicable pension benefits standards statute and/or regulation in Canada maintained or contributed to by a Loan Party for its employees or former employees and does not include the Canada Pension Plan or the Quebec Pension Plan which is maintained by the Government of Canada or the Province of Quebec, respectively.
"Capital Expenditures" means all expenditures (including deposits) for, or contracts for expenditures (excluding contracts for expenditures under or with respect to Capital Leases, but including cash down payments for assets acquired under Capital Leases) with respect to any fixed assets or improvements, or for replacements, substitutions or additions thereto, which have a useful life of more than one year, including the direct or indirect acquisition of such assets by way of increased product or service charges, offset items or otherwise.
"Capital Lease" means any lease of any property (whether real, personal or mixed) that, in conformity with US GAAP, should be accounted for as a capital lease.
"Capitalization/Acquisition Documents" means, collectively:
(a) any or all of the stock certificates, notes, debentures or other instruments
representing securities bought, sold or issued, or loans made, to facilitate the
consummation of the Related Transactions; (b) the indentures or other documents
pursuant to which such stock, notes, debentures or other instruments are issued
or to be issued; (c) each document governing the issuance of, or setting forth
the terms of, such stock, notes, debentures or other instruments; (d) any
stockholders, registration or intercreditor agreement among or between the
holders of such stock, notes,
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debentures or other instruments; (e) the Subordinated Loan Documents and (f) the Equity Documents; but excluding all Loan Documents and all US Facility Loan Documents.
"Cash Equivalents" means: (a) marketable direct obligations issued or unconditionally guaranteed by the United States or Canadian Government or issued by any agency thereof and backed by the full faith and credit of the United States or Canada, in each case maturing within six (6) months from the date of acquisition thereof; (b) commercial paper maturing no more than six (6) months from the date issued and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c) certificates of deposit or bankers' acceptances maturing within six (6) months from the date of issuance thereof issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the laws of the United States of America, or any state thereof or the District of Columbia, having combined capital and surplus of not less than US$250,000,000 or organized under the laws of Canada and referenced in Schedule I of the BANK ACT (Canada) and not subject to setoff rights in favour of such bank.
"CHS" means Code, Hennessy & Simmons III, L.P., a Delaware limited partnership.
"CIGNA Impress Account" means that certain Citibank Delaware depository account number 30548966, for the account of Beacon Roofing Supply Company, Inc.
"Closing Date" means March 12, 2004.
"Collateral" means Borrower Collateral and Other Loan Party Collateral.
"Commitment" or "Commitments" means the commitment or commitments of Lenders to make Loans as set forth in SUBSECTION 2.1(A).
"Compliance Certificate" means a certificate duly executed on behalf of Borrower by the chief executive officer or chief financial officer of Borrower appropriately completed and in substantially the form of EXHIBIT C.
"Consolidated Borrowing Base Certificate" means a certificate and schedule duly executed by an officer of Borrower appropriately completed and in substantially the form of EXHIBIT B.1.
"Contingent Obligation", as applied to any Person, means any direct or indirect liability of that Person: (i) with respect to any Indebtedness, lease, dividend or other obligation of another Person if the purpose or intent of the Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (iii) under any foreign exchange contract, currency swap agreement, interest rate swap agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values
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or interest rates; (iv) to make take-or-pay or similar payments if required
regardless of nonperformance by any other party or parties to an agreement, or
(v) pursuant to any agreement to purchase, repurchase or otherwise acquire any
obligation or any property constituting security therefor, to provide funds for
the payment or discharge of such obligation or to maintain the solvency,
financial condition or any balance sheet item or level of income of another. The
amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if not a fixed and
determined amount, the maximum amount so guaranteed.
"Default" means a condition, act or event that, after notice or lapse of time or both, would constitute an Event of Default if that condition, act or event were not cured or removed within any applicable grace or cure period.
"Defaulted Amount" means, with respect to any Lender at any time, any amount required to be paid hereunder or under any other Loan Document by such Lender to the Agent or any other Lender which has not been so paid.
"Defaulting Lender" means, at any time, any Lender that owes a Defaulted Amount.
"Domestic Subsidiary" means any Subsidiary organized under the laws of a jurisdiction within the United States and whose chief executive office and principal places of business are located in the United States.
"EBITDA" means, for any period, without duplication, the total of the following for Holdings and its Subsidiaries on a consolidated basis, each calculated for such period: (1) net income determined in accordance with US GAAP; PLUS, to the extent included in the calculation of net income, (2) the sum of (a) income, capital and franchise taxes paid or accrued; (b) interest expenses, net of interest income, paid or accrued; (c) amortization and depreciation and (d) other non-cash charges (excluding accruals for cash expenses made in the ordinary course of business); LESS, to the extent included in the calculation of net income, (3) the sum of (a) the income of any Person (other than the US Borrower and wholly-owned Subsidiaries of the US Borrower) in which Holdings or a wholly-owned Subsidiary of Holdings has an ownership interest except to the extent such income is received by the US Borrower or a wholly-owned Subsidiary of the US Borrower in a cash distribution during such period; (b) gains or losses from sales or other dispositions of assets (other than Inventory in the normal course of business); and (c) extraordinary or non-recurring gains, but not net of extraordinary or non-recurring "cash" losses.
"Eligible Assignee" means (a) any Lender, any Affiliate of any Lender and, with respect to any Lender that is an investment fund that invests in commercial loans, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor, and (b) any "accredited investor" (as defined under Ontario Securities Commission Rule 45-501 (as amended, supplemented, replaced or otherwise modified from time to time)) which extends credit or buys loans as one of its businesses, mutual fund, lease financing company and commercial finance company which extends credit or buys loans as one of its businesses and, in
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each case, which has a rating of BBB or higher from Standard & Poor's Ratings Group or Dominion Bond Rating Service Limited or a rating of Baa2 or higher from Moody's Investor Service, Inc. at the date that it becomes a Lender and which, through its applicable lending office, is capable of lending to Borrower without the imposition of any withholding or similar taxes; provided, that no Person determined by Agent to be acting in the capacity of a vulture fund or distressed debt purchaser shall be an Eligible Assignee and no Person or Affiliate of such Person (other than a Person that is already a Lender) holding Subordinated Debt or shares issued by any Loan Party shall be an Eligible Assignee.
"Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA which (a) is maintained for employees of any Loan Party or any ERISA Affiliate or (b) has at any time within the preceding 6 years been maintained for the employees of any Loan Party or any current or former ERISA Affiliate.
"Environmental Claims" means claims, liabilities, investigations, litigation, administrative proceedings, judgments or orders relating to Hazardous Materials.
"Environmental Laws" means all applicable federal, provincial, local and foreign laws, statutes, ordinances, codes, rules, standards, orders-in-council, and regulations, now or hereafter in effect and, in each case, as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation).
"Environmental Liabilities" means, with respect to any Person, all liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of legal counsel, experts and consultants), fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, administrative order, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including any arising under or related to any Environmental Laws, Environmental Permits, or in connection with any Release or threatened Release or presence of a Hazardous Material whether on, at, in, under, from or about or in the vicinity of any real or personal property.
"Environmental Permits" means all permits, licenses, authorizations, certificates, approvals or registrations required by any Governmental Authority under any Environmental Laws.
"Equipment" means all "equipment" (as defined in the PPSA), all furniture, furnishings, fixtures, machinery, motor vehicles, trucks, trailers, vessels, aircraft and rolling stock and all parts thereof and all additions and accessions thereto and replacements therefor.
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"Equity Documents" means (i) the Chief Executive Securities Agreement dated as of August 21, 1997 by and among Holdings, CHS and Andrew Logie, (ii) the Executive Securities Agreements among Holdings, CHS and certain managers of the Loan Parties, (iii) the Amended and Restated Investor Securities Agreement dated as of September 6, 2000 among Holdings, CHS and certain of Holdings' other equity holders, (iv) the Warrants dated as of August 22, 1997 issued by Holdings to Heller Financial, Inc. and Banc of America Commercial Finance Corporation ("BofA") as assigned by BofA on June 8, 2001 to CHS and Mark Shufro and (v) the Warrantholders Rights Agreement dated as of August 21, 1997 among Holdings, Heller, Mark Shufro (as BofA's assignee), CHS and certain other stockholders of Holdings to which Holdings is a party.
"Equivalent Amount" means, on any date of determination, with respect to obligations or valuations denominated in one currency (the "first currency"), the amount of another currency (the "second currency") which would result from the conversion of the relevant amount of the first currency into the second currency at the 12:00 noon (Toronto time) rate quoted on the Reuters' Screen Page BOFC on such date, or if such date is not a Business Day, on the Business Day immediately preceding such date of determination (or, if such display or service ceases to exist, any other similar display and service designated by Agent in existence at the relevant time).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any Person who is a member of a group which is under common control with any Loan Party, who together with any Loan Party is treated as a single employer within the meaning of Section 414(b) and (c) of the IRC.
"Excess Availability" has the meaning assigned to it in the US Facility Loan Agreement as of the Closing Date.
"Existing Obligations" means the "Obligations" of the Borrower under the Existing Loan Agreement outstanding on the Closing Date.
"Fiscal Year" means each twelve (12) month period ending on the last day of September in each year.
"Fixed Charge Coverage" means, for any period, Operating Cash Flow divided by Fixed Charges.
"Fixed Charges" means, for any period, and each calculated for such period (without duplication), (a) Interest Expense of Holdings and its Subsidiaries; PLUS (b) scheduled payments of principal with respect to all Indebtedness of Holdings and its Subsidiaries; PLUS (c) any provision for (to the extent it is greater than zero) income, capital or franchise taxes
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included in the determination of net income, excluding any provision for deferred taxes; PLUS (d) payment of deferred taxes accrued in any prior period.
"Funding Date" means the date of each funding of a Loan.
"Governmental Authority" means any nation or government, any province, state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
"Hazardous Material" means any substance, material or waste that is regulated by, or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance that is (a) defined as a "solid waste", "hazardous waste", "hazardous material", "hazardous substance", "dangerous goods", "extremely hazardous waste", "restricted hazardous waste, "pollutant", "contaminant", "hazardous constituent", "special waste", "toxic substance" or other similar term or phrase under any Environmental Laws, or (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance.
"Holdings" means Beacon Roofing Supply, Inc., a Delaware corporation.
"Holdings' Accountants" means the independent certified public accountants selected by Holdings and its Subsidiaries and reasonably acceptable to Agent, which selection shall not be modified during the term of this Agreement without Agent's prior written consent.
"Indebtedness" as applied to any Person, means: (a) all indebtedness for borrowed money; (b) that portion of obligations with respect to capital leases that is properly classified as a liability on a balance sheet in conformity with US GAAP; (c) any obligation under any lease (a "synthetic lease") treated as an operating lease under US GAAP and as a loan or financing for United States income tax purposes or creditors rights purposes; (d) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (e) any obligation owed for all or any part of the deferred purchase price of property or services if the purchase price is due more than six (6) months from the date that the obligation is incurred or is evidenced by a note or similar written instrument; (f) "earnouts" and similar payment obligations (including, without limitation, the Best Earn-Out Obligations), which obligations shall, for purposes of determining outstanding Indebtedness in connection with calculating Borrower's and the other Loan Parties' compliance with the covenants contained in SECTION 7, be valued based upon the amount thereof required to be recorded as a liability on a balance sheet prepared in accordance with US GAAP; (g) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person and (h) obligations in respect of letters of credit.
"Index Rate" means, on any day, a floating rate per annum equal to the greater of (1) the annual rate of interest most recently quoted in the "Report on Business" section of the Globe and Mail as being the current "Canadian prime rate", "chartered bank prime rate" or words
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of similar description in effect and (2) the BA Rate in respect of a BA Period of thirty (30) days commencing on the first Business Day of the calendar month in which such date occurs plus 1.75% per annum. Each change in any interest rate provided for in the Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate. For greater certainty, no adjustment shall be made to account for the difference between the number of days in a year on which the rates referred to in this definition are based and the number of days in a year on the basis of which interest is calculated in the Agreement.
"Index Rate Loan" means a Loan denominated in Canadian Dollars bearing interest at a rate determined by reference to the Index Rate.
"Insolvency Law" means any of the BANKRUPTCY AND INSOLVENCY
ACT (Canada), the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada) and TITLE 11 of
the United States Code entitled "Bankruptcy", each as amended from time to time,
and any other applicable bankruptcy, insolvency and other similar law now or
hereafter in effect and all rules and regulations promulgated thereunder.
"Intellectual Property" means all present and future designs and registrations and applications therefor, patents, patent rights and applications therefor, trademarks and registrations or applications therefor, trade names, inventions, copyrights and all applications and registrations therefor, software or computer programs, license rights, trade secrets, methods, processes, know-how, drawings, specifications, descriptions, and all memoranda, notes and records with respect to any research and development, whether now owned or hereafter acquired, all goodwill associated with any of the foregoing, and proceeds of all of the foregoing, including, without limitation, proceeds of insurance policies thereon.
"Intercreditor Agreement" means the intercreditor agreement dated as of the Closing Date among Agent, US Facility Agent, Lenders, US Facility Lenders and the Loan Parties party thereto.
"Interest Expense" means, without duplication, for any period,
the following, for Holdings and its Subsidiaries each calculated for such
period: interest expenses deducted in the determination of net income (excluding
(i) the amortization of fees and costs with respect to the Related Transactions
which have been capitalized as transaction costs in accordance with the
provisions of SUBSECTION 11.2; and (ii) interest paid in kind).
"Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or similar agreement or arrangement designed to protect Borrower against any fluctuations in interest rates entered into between Borrower and any Lender (or an Affiliate of any Lender).
"Inventory" means all "inventory" (as defined in the PPSA), including, without limitation, finished goods, raw materials, work in process and other materials and supplies used or consumed in a Person's business, and goods which are returned or repossessed.
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"Investor Subordinated Notes" "Investor Subordinated Notes" means (i) those Junior Subordinated Promissory Notes issued by Holdings to its stockholder prior to the Closing Date in an aggregate outstanding amount of $12,165,881 as of the Closing Date, (ii) those additional Junior Subordinated Promissory Notes that may hereafter be issued by Holdings to employees who purchase such Junior Subordinated Promissory Notes together with common stock of Holdings (which Junior Subordinated Promissory Notes shall be in the form of the Investor Junior Subordinated Promissory Notes outstanding on the Closing Date); and (iii) those additional Junior Subordinated Promissory Notes that may be issued after the Closing Date in connection with Permitted Acquisitions (including Junior Subordinated Promissory Notes issued to stockholders of Holdings to provide funds for Permitted Acquisitions) (which Junior Subordinated Promissory Notes shall be in the form of the Investor Junior Subordinated Promissory Notes outstanding on the Closing Date).
"Investor Subordination Agreement" means the Subordination Agreement dated as of September 6, 2000 among the holders of the Investor Subordinated Notes issued on or prior to September 6, 2000, Holdings, Agent, US Facility Agent and the purchasers under the Senior Subordinated Loan Agreement, as amended on the Closing Date.
"IRC" means the Internal Revenue Code of 1986, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder.
"ITA" means the INCOME TAX ACT (Canada) R.S.C., 1985, as amended form time to time and any successor statute and all rules and regulations promulgated thereunder.
"Liabilities" shall have the meaning given that term in accordance with US GAAP and shall include Indebtedness.
"Lien" means any lien, claim, hypothec, mortgage, pledge, security interest, charge or encumbrance of any kind, whether voluntary or involuntary, (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Revolving Loan Commitment.
"Loan Documents" means this Agreement, the Notes, the Security Documents, the Intercreditor Agreement, each Interest Rate Agreement with a Lender, each Currency Rate Agreement with a Lender pursuant to SUBSECTION 5.10, the letter agreement referenced in SUBSECTION 2.3(D) and all other documents, instruments and agreements executed by or on behalf of any Loan Party and delivered concurrently herewith or at any time hereafter to or for Agent or any Lender in connection with the Loans and any other transaction contemplated by this Agreement, all as amended, restated, supplemented or modified from time to time but excluding all Capitalization/Acquisition Documents.
"Loan Party" means each of Holdings, US Borrower, Borrower and each other Subsidiary of US Borrower.
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"Loan Year" means each period of twelve (12) consecutive months commencing on the Closing Date and on each anniversary thereof.
"Material Adverse Effect" means a material adverse effect upon
(a) the business, operations, prospects, properties, assets or condition
(financial or otherwise) of Holdings and its Subsidiaries taken as a whole or
(b) the ability of any Loan Party to perform its obligations under any Loan
Document to which it is a party or of Agent or any Lender to enforce or collect
any of the Obligations. In determining whether any individual event would result
in a Material Adverse Effect, notwithstanding that such event does not of itself
have such effect, a Material Adverse Effect shall be deemed to have occurred if
the cumulative effect of such event and all other then existing events would
result in a Material Adverse Effect.
"Moody's" means Moody's Investor Services, Inc.
"Mortgage" means each of the mortgages, deeds of hypothec, deeds of trust, leasehold mortgages, leasehold deeds of trust, collateral assignments of leases or other real estate security documents or equivalents delivered by any Loan Party to Agent, on behalf of Agent and Lenders, with respect to Mortgaged Property or Additional Mortgaged Property, all in form and substance satisfactory to Agent.
"Mortgaged Property" means the real property owned or leased by Borrower, US Borrower or its Subsidiaries as described on SCHEDULE 11.1(A).
"Net Proceeds" means cash proceeds received by Borrower or any of its Subsidiaries from any Asset Disposition (including insurance proceeds, awards of condemnation, and payments under notes or other debt securities received in connection with any Asset Disposition), net of (a) the costs of such sale, lease, transfer or other disposition (including taxes attributable to such sale, lease or transfer) and (b) amounts applied to repayment of Indebtedness (other than the Obligations) secured by a Lien on the asset or property disposed.
"Notes" means the Revolving Notes.
"Notice of Borrowing" means a notice duly executed by an authorized representative of Borrower appropriately completed and in the form of EXHIBIT D.
"Notice of Conversion/Continuation" means a notice duly executed by an authorized representative of Borrower appropriately completed and in the form of EXHIBIT F.
"Obligations" means all obligations, liabilities and indebtedness of every nature of each Loan Party from time to time owed to Agent or to any Lender under the Loan Documents (whether incurred before or after the Termination Date), including the principal amount of all debts, claims and indebtedness, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable including, without limitation, all interest, fees, costs and expenses accrued or incurred after the filing of any petition under any bankruptcy or insolvency law.
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"Operating Cash Flow" means, for any period, (a) EBITDA; LESS
(b) unfinanced Capital Expenditures of US Borrower and its Subsidiaries.
"Other Loan Party Collateral" means all real and personal property of each Loan Party, other than Borrower, and in which such Loan Party purports to grant security interests and/or other Liens to Agent and/or Lenders under the Security Documents.
"Papillon" means Fournier & Papillon, Ltee, a Quebec company.
"Permitted Acquisition" means an acquisition by any US Obligor of all or substantially all of the assets or 100% of the equity securities of any Person that engaged in the same (or substantially the same) line of business as the US Obligors which has been approved in writing by the Requisite Lenders in their sole and absolute discretion.
"Permitted Encumbrances" means the following types of Liens:
(a) Liens (other than Liens relating to Environmental Claims or ERISA) for
taxes, assessments or other governmental charges not yet due and payable; (b)
statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and
other similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent; (c) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (d) deposits, in an aggregate amount not to
exceed US$250,000 or the Equivalent Amount thereof made in the ordinary course
of business to secure liability to insurance carriers; (e) easements,
rights-of-way, restrictions, and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
any Loan Party or any of its Subsidiaries; (f) Liens on fixed assets for
purchase money obligations, PROVIDED that (i) the purchase of the asset subject
to any such Lien is permitted under PARAGRAPH (B) of the Financial Covenants
Rider, (ii) the Indebtedness secured by any such Lien is permitted under
SUBSECTION 7.1, (iii) such Lien encumbers only the asset so purchased and (iv)
the Indebtedness or other obligation secured by such Liens is incurred within
ninety (90) days after the purchase or lease of such asset; (g) Liens in favour
of Agent, on behalf of itself and Lenders, (h) Liens under the US Facility Loan
Documents in favour of US Facility Agent, for the benefit of US Facility Agent
and US Facility Lenders, and (i) Liens set forth on SCHEDULE 11.1(B).
"Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof.
"Personal Property Security Legislation" means any applicable personal property security legislation, as all such legislation now exists or may from time to time hereafter be
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amended, modified, recodified, supplemented or replaced, together with all rules, regulations and interpretations thereunder ore related thereto.
"PPSA" means the PERSONAL PROPERTY SECURITY ACT (Ontario), as such legislation now exists or may from time to time hereafter be amended, modified, recodified, supplemented or replaced, together with all rules, regulations and interpretations thereunder or related thereto. References to sections of the PPSA shall be construed to also refer to any successor sections.
"Pro Forma" means the unaudited consolidated and consolidating balance sheets of Holdings and its Subsidiaries prepared in accordance with US GAAP as of the Closing Date after giving effect to the transactions contemplated by this Agreement. The Pro Forma is attached hereto as SCHEDULE 11.1(C).
"Pro Forma EBITDA" has the meaning assigned to it in the US Facility Loan Agreement.
"Pro Rata Share" means, with respect to a Lender's obligation to make Revolving Advances and such Lender's right to receive payments of interest and principal with respect thereto and the related unused line fee described in SUBSECTION 2.3(A), and for all other purposes, the percentage obtained by dividing (i) the Revolving Credit Exposure of such Lender by (ii) the aggregate Revolving Credit Exposure of all Lenders.
"Projections" means Holdings' forecasted consolidated and consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization statements, all prepared on a division by division and Subsidiary by Subsidiary basis consistent with Borrower's historical financial statements and based upon good faith estimates and assumptions by Borrower believed to be reasonable at the time made, together with appropriate supporting details and a statement of underlying assumptions.
"Quality" means Quality Roofing Supply Company, Inc., a Delaware corporation.
"Real Estate" means all real property owned, leased, subleased or used by Borrower or any other Loan Party.
"Related Transactions" means the execution and delivery of the Related Transactions Documents entered into in connection with those Related Transactions consummated on the Closing Date, the funding of all Loans on the Closing Date, the repayment of a portion of the Indebtedness pursuant to the Senior Subordinated Loan Documents which is to be paid in full on the Closing Date, and the payment of all fees, costs and expenses associated with all of the foregoing.
"Related Transactions Documents" means the Loan Documents, the Subordinated Loan Documents, the Capitalization/Acquisition Documents and all other agreements, instruments and documents executed or delivered in connection with the Related Transactions.
"Release" means any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal,
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dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment, including the movement of Hazardous Material through or in the air, soil, surface water, ground water or property.
"Requisite Lenders" means Lenders (including, for purposes
hereof, US Facility Lenders and excluding (i) Defaulting Lenders hereunder and
(ii) "Defaulting Lenders" as defined in the US Facility Loan Agreement) having
(together with their Affiliates) (a) more than 50% of the sum of (i) the
Equivalent Amount in US Dollars of the Revolving Loan Commitment PLUS (ii) the
US Facility Revolving Loan Commitment and the aggregate outstanding principal
balance of the US Facility Term Loans of all US Facility Lenders (that are not
"Defaulting Lenders", as defined in the US Facility Loan Agreement) or (b) if
the Revolving Loan Commitment has been terminated, more than 50% of the sum of
(i) the Equivalent Amount in US Dollars of the aggregate outstanding principal
balance of the Loans of all Lenders that are not Defaulting Lenders PLUS (ii)
the aggregate outstanding principal balance of the US Facility Revolving Loans
and the US Facility Term Loans of all US Facility Lenders (that are not
"Defaulting Lenders", as defined in the US Facility Loan Agreement); provided
that, in each case, Requisite Lenders shall at all times consist of at least
three Lenders.
"Reserves" means, with respect to the Canadian Borrowing Base
(a) the Credit Memoranda Reserve and the Dilution Reserve and (b) reserves
against Eligible Accounts, Eligible Inventory or the Canadian Borrowing Base
that Agent may, in its reasonable credit judgment, establish from time to time,
with prior or contemporaneous notice to Borrower.
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
or other equity securities, or ownership interest in, any Loan Party now or
hereafter outstanding, except a dividend payable solely with shares of the class
of stock on which such dividend is declared; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock
or other equity security of, or ownership interest in, any Loan Party now or
hereafter outstanding, or the issuance of a notice of any intention to do any of
the foregoing; (c) any payment or prepayment of interest on, principal of,
premium, if any, redemption, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any Indebtedness
subordinated to the Obligations including, without limitation, the Indebtedness
incurred pursuant to the Subordinated Loan Documents, or the issuance of a
notice of any intention to do any of the foregoing; (d) any payment made to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock or other equity security
of, or ownership interest in, any Loan Party now or hereafter outstanding; and
(e) any payment by Borrower or any of its Subsidiaries of any management,
consulting or similar fees to any Affiliate, whether pursuant to a management
agreement or otherwise.
"Revolving Advance" means each advance made by Lender(s) under the Revolving Loan Commitment pursuant to SUBSECTION 2.1(A).
"Revolving Credit Exposure" means, with respect to any Lender as of any date of determination, (a) prior to the termination of the Revolving Loan Commitment, such Lender's
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Revolving Loan Commitment and (b) after termination of the Revolving Loan Commitment, the aggregate outstanding principal amount of the Revolving Loan held by such Lender.
"Revolving Loan" means the outstanding balance of all Revolving Advances and any amounts added to the principal balance of the Revolving Loan pursuant to this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment of such Lender to make Revolving Advances pursuant to SUBSECTION 2.1(A) in the aggregate amount set forth on the signature page of this Agreement below such Lender's signature or in the most recent Assignment and Acceptance Agreement, if any, executed by such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders to make Revolving Advances.
"Revolving Note" means each promissory note of Borrower, in form and substance reasonably acceptable to Agent, issued to evidence the Revolving Loan Commitments.
"RFC" means The Roof Centre, Inc., a Delaware corporation.
"Security Documents" means all instruments, documents and agreements executed by or on behalf of any Person to guaranty or provide collateral security with respect to the Obligations, including, without limitation, each guaranty of the Obligations, each security agreement, pledge agreement, mortgage, debenture, deed of trust and deed of hypothec and all instruments, documents and agreements executed pursuant to the terms of the foregoing.
"Senior Indebtedness" means the aggregate outstanding principal balance of all Indebtedness of Holdings and its Subsidiaries on a consolidated basis, but excluding Indebtedness evidenced by the Best Seller Notes, the Investor Subordinated Notes, the Stockholder Notes, the Senior Subordinated Loan Documents, and excluding any other Indebtedness which, by its express terms is subordinated to the Obligations on a basis satisfactory to Agent.
"Senior Subordinated Loan Documents" means the Second Amended and Restated Note and Warrant Purchase Agreement dated as of the Closing Date (the "Senior Subordinated Loan Agreement") among Holdings, US Borrower and the "Purchasers" named therein, the Subordinated Promissory Notes in the aggregate initial principal amount of US$12,000,000 issued thereunder and the Subordinated Promissory Notes in the aggregate initial principal amount of US$20,000,000 issued under the "Prior Purchase Agreement" (as defined in the Senior Subordinated Loan Agreement) (collectively, the "Senior Subordinated Notes") and all other documents, instruments and agreements executed pursuant to the terms of the Senior Subordinated Loan Agreement.
"Senior Subordination Agreement" means the Subordination and Intercreditor Agreement dated as of June 8, 2001 among Holdings, the US Borrower, the Purchasers under the Senior Subordinated Loan Agreement, Agent and US Facility Agent, as amended on the Closing Date.
"Stockholder Notes" means promissory notes issued by Holdings to former employees or the estate or personal representative of deceased employees of the US Borrower
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and its Subsidiaries in payment of all or a portion of the redemption price for Investor Subordinated Notes and shares of Holdings' common stock redeemed from such Persons, which notes are fully subordinated to Holdings' guaranty of the Obligations in a manner satisfactory to the Agent and payable only after the Obligations have been paid in full or as otherwise permitted by this Agreement.
"Subordinated Loan Documents" means the Best Seller Notes, the Best Subordination Agreement, the Investor Subordinated Notes, the Investor Subordination Agreement, the Senior Subordination Agreement and the Senior Subordinated Loan Documents.
"Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than fifty percent (50%) of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other subsidiaries of that Person or a combination thereof.
"Target" has the meaning assigned to it in the US Facility Loan Agreement.
"Unused Line Fee Margin" means with respect to any month (or portion thereof) for which the unused line fee under SECTION 2.3 is being calculated, a per annum rate equal to (a) three-eighths of one percent (0.375%) if the sum of (i) the average daily balance of the Revolving Loan (expressed in US Dollars) for such period plus (ii) the average daily balance of the US Facility Revolving Loan for such period plus (iii) the average daily balance of the US Facility Letter of Credit Obligations for such period, is less than US$60,000,000 and (b) one-quarter of one percent (0.25%) if the sum of (i) the average daily balance of the Revolving Loan (expressed in US Dollars) for such period plus (ii) the average daily balance of the US Facility Revolving Loan for such period, is equal to or greater than US$60,000,000. "US Dollars" and "US$" each means the lawful money of the United States of America.
"US Facility Agent" means General Electric Capital Corporation, as agent under the US Facility Loan Documents.
"US Facility Lenders" means the lenders party to the US Facility Loan Agreement.
"US Facility Letter of Credit Obligations" has the meaning assigned to the term "Letter of Credit Obligations" under the US Facility Loan Agreement.
"US Facility Loan Agreement" means the Second Amended and Restated Loan and Security Agreement dated as of the Closing Date among Beacon Canada Holdings, Best Distributing, Quality, RFC, West End, US Borrower, US Facility Agent, US Facility Lenders, GECC Capital Markets Group Inc., as lead arranger, and Fleet Capital Corporation, as syndication agent.
"US Facility Loan Documents" means the US Facility Loan Agreement and the other "Loan Documents" as defined therein.
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"US Facility Revolving Loan Commitment" means the "Revolving Loan Commitment" as defined under the US Facility Loan Agreement.
"US Facility Revolving Loans" means the "Loans" as defined under the US Facility Loan Agreement.
"US Facility Term Loans" means the "Term Loans", as defined in the US Facility Loan Agreement.
"US GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination.
"US Obligors" means US Borrower and its Domestic Subsidiaries that are party to the US Facility Loan Agreement.
"US Obligors Consolidating Borrowing Base Certificate" has the meaning assigned to the term "Consolidating Borrowing Base Certificate" in the US Facility Loan Agreement.
"West End" means West End Lumber Company, Inc., a Delaware corporation.
11.2 ACCOUNTING TERMS For purposes of this Agreement, all accounting terms not otherwise defined herein (for example by reference to Canadian GAAP) shall have the meanings assigned to such terms in conformity with US GAAP. Financial statements and other information furnished to Agent or any Lender pursuant to SUBSECTION 5.1 shall be prepared in accordance with US GAAP (as in effect at the time of such preparation) on a consistent basis. In the event any "Accounting Changes" (as defined below) shall occur and such changes affect financial covenants, standards or terms in this Agreement, then Borrower and Lenders agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of Borrower shall be the same after such Accounting Changes as if such Accounting Changes had not been made, and until such time as such an amendment shall have been executed and delivered by Borrower and Requisite Lenders, (A) all financial covenants, standards and terms in this Agreement shall be calculated and/or construed as if such Accounting Changes had not been made, and (B) Borrower shall prepare footnotes to each Compliance Certificate and the financial statements required to be delivered hereunder that show the differences between the certificate or financial statements delivered (which reflect such Accounting Changes) and the basis for calculating financial covenant compliance (without reflecting such Accounting Changes). "Accounting Changes" means: (a) changes in accounting principles required by US GAAP and implemented by Holdings; (b) changes in accounting principles recommended by Holdings' Accountants; and (c) changes in carrying value of Holdings' or any of its Subsidiaries' assets, liabilities or equity accounts resulting from (i) the application of purchase accounting principles (A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109) to the Related Transactions or (ii) any other adjustments that, in each case, were
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applicable to, but not included in, the Pro Forma. All such adjustments resulting from expenditures made subsequent to the Closing Date (including, but not limited to, capitalization of costs and expenses or payment of pre-Closing Date liabilities) shall be treated as expenses in the period the expenditures are made and deducted as part of the calculation of EBITDA in such period.
11.3 OTHER DEFINITIONAL PROVISIONS. References to "Sections", "subsections", "Riders", "Exhibits", "Schedules" and "Addendums" shall be to Sections, subsections, Riders, Exhibits, Schedules and Addendums, respectively, of this Agreement unless otherwise specifically provided. Any of the terms defined in SUBSECTION 11.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. In this Agreement, words importing any gender include the other genders; the words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to agreements and other contractual instruments shall be deemed to include subsequent amendments, assignments, and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of this Agreement or any other Loan Document; references to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.
SECTION 12.
RESTATEMENT OF ORIGINAL LOAN AGREEMENT
The parties hereto agree that on the Closing Date, the following transactions shall be deemed to occur automatically, without further action by any party hereto:
(a) The Existing Loan Agreement shall be deemed to be amended and restated in its entirety in the form of this Agreement;
(b) All Existing Obligations shall, to the extent not repaid on the Closing Date, be deemed to be Obligations outstanding hereunder;
(c) the guaranties and Liens in favour of the Agent for the benefit of the Existing Lenders securing payment of the Existing Obligations shall remain in full force and effect with respect to the Obligations; and
(d) all references in the other Loan Documents to the Existing Loan Agreement shall be deemed to refer to this Agreement without further amendment to such other Loan Documents.
The parties acknowledge and agree that this Agreement and the other Loan Documents do not constitute a novation, payment and reborrowing or termination of the Existing Obligations and that all such Existing Obligations are in all respects continued and outstanding as Obligations under this Agreement and the Notes with only the terms being modified from and after the effective date of this Agreement as provided in this Agreement, the Notes and the other
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Loan Documents. After giving effect to this Agreement, the aggregate outstanding principal balances of each Lender's Loans on the Closing Date is as set forth on SCHEDULE 12 hereto.
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Witness the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above.
BEACON ROOFING SUPPLY CANADA COMPANY
By: /s/ Krista Hatcher
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Name: Krista Hatcher
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Title: VP
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GE CANADA FINANCE HOLDING
COMPANY, as Agent and as a Lender
By: /s/ Stephen Smith
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Title: Duly Authorized Signatory
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Revolving Loan Commitment: C$15,000,000
Address:
11 King Street West, Suite 1500
Toronto, Ontario
M5H 4C7
Attn: Account Manager - Corporate Finance Beacon
Fax/Telecopy No.: (416) 202-6226
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EXHIBITS
A. Assignment and Acceptance Agreement
B-1 Consolidated Borrowing Base Certificate
B-2 Canadian Borrowing Base Certificate
C. Compliance Certificate
D. Notice of Borrowing
E. Inventory Report
F. Notice of Conversion/Continuation
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SCHEDULES
2.1 Initial Credit Memoranda Reserve
3 List of Closing Documents
4.1(B) Capitalization of Loan Parties
4.6 Business and Trade Names (Present and Past Five Years); Locations of
Principal Places of Business, Chief Executive Offices, Domiciles, Books
and Records and Collateral
4.9 Federal Tax Identification Number for each Loan Party
4.11 Employee Pension and Benefit Plans
4.12 Intellectual Property
4.19 Bank Accounts
4.20 Employee Matters
7.1 Indebtedness
7.2 Contingent Obligations
7.8 Transactions and Affiliates
7.11 Subsidiaries
11.1(A) Mortgaged Property
11.1(B) Other Liens
11.1(C) Pro Forma
12 Outstanding Obligations
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RIDERS
A. Conditions Rider
B. Reporting Rider
C. Financial Covenants Rider
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CONDITIONS RIDER
This Conditions Rider is attached to and made a part of that certain Second Amended and Restated Loan and Security Agreement dated as of March 12, 2004 and entered into between Beacon Roofing Supply Canada Company, Agent and Lenders.
(A) CLOSING DELIVERIES. Agent shall have received, in form and substance satisfactory to Agent and Lenders, all documents, instruments and information identified on SCHEDULE 3 and all other agreements, notes, certificates, orders, authorizations, financing statements, mortgages and other documents which Agent may at any time reasonably request, and all of the conditions to the effectiveness of the US Facility Loan Agreement shall have been satisfied.
(B) SECURITY INTERESTS. Agent shall have received satisfactory evidence that all security interests and liens granted to Agent for the benefit of Agent and Lenders pursuant to this Agreement or the other Loan Documents have been duly perfected and constitute first priority liens on the Collateral, subject only to Permitted Encumbrances.
(C) CLOSING DATE AVAILABILITY UNDER US FACILITY LOAN AGREEMENT. After giving effect to the consummation of the transactions contemplated hereunder and the transactions contemplated under the US Facility Loan Agreement on the Closing Date and the payment by Borrower and US Borrower, as applicable, of all costs, fees and expenses relating thereto, (i) the Maximum Revolving Loan Amount on the Closing Date shall exceed the Revolving Loan by at least C$3,000,000, (ii) the outstanding balance of the US Facility Revolving Loan shall not exceed US$65,000,000 (including US Facility Letter of Credit Obligations), (iii) total Indebtedness of Holdings and its Subsidiaries on a consolidated basis shall not exceed US$154,220,000 and (iv) the ratio of Total Indebtedness of Holdings and its Subsidiaries on a consolidated basis to EBITDA shall not exceed 3.94.
(D) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained herein and in the Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except for any representation or warranty limited by its terms to a specific date and taking into account any amendments to the Schedules or Exhibits as a result of any disclosures made by Borrower to Agent after the Closing Date and approved by Agent.
(E) FEES. With respect to the Revolving Advance to be made on the Closing Date, Borrower shall have paid all fees due to Agent or any Lender and payable on the Closing Date.
(F) NO DEFAULT. No event shall have occurred and be continuing or would result from funding a Revolving Advance requested by Borrower that would constitute an Event of Default or a Default.
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(G) PERFORMANCE OF AGREEMENTS. Each Loan Party shall have performed in all material respects all agreements and satisfied all conditions which any Loan Document provides shall be performed by it on or before that Funding Date.
(H) NO PROHIBITION. No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain Agent or any Lender from making any Loans.
(I) NO LITIGATION. There shall not be pending or, to the knowledge of Borrower, threatened, any material action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration by, against or affecting any Loan Party or any of its Subsidiaries (including, without limitation, any tort claims in respect of asbestos products sold or distributed by any Loan Party) or any property of any Loan Party or any of its Subsidiaries that has not been disclosed to Agent by Borrower in writing, and there shall have occurred no development in any such action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration that, in the opinion of Agent, would reasonably be expected to have a Material Adverse Effect.
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
EXECUTION COPY
REPORTING RIDER
This Reporting Rider is attached and made a part of that certain Second Amended and Restated Loan and Security Agreement, dated as of March 12, 2004 and entered into between Beacon Roofing Supply Canada Company, Agent and Lenders.
(A) MONTHLY FINANCIALS. As soon as available and, in any event, within thirty (30) days after the end of each month, Borrower will deliver to Agent and Lenders (1) the consolidated and consolidating balance sheets of Holdings and its Subsidiaries as at the end of such month and the related consolidated and consolidating statements of income, stockholders' equity and cash flow for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, and (2) a schedule of the outstanding Indebtedness for borrowed money of Holdings and its Subsidiaries describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan.
(B) YEAR-END FINANCIALS. As soon as available and, in any event, within ninety (90) days after the end of each Fiscal Year, Borrower will deliver to Agent and Lenders: (1) the consolidated and consolidating balance sheets of Holdings and its Subsidiaries as at the end of such Fiscal Year and the related consolidated and consolidating statements of income, stockholders' equity and cash flow for such Fiscal Year; (2) a schedule of the outstanding Indebtedness of Holdings and its Subsidiaries describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan; and (3) a report with respect to the financial statements from Holdings' Accountants, which report shall be unqualified as to going concern and scope of audit of Holdings and its Subsidiaries and shall state that (a) such consolidated financial statements present fairly the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with US GAAP applied on a basis consistent with prior years and (b) that the examination by Holdings' Accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; and (4) copies of the consolidating financial statements of Holdings and its Subsidiaries, including (a) consolidating balance sheets of Holdings and its Subsidiaries as at the end of such Fiscal Year showing intercompany eliminations and (b) related consolidating statements of income of Holdings and its Subsidiaries showing intercompany eliminations.
(C) ACCOUNTANTS' CERTIFICATION AND REPORTS. Together with each delivery of consolidated and consolidating financial statements of Holdings and its Subsidiaries pursuant to PARAGRAPH (B) above, Borrower will deliver to Agent and Lenders a written statement by Holdings' Accountants (1) stating that their examination has included a review of the terms of this Agreement as same relate to accounting matters and (2) stating whether, in connection with their examination, any condition or event that constitutes a Default or an Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof. Promptly upon receipt thereof, Borrower will deliver to Agent and Lenders copies of all significant reports submitted to Holdings by Holdings' Accountants in connection with each annual, interim or special audit of the financial statements SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
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of Holdings made by Holdings' Accountants, including the comment letter submitted by Holdings' Accountants to management in connection with their annual audit.
(D) COMPLIANCE CERTIFICATE. (i) Together with the delivery of each set of financial statements referenced in PARAGRAPHS (A) and (B) above, Borrower will deliver to Agent and Lenders a Compliance Certificate, together with (in the case of financial statements delivered for any period ending on the last day of a fiscal quarter) copies of the calculations and work-up employed to determine the applicable Loan Parties' compliance or noncompliance with those financial covenants set forth in the Financial Covenants Rider.
(E) CANADIAN AND CONSOLIDATED BORROWING BASE CERTIFICATES, REGISTERS AND JOURNALS. On the Closing Date and thereafter, within five (5) Business Days after the last day of each month (provided that (a) at any time during the months of January, February and March when the sum of the outstanding Revolving Loan, plus the outstanding US Facility Revolving Loan, plus the outstanding US Facility Letter of Credit Obligations, exceeds the Consolidated Borrowing Base (calculated without giving effect to the Seasonal Inventory Advance Rate Percentage) and (b) at all times when EXCESS AVAILABILITY is less than US$15,000,000, such delivery shall also be made on each Monday following the end of the prior week), Borrower shall deliver to Agent for the last Business Day of such period: (1) a Canadian Borrowing Base Certificate updated to reflect the most recent sales and collections of Borrower, together with a Consolidated Borrowing Base Certificate setting forth the Consolidated Borrowing Base; (2) an invoice register or sales journal (or a similar summary report satisfactory to Agent) describing all sales of the Borrower, in form and substance satisfactory to Agent, and, if Agent so requests, copies of invoices evidencing such sales and proofs of delivery relating thereto; (3) a cash receipts journal (or a similar summary report satisfactory to Agent); (4) a credit memo journal (or a similar summary report satisfactory to Agent); and (5) an adjustment journal (or a similar summary report satisfactory to Agent), setting forth all adjustments to Borrower's accounts receivable. Borrower shall cause US Borrower to deliver to Agent copies of all deliveries required under PARAGRAPH (F) of the Reporting Rider to the US Facility Loan Agreement, contemporaneously with providing such deliveries to US Facility Agent (including, without limitation, a copy of the US Obligors Consolidating Borrowing Base Certificate).
(F) INVENTORY REPORTS AND LISTINGS AND AGINGS. On the Closing Date and within five (5) Business Days after the last day of each month and from time to time upon the request of Agent, Borrower will deliver to Agent: (1) an aged trial balance of all then existing Accounts; and (2) an Inventory Report duly executed by an officer of Borrower and substantially in the form of EXHIBIT E as of the last day of such period. As soon as available and in any event within five (5) Business Days after the last day of each month, and from time to time upon the request of Agent, Borrower will deliver to Agent: (1) an aged trial balance of all then existing accounts payable; and (2) a detailed inventory listing and cover summary report. All such reports shall be in form and substance satisfactory to Agent and, unless otherwise directed by Agent, may be transmitted to Agent pursuant to an electronic transmitting reporting system. Borrower shall cause US Borrower to deliver to Agent copies of all deliveries required under PARAGRAPH (F) of the Reporting Rider to the US Facility Loan Agreement, contemporaneously with providing such deliveries to US Facility Agent.
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
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(G) MANAGEMENT REPORT. Together with each delivery of financial statements of Holdings and its Subsidiaries pursuant to PARAGRAPHS (A) and (C) above, Borrower will deliver to Agent and Lenders a management report: (1) describing the operations and financial condition of Holdings and its Subsidiaries for the month then ended and the portion of the current Fiscal Year then elapsed; (2) setting forth in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the most recent Projections for the current Fiscal Year delivered to Lenders pursuant to PARAGRAPH (K) below; and (3) discussing the reasons for any significant variations. The information above shall be presented in reasonable detail and shall be certified on behalf of Borrower by the chief financial officer of Borrower to the effect that such information fairly presents in all material respects the results of operations and financial condition of Holdings and its Subsidiaries as at the dates and for the periods indicated.
(H) APPRAISALS. From time to time, upon the request of Agent, Borrower will obtain and deliver to Agent, at Borrower's expense, appraisal reports in form and substance and from appraisers satisfactory to Agent, stating the then current fair market and orderly liquidation values of all or any portion of the Collateral; PROVIDED, HOWEVER, so long as no Default or Event of Default is continuing, Agent shall not request an appraisal as to any particular category of Collateral to be performed more than once every Loan Year at Borrower's expense. Without limiting the generality of the foregoing, Agent shall request and Borrower will obtain and deliver to Agent, at least once every Loan Year, an appraisal report stating the then current orderly liquidation value of US Obligors' and Borrower's Inventory.
(I) GOVERNMENT NOTICES. Borrower will deliver to Agent and Lenders promptly after receipt copies of all notices, requests, subpoenas, inquiries or other writings received from any governmental agency concerning any Canadian Pension Plan, Canadian Benefit Plan or Employee Benefit Plan, the violation or alleged violation of any Environmental Laws, the storage, use or disposal of any Hazardous Material, the violation or alleged violation of the United States FAIR LABOR STANDARDS ACT or any Loan Party's payment or non-payment of any taxes including any tax audit.
(J) EVENTS OF DEFAULT, ETC. Promptly upon any officer of Borrower
obtaining knowledge of any of the following events or conditions, Borrower shall
deliver to Agent copies of all notices given or received by any Loan Party with
respect to any such event or condition and a certificate on behalf of Borrower,
signed on behalf of Borrower by Borrower's chief executive officer, specifying
the nature and period of existence of such condition or event and what action
such Loan Party has taken, is taking and proposes to take with respect thereto:
(1) any condition or event that constitutes an Event of Default or Default; (2)
any notice of default that any Person has given to any Loan Party or any other
action taken with respect to a claimed default; or (3) any Material Adverse
Effect or (4) any default or event of default with respect to any Indebtedness
of Holdings or any of its Subsidiaries.
(K) PROJECTIONS. As soon as available and in any event no later than forty-five (45) days after the end of Holdings' Fiscal Year, Borrower will deliver to Agent and Lenders consolidated and consolidating Projections of Holdings and its Subsidiaries for the forthcoming Fiscal Year, month by month.
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
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(L) OTHER INFORMATION. With reasonable promptness, Borrower will deliver such other information and data as Agent or Lenders may reasonably request from time to time.
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
EXECUTION COPY
FINANCIAL COVENANTS RIDER
This Financial Covenants Rider is attached and made a part of that certain Second Amended and Restated Loan and Security Agreement, dated as of March 12, 2004 and entered into among Beacon Roofing Supply Canada Company, Agent and Lenders.
(A) EXCESS AVAILABILITY. Excess Availability shall be maintained at all times in an amount of at least US$5,000,000.
(B) CAPITAL EXPENDITURE LIMITS. The aggregate amount of all Capital Expenditures of US Borrower and its Subsidiaries, Capital Leases with respect to fixed assets of US Borrower and its Subsidiaries (which shall be considered to be expended in full on the date such Capital Lease is entered into) and other contracts with respect to fixed assets initially capitalized on US Borrower's or any Subsidiary's balance sheet prepared in accordance with US GAAP (which shall be considered to be expended in full on the date such contract is entered into) (excluding, in each case, expenditures for trade-ins and replacement of assets to the extent funded with casualty insurance proceeds and excluding the purchase price allocated to fixed assets acquired in connection with a Permitted Acquisition) will not exceed US$8,500,000 in any Fiscal Year. Fifty percent (50%) of the amount set forth above not made in any Fiscal Year may be carried over for one year only to the next Fiscal Year; PROVIDED, HOWEVER, any carried-over amount will be deemed used only after all otherwise permitted amounts for that Fiscal Year have been used.
(C) FIXED CHARGE COVERAGE. Fixed Charge Coverage for each twelve
(12) month period ending as of any date set forth below shall not be less than
the ratio set forth below for such date:
DATE RATIO
---- -----
March 31, 2004 1.10
June 30, 2004 1.10
September 30, 2004 1.10
December 31, 2004 1.05
March 31, 2005 1.05
June 30, 2005 and the last day of each fiscal
quarter thereafter 1.10
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SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
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(D) SENIOR INDEBTEDNESS TO EBITDA. The ratio of Senior
Indebtedness calculated as of any date set forth below to EBITDA for the twelve
(12) month period ending on such date shall not be greater than the ratio set
forth below for such date:
DATE RATIO
---- -----
March 31, 2004 2.60
June 30, 2004 2.50
September 30, 2004 2.30
December 31, 2004 2.50
March 31, 2005 2.40
June 30, 2005, and the last day of each fiscal
quarter thereafter 2.00
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The aggregate balances of the Revolving Loan and the US Facility Revolving Loans included in Senior Indebtedness as of any date of determination shall be equal to the average balance of the Revolving Loan and the US Facility Revolving Loans, respectively, for such date and the last day of the two immediately preceding months.
With respect to each Target acquired by US Borrower during any such twelve month period, EBITDA shall be adjusted by an amount equal to the Pro Forma EBITDA of such Target for the portion of such twelve (12) month period which precedes the acquisition of such Target by US Borrower.
(E) LEASE LIMITS. No Loan Party or any of its Subsidiaries will, directly or indirectly, become or remain liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations of the lessee under any operating lease, synthetic lease or similar off-balance sheet financing, if the aggregate amount of all rents (or substantially equivalent payments) paid by the Loan Parties and their Subsidiaries under all such leases would exceed US$11,000,000, or the Equivalent Amount thereof, in any fiscal year of Borrower.
Exhibit 10.13
CHS MANAGEMENT III, L.P.
10 SOUTH WACKER DRIVE
SUITE 3175
CHICAGO, IL 60606
August 21, 1997
Beacon Sales Acquisition, Inc.
50 Webster Avenue
Somerville, MA 02143
Gentlemen:
CHS Management III, L.P., a Delaware limited partnership ("CHS"), desires to perform certain management services for Beacon Sales Acquisition, Inc., a Delaware corporation ("Beacon"), and Beacon desires CHS to perform the management services as set forth herein.
Beacon hereby engages CHS to provide, and CHS agrees to provide, certain management services for Beacon including, without limitation, consultation regarding the business and operations of Beacon, locating investment opportunities for Beacon and other management services reasonably requested by the directors or officers of Beacon.
CHS's obligation to provide such management services for Beacon shall commence on the date hereof and, unless sooner terminated as mutually agreed upon by the parties, shall terminate on the first (1st) anniversary of the date hereof, but is automatically renewable for successive one-year periods unless either party terminates upon at least thirty days written notice prior to the expiration of any such period. As compensation for CHS's management services to be rendered hereunder, Beacon shall pay CHS an annual fee (the "CHS Management Fees") in the amount of Three Hundred Thousand Dollars ($300,000) payable on a monthly basis in arrears. In addition, Beacon shall reimburse CHS for all reasonable direct expenses incurred by CHS in connection with providing the management services described herein.
This agreement may be terminated by the Board of Directors of Beacon in the event the Board of Directors determines in good faith that CHS has materially failed to diligently provide the management services provided herein to Beacon. In the event of such termination by the Board of Directors, Beacon's obligations hereunder shall cease and CHS shall forfeit all right to receive any
Beacon Sales Acquisition, Inc.
August 21, 1997
future compensation hereunder, except that CHS shall be entitled to its pro rata share of compensation for services already performed as of the date of termination and to reimbursement for all reasonable direct expenses incurred by CHS as of such date in connection with providing the management services described herein.
Very truly yours,
CHS Management III, L.P.
By: Code Hennessy & Simmons LLC,
its general partner
By: /s/ Peter M. Gotsch
--------------------------
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Accepted and Agreed to this
21st day of August, 1997.
Beacon Sales Acquisition, Inc.
By: /s/ Peter M. Gotsch
--------------------------
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Exhibit 21.1
Jurisdiction of
Name Incorporation
---- ---------------
Beacon Sales Acquisition, Inc. Delaware
Quality Roofing Supply, Inc. Delaware
Beacon Canada, Inc. Delaware
Best Distributing Co. North Carolina
The Roof Center, Inc. Delaware
West End Lumber Company, Inc. Delaware
Beacon Roofing Supply Canada Company Nova Scotia
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Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated May 21, 2004 in the Registration Statement (Form S-1) and related Prospectus of Beacon Roofing Supply, Inc. dated May 28, 2004.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 24, 2004
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CONSENT OF DIRECTOR NOMINEE
Beacon Roofing Supply, Inc., a Delaware corporation (the "Company"), intends to file a Registration Statement on Form S-1 (together with any amendments and the prospectus contained therein, the "Registration Statement") registering shares of its common stock for issuance in its initial public offering. As required by Rule 438 under the Securities Act of 1933, as amended, I hereby consent to being named in the Registration Statement as a director nominee who has agreed to serve as a director of the Company beginning immediately prior to the effectiveness of the Registration Statement and to all references to me in connection therewith contained in the Registration Statement.
/s/ James Gaffney
------------------------------------
James Gaffney
May 28, 2004
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