Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-36293

 

 

Continental Building Products, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   61-1718923

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

12950 Worldgate Drive, Suite 700, Herndon VA   20170
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code (703) 480-3800

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

The number of shares of the registrant’s common stock outstanding as of May 1, 2015 was 44,120,336.

 

 

 


Table of Contents

Table of Contents

 

         Page  
PART I. FINANCIAL INFORMATION   
Item 1.  

Financial Statements:

  
 

Unaudited Consolidated Statements of Operations

     3   
 

Unaudited Consolidated Statements of Comprehensive Income (Loss)

     4   
 

Unaudited Consolidated Balance Sheets

     5   
 

Unaudited Consolidated Statements of Cash Flows

     6   
 

Notes to Unaudited Consolidated Financial Statements

     7   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     17   
Item 3.  

Quantitative and Qualitative Disclosures about Market Risk

     23   
Item 4.  

Controls and Procedures

     24   
PART II. OTHER INFORMATION   
Item 1.  

Legal Proceedings

     25   
Item 1A.  

Risk Factors

     25   
Item 6.  

Exhibits

     25   
 

Signatures

     26   

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

Continental Building Products, Inc.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(Unaudited)

 

     Three Months
Ended
March 31, 2015
    Three Months
Ended
March 31, 2014
 

Net Sales

   $ 92,176      $ 86,973   

Costs, expenses and other income:

    

Cost of goods sold

     71,675        73,196   

Selling and administrative

     8,428        7,496   

Long Term Incentive Plan funded by Lone Star

     4,171        —     
  

 

 

   

 

 

 

Total costs and operating expenses

  84,274      80,692   
  

 

 

   

 

 

 

Operating income (loss)

  7,902      6,281   

Other expense, net

  (448   (5,186

Interest expense, net

  (4,221   (14,176
  

 

 

   

 

 

 

Income (loss) before earnings on equity method investment and income tax

  3,233      (13,081

Earnings from equity method investment

  59      —     
  

 

 

   

 

 

 

Income (loss) before income tax

  3,292      (13,081

Income tax (expense) benefit

  (1,272   4,458   
  

 

 

   

 

 

 

Net income (loss)

$ 2,020    $ (8,623
  

 

 

   

 

 

 

Net income (loss) per common share:

Basic

$ 0.05    $ (0.22

Diluted

$ 0.05    $ (0.22

Weighted average shares outstanding:

Basic

  44,076,513      39,493,722   

Diluted

  44,092,900      39,493,722   

See accompanying notes to unaudited financial statements.

 

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Continental Building Products, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(Unaudited)

 

     Three Months
Ended
March 31, 2015
    Three Months
Ended
March 31, 2014
 

Net income (loss)

   $ 2,020      $ (8,623

Foreign currency translation adjustment

     (1,563     (841

Gain on derivatives qualifying as cash flow hedges, net of tax

     93        —     
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

  (1,470   (841
  

 

 

   

 

 

 

Comprehensive income (loss)

$ 550    $ (9,464
  

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

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Continental Building Products, Inc.

Consolidated Balance Sheets

(dollars in thousands)

 

     As of
March 31, 2015
(unaudited)
    As of
December 31, 2014
 

Assets

    

Cash

   $ 18,505      $ 15,627   

Receivables, net

     38,053        40,152   

Inventories

     32,920        29,564   

Prepaid and other current assets

     7,337        8,330   

Deferred taxes, current

     3,155        3,157   
  

 

 

   

 

 

 

Total current assets

  99,970      96,830   

Property, plant and equipment, net

  345,118      353,652   

Customer relationships and other intangibles, net

  106,216      110,809   

Goodwill

  119,945      119,945   

Equity method investment

  10,765      10,919   

Debt issuance costs

  8,369      8,826   
  

 

 

   

 

 

 

Total Assets

$ 690,383    $ 700,981   
  

 

 

   

 

 

 

Liabilities and equity

Accounts payable

$ 22,355    $ 24,561   

Accrued and other liabilities

  7,740      11,428   

Notes payable, current portion

  —        —     
  

 

 

   

 

 

 

Total current liabilities

  30,095      35,989   

Deferred taxes and other long-term liabilities

  12,812      12,494   

Notes payable, non-current portion

  339,236      349,125   
  

 

 

   

 

 

 

Total liabilities

  382,143      397,608   
  

 

 

   

 

 

 

Equity

Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding at March 31, 2015 and December 31, 2014

  —        —     

Common stock, $0.001 par value per share; 190,000,000 shares authorized, 44,120,336 and 44,069,000 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

  44      44   

Additional paid-in capital

  292,710      288,393   

Accumulated other comprehensive income (loss)

  (4,530   (3,060

Accumulated earnings

  20,016      17,996   
  

 

 

   

 

 

 

Total equity

  308,240      303,373   
  

 

 

   

 

 

 

Total liabilities and equity

$ 690,383    $ 700,981   
  

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

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Continental Building Products, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

 

     Three Months
Ended
March 31, 2015
    Three Months
Ended
March 31, 2014
 

Cash flows from operating activities:

    

Net income (loss)

   $ 2,020      $ (8,623

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     13,129        13,883   

Bad debt expense

     (175     —     

Amortization of debt issuance costs and debt discount

     547        7,526   

Loss on disposal of property, plant and equipment

     42        —     

Earnings from equity method investment

     (59     —     

Share based compensation

     146        86   

Deferred taxes

     366        (4,329

Change in assets and liabilities:

    

Receivables

     2,171        (5,994

Inventories

     (3,540     (9,817

Prepaid expenses and other current assets

     962        (459

Accounts payable

     (1,963     (1,993

Accrued and other current liabilities

     (3,479     (6,350

Other long term liabilities

     (45     129   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  10,122      (15,941
  

 

 

   

 

 

 

Cash flows from investing activities:

Capital expenditures

  (721   (549

Software purchased or developed

  (296   (735

Distributions from equity method investment

  214      —     
  

 

 

   

 

 

 

Net cash used in investing activities

  (803   (1,284
  

 

 

   

 

 

 

Cash flows from financing activities:

Net proceeds from issuance of common stock

  —        151,354   

Principal payments for First Lien Credit Agreement

  (10,000   (1,038

Repayment of Second Lien Credit Agreement

  —        (155,000

Proceeds from revolving credit facility, net

  —        13,500   

Capital Contribution from Lone Star Funds

  4,171      —     
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

  (5,829   8,816   
  

 

 

   

 

 

 

Effect of foreign exchange rates on cash and cash equivalents

  (612   (357

Net change in cash and cash equivalents

  2,878      (8,766

Cash, beginning of period

  15,627      11,822   
  

 

 

   

 

 

 

Cash, end of period

$ 18,505    $ 3,056   
  

 

 

   

 

 

 

See accompanying notes to unaudited financial statements.

 

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CONTINENTAL BUILDING PRODUCTS, INC.

CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND MARCH 31, 2014

1. Background and Nature of Operations

Description of Business

Continental Building Products, Inc. (“CBP”, or the “Company”) is a Delaware corporation. Prior to the acquisition of the gypsum division of Lafarge North America Inc. (“Lafarge N.A.”) on August 30, 2013, further described below, CBP had no operating activity. The accompanying consolidated financial statements of CBP for the three months ended March 31, 2015 and March 31, 2014 contain activity of the acquired business.

The Company manufactures gypsum wallboard and related products for commercial and residential buildings and houses. The Company operates a network of three highly efficient wallboard facilities, all located in the eastern United States and produces joint compound at one plant in the United States and at another plant in Canada.

The Acquisition

On June 24, 2013, Lone Star Funds (“Lone Star”) entered into a definitive agreement with Lafarge N.A. to purchase the assets of its North American gypsum division for a total purchase price of approximately $703 million (the “Acquisition”) in cash. The closing of the Acquisition occurred on August 30, 2013.

Initial Public Offering

On February 10, 2014, the Company completed the initial public offering of 11,765,000 shares of its common stock at an offering price of $14.00 per share (the “Initial Public Offering”). Net proceeds from the Initial Public Offering after underwriting discounts and commissions, but before other closing costs, were approximately $154 million. The net proceeds were used to pay a $2 million one-time payment to Lone Star in consideration for the termination of the Company’s asset advisory agreement with affiliates of Lone Star (See Note 10, Related Party Transactions). The remaining $152 million of net proceeds and cash on hand of $6.1 million were used to repay the $155 million Second Lien Term Loan in full along with a prepayment premium of $3.1 million (See Note 13, Debt). In expectation of the Initial Public Offering, on February 3, 2014, the Company effected a 32,304 for one stock split of its common stock. The Company’s common stock trades on the New York Stock Exchange under the symbol “CBPX”.

Secondary Public Offering

On March 18, 2015, LSF8 Gypsum Holdings, L.P. (“LSF8”), an affiliate of Lone Star, sold 5,000,000 shares of the Company’s common stock. As a result of the sale, the aggregate beneficial ownership of Lone Star fell below 50% of the Company’s outstanding shares of common stock and the Company no longer qualified as a “Controlled Company” under the corporate governance standards of New York Stock Exchange. As of the closing of the offering and March 31, 2015, the Company was in compliance with the New York Stock Exchange transition rules regarding the loss of Controlled Company status. The decrease in ownership by Lone Star or its affiliates to below 50% triggered an aggregate of $4.2 million in payments to certain officers and the estate of our former CEO under the LSF8 Gypsum Holdings, L.P. Long Term Incentive Plan which are funded by LSF8 (See Note 10, Related Party Transaction). As these payments arose out of employment with the Company, the $4.2 million expense was recorded on the Company’s books in the first quarter of 2015 and will also be deductible for tax purposes.

2. Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements for CBP have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.

Basis of Presentation for Interim Periods

Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. Management believes that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position of the Company and results of operations and cash flows for the periods presented.

The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. Seasonal changes and other conditions can affect the sales volumes of the Company’s products. Therefore, the financial results for any interim period do not necessarily indicate the expected results for the year.

 

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The financial statements should be read in conjunction with CBP’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K for the fiscal year then-ended (the “2014 10-K”). The Company has continued to follow the accounting policies set forth in those financial statements.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) , which provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. ASU 2014-09 will be effective for the Company in the first quarter of 2017 and requires retroactive application on either a full or modified basis. Early application is not permitted. The Company is currently evaluating ASU 2014-09 to determine its impact on its consolidated financial statements and disclosures. In April 2015, the FASB proposed to defer implementation of this ASU by one year. Under this proposal, the ASU will be effective for the Company in the first quarter of 2018.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern : Presentation of Financial Statements— Going Concern (Subtopic 205-40). This ASU defines when and how companies are required to disclose going concern uncertainties, which must be evaluated each interim and annual period. Specifically, it requires management to determine whether substantial doubt exists regarding the entity’s going concern presumption. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). If substantial doubt exists, certain disclosures are required; the extent of those disclosures depends on an evaluation of management’s plans (if any) to mitigate the going concern uncertainty. The provisions of ASU 2014-15 will be effective for annual periods ending after December 15, 2016, and to annual and interim periods thereafter. Early adoption is permitted. The ASU should be applied on a prospective basis. The Company believes the adoption of this ASU will not have a material impact on the Company’s disclosures.

In April 2015, the FASB issued ASU 2015-03, which changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. ASU 2015-03 will be effective for the Company in the first quarter of 2016. Early adoption is permitted. Upon adoption, the guidance must be applied retroactively to all periods presented in the financial statements. The adoption of this guidance will result in a reclassification of debt issuance costs on the Company’s balance sheet, but will not have a material impact on our results of operations.

3. Receivables

Receivables consist of the following:

 

(in thousands)    As of
March 31, 2015
     As of
December 31, 2014
 

Trade receivables

   $ 39,979       $ 42,460   

Total allowances

     (1,926      (2,308
  

 

 

    

 

 

 

Total receivables, net

$ 38,053    $ 40,152   
  

 

 

    

 

 

 

Trade receivables are recorded net of credit memos issued during the normal course of business.

4. Inventories

Inventories consist of the following:

 

(in thousands)    As of
March 31, 2015
     As of
December 31, 2014
 

Finished products

   $ 7,899       $ 4,875   

Raw materials

     17,151         17,010   

Supplies and other

     7,870         7,679   
  

 

 

    

 

 

 

Total inventories

$ 32,920    $ 29,564   
  

 

 

    

 

 

 

 

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5. Property, Plant and Equipment

Property, plant and equipment consist of the following:

 

     As of
March 31, 2015
     As of
December 31, 2014
 

Land

   $ 12,927       $ 12,930   

Buildings

     111,782         111,506   

Plant machinery

     269,940         269,633   

Mobile equipment

     3,518         3,448   

Construction in progress

     2,857         3,165   
  

 

 

    

 

 

 

Property, plant and equipment, at cost

  401,024      400,682   

Accumulated depreciation

  (55,906   (47,030
  

 

 

    

 

 

 

Total property, plant and equipment, net

$ 345,118    $ 353,652   
  

 

 

    

 

 

 

Depreciation expense was $8.9 million for the three months ended March 31, 2015 and $8.8 million for the three months ended March 31, 2014.

6. Software and Other Intangibles

Customer relationships and other intangibles consist of the following:

 

(in thousands)    As of
March 31, 2015
     As of
December 31, 2014
 

Customer relationships

   $ 116,663       $ 117,243   

Purchased and internally developed Software

     4,477         4,332   

Trademarks

     14,833         14,905   
  

 

 

    

 

 

 

Customer relationships and other intangibles, at cost

  135,973      136,480   

Accumulated amortization

  (29,757   (25,671
  

 

 

    

 

 

 

Customer relationships and other intangibles, net

$ 106,216    $ 110,809   
  

 

 

    

 

 

 

Amortization expense was $4.2 million for the three months ended March 31, 2015 and $5.1 million for the three months ended March 31, 2014.

Amortization of customer relationships is done over a 15-year period using an accelerated method that reflects the expected future cash flows from the acquired customer-related intangible asset. Trademarks are amortized on a straight-line basis over the estimated useful life of 15 years.

Amortization expense related to capitalized software was $0.4 million for three months ended March 31, 2015. No amortization for capitalized software was recorded for the three months ended March 31, 2014 as development of a new ERP system was in process and the software not yet put into service. Software development costs are amortized over a three-year life with the expense recorded in selling and administrative expense.

7. Accrued and Other Liabilities

Accrued and other liabilities consist of the following:

 

(in thousands)    As of
March 31, 2015
     As of
December 31, 2014
 

Vacation and other employee-related costs

   $ 2,468         7,945   

VAT taxes

     811         1,220   

Income taxes

     —           —     

Long Term Incentive Plan funded by Lone Star

     1,963         —     

Other

     2,498         2,263   
  

 

 

    

 

 

 

Total accrued and other liabilities

$ 7,740    $ 11,428   
  

 

 

    

 

 

 

 

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8. Income Taxes

The Company’s projected estimated effective tax rate for the 2015 fiscal year is approximately 38% and the Company did not recognize any discrete tax items for the three months ended March 31, 2015. At both, March 31, 2015 and December 31, 2014, there was a valuation allowance of $0.4 million related to the Company’s Canadian operations.

The Company is subject to audit examinations at federal, state and local levels by tax authorities in those jurisdictions. In addition, the Canadian operations are subject to audit examinations at federal and provincial levels by tax authorities in those jurisdictions. The tax matters challenged by the tax authorities are typically complex; therefore, the ultimate outcome of these challenges is subject to uncertainty. The Company has not identified any issues that did not meet the recognition threshold or would be impacted by the measurement provisions of the uncertain tax position guidance.

9. Commitments and Contingencies

The Company leases certain buildings and equipment. The Company’s facility and equipment leases may provide for escalations of rent or rent abatements and payment of pro rata portions of building operating expenses. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. During the three months ended March 31, 2015 and March 31, 2014, total expenses under operating leases were $1.1 million and $1.4 million, respectively. The Company also has noncapital purchase commitments that primarily relate to gas, gypsum, paper and other raw materials.

The table below shows the future minimum lease payments due under non-cancelable operating leases and purchase commitments at March 31, 2015:

 

(in thousands)    Total      Remaining
2015
     2016      2017      2018      2019      2020      Thereafter  

Operating leases (1)

   $ 5,934       $ 1,321       $ 1,320       $ 1,183       $ 616       $ 1,494       $ —         $ —     

Purchase commitments

     163,165         23,406         29,414         29,296         19,410         16,529         14,145         30,965   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commitments

$ 169,099    $ 24,727    $ 30,734    $ 30,479    $ 20,026    $ 18,023    $ 14,145    $ 30,965   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Future minimum lease payments over the non-cancelable lease terms of the operating leases.

Under certain circumstances, the Company provides letters of credit related to its natural gas and other supply purchases. At March 31, 2015 and December 31, 2014, the Company had outstanding letters of credit of approximately $3.6 million and $4.8 million, respectively.

In the ordinary course of business, the Company executes contracts involving indemnifications standard in the industry. These indemnifications might include claims relating to any of the following: environmental and tax matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier, and other commercial contractual relationships; and financial matters. While the maximum amount to which the Company may be exposed under such agreements cannot be estimated, it is the opinion of management that these indemnifications are not expected to have a materially adverse effect on the Company’s financial condition, results of operations or liquidity.

In the ordinary course of business, the Company is involved in certain legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the total liability for these legal actions and claims cannot be determined with certainty. When the Company determines that it is probable that a liability for environmental matters, legal actions or other contingencies has been incurred and the amount of the loss is reasonably estimable, an estimate of the costs to be incurred is recorded as a liability in the financial statements. As of March 31, 2015 and March 31, 2014, such liabilities were not material to the Company’s financial statements. While management believes its accruals for such liabilities are adequate, the Company may incur costs in excess of the amounts provided. Although the ultimate amount of liability that may result from these matters or actions is not ascertainable, the Company believes that any amounts exceeding the recorded accruals will not materially affect its financial condition.

In March 2015, a group of homebuilders commenced a lawsuit against the Company and other US wallboard manufacturers alleging that such manufacturers had conspired to fix the price of wallboard in violation of antitrust and unfair competition laws. The complaint also alleges that the manufacturers agreed to abolish the use of “job quotes” and agreed to restrict the supply of wallboard in order to support the allegedly collusive price increases. The Company denies any wrongdoing of the type alleged in the complaint and believes that it has meritorious defenses to the allegations and will vigorously defend itself in this case. The case has been transferred to the Eastern District of Pennsylvania for coordinated and consolidated pretrial proceedings with existing antitrust litigation in that district. The Company does not believe the lawsuit will have a material adverse effect on its financial condition, results of operation or liquidity.

 

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10. Related Party Transactions

Since the Acquisition, the Company is no longer part of Lafarge N.A. but had a Transition Services Agreement to help with certain ongoing back-office functions. These functions included, among others, accounting, treasury, tax, and information technology services. The Company paid Lafarge N.A. a fee for these services of $129,700 per month through September 2014. Thereafter, the Company reduced the services provided by Lafarge N.A. and the fees paid until the Agreement was terminated in December 2014.

On August 30, 2013, the Company entered into an advisory agreement with an affiliate of Lone Star to provide certain management oversight services to the Company, including assistance and advice on strategic plans, obtaining and maintaining certain legal documents, and communicating and coordinating with service providers. The Company paid 110% of actual costs for the services provided. No services were provided in the first quarter of 2014. The agreement was terminated upon the closing of the Initial Public Offering in the first quarter of 2014 and in connection therewith, the Company paid a termination fee of $2.0 million that is included in non-operating expense.

In connection with the March 2015 secondary public offering, certain executives of the Company earned incentive payments totaling approximately $4.2 million. These payments were earned under the LSF8 Gypsum Holdings, L.P. Long Term Incentive Plan (the “LTIP”). Under the LTIP, certain of the Company’s officers and the estate of the Company’s former CEO are eligible to receive payments from LSF8 in the event of a monetization event, as further described in the 2014 10-K. LSF8 is responsible for funding any payments under the LTIP, including those paid in connection with the March 2015 secondary public offering (See Note 1, Background and Nature of Operations). As these payments arose out of employment with the Company, the Company is required to record the expense of these payments and recognize the funding by LSF8 as additional paid in capital. The $4.2 million related to the March 2015 secondary public offering was recorded as an expense to the Company, that will also be tax deductible, and a capital contribution by LSF8 in the first quarter of fiscal 2015.

11. Investment in Seven Hills

The Company is a party to a paperboard liner venture with an unaffiliated third-party named Seven Hills Paperboard, LLC (“Seven Hills”) that provides the Company with a continuous supply of high-quality recycled paperboard liner to meet its ongoing production requirements.

The Company has evaluated the characteristics of its investment and determined that Seven Hills would be deemed a variable interest entity, but that it did not have the power to direct the principal activities most impacting the economic performance of Seven Hills, and is thus not the primary beneficiary. As such, the Company accounts for this investment in Seven Hills under the equity method of accounting.

Paperboard purchased from Seven Hills was $11.1 million and $12.9 million for the three months ended March 31, 2015 and March 31, 2014, respectively. As of March 31, 2015, the Company has certain paper purchase commitments to Seven Hills totaling $39.6 million through 2018.

12. Fair Value Measurements

U.S. GAAP provides a framework for measuring fair value, establishes a fair value hierarchy of the valuation techniques used to measure the fair value and requires certain disclosures relating to fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in a market with sufficient activity.

The three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value is as follows:

 

    Level 1—Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities that a Company has the ability to access;

 

    Level 2—Inputs, other than the quoted market prices included in Level 1, which are observable for the asset or liability, either directly or indirectly; and

 

    Level 3—Unobservable inputs for the asset or liability which is typically based on an entity’s own assumptions when there is little, if any, related market data available.

The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by the Company. The fair values of receivables, accounts payable, accrued costs and other current liabilities approximate the carrying values as a result of the short-term nature of these instruments.

The Company estimates the fair value of its debt by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles. These inputs are classified as Level 3 within the fair value hierarchy. As of March 31, 2015 and 2014, the carrying value reported in the consolidated balance sheet for the Company’s notes payable approximated its fair value.

The only assets or liabilities the Company had at March 31, 2015 that are recorded at fair value on a recurring basis are the interest rate cap that the Company entered into on March 31, 2014 that had zero fair value as of March 31, 2015 (see Note 13, Debt) and a fair value of $0.03 million as of December 31, 2014, and natural gas hedges that had a negative fair value of $0.8 million at March 31, 2015, net of tax amount of $0.5 million, and $0.9 million at December 31, 2014, net of tax amount of $0.5 million. Both the interest rate cap and the natural gas hedges are

 

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classified within Level 2 of the fair value hierarchy as they are valued using third party pricing models which contain inputs that are derived from observable market data. Generally, the Company obtains its Level 2 pricing inputs from the counterparties. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill. These items are recognized at fair value when they are considered to be impaired.

There were no fair value adjustments for assets and liabilities measured on a non-recurring basis. The Company discloses fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.

13. Debt

Debt consists of the following:

 

(in thousands)    As of
March 31, 2015
     As of
December 31, 2014
 

First Lien Credit Agreement maturing on August 28, 2020; interest rate of LIBOR (with a 1% floor) plus 3.00% at March 31, 2015 and 3.75% at March 31, 2014

   $ 341,988       $ 351,988   

Less: Original issue discount (net of amortization)

     (2,752      (2,863
  

 

 

    

 

 

 

Total debt

  339,236      349,125   

Less: Current portion of long-term debt

  —        —     
  

 

 

    

 

 

 

Long-term debt

$ 339,236    $ 349,125   
  

 

 

    

 

 

 

On August 30, 2013, the Company and its subsidiary Continental Building Products Operating Company, LLC (“OpCo”) entered into a first lien credit agreement with Credit Suisse AG, as administrative agent, Credit Suisse Securities (USA) LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners, and Royal Bank of Canada, as syndication agent (as amended on December 2, 2013, the “First Lien Credit Agreement”). The First Lien Credit Agreement provided OpCo a term loan facility at an initial amount of $415.0 million and a U.S. dollar revolving loan facility of $40.0 million and a Canadian dollar and/or U.S. dollar revolving facility of $10.0 million (such aggregate $50.0 million revolving facilities together, the “Revolver”), which may be borrowed by OpCo or by its subsidiary, Continental Building Products Canada Inc. in Canadian dollars or U.S. dollars.

On August 30, 2013, the Company and OpCo entered into a second lien credit agreement with Credit Suisse AG, as administrative agent, Credit Suisse Securities (USA) LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners, and Royal Bank of Canada, as syndication agent (as amended on December 2, 2013, the “Second Lien Credit Agreement”). The Second Lien Credit Agreement provided OpCo a term loan facility of $155.0 million (the “Second Lien Term Loan”).

On February 10, 2014, the Company completed the Initial Public Offering and used $152 million of net proceeds from the Initial Public Offering and cash on hand of $6.1 million to repay the $155 million Second Lien Term Loan in full along with a prepayment premium of $3.1 million. The $3.1 million prepayment premium was recorded in other (expense) income. The prepayment of the Second Lien Term Loan also resulted in the write-off of $6.9 million in original issue discount and deferred financing fees that were recorded in interest expense.

Interest under the First Lien Credit Agreement is floating. The interest rate spread over LIBOR, which has a 1% floor, was reduced by 50 basis points in May 2014, from 3.75% to 3.25%, as a result of the Company achieving a total leverage ratio of less than four times net debt to the trailing twelve months adjusted earnings before interest, depreciation and amortization, as of March 31, 2014, as calculated pursuant to the First Lien Credit Agreement. This reduced interest rate for the First Lien Credit Agreement will be in effect for as long as the leverage ratio, as calculated pursuant to the First Lien Credit Agreement, remains below four. The margin applicable to the borrowing was further reduced in the third quarter 2014 by 25 basis points to 3.00% after the Company achieved a B2 rating with a stable outlook by Moody’s and will remain in effect as long as this rating and outlook are maintained or better.

The First Lien Credit Agreement is secured by the underlying property and equipment of the Company. During the first quarter of 2015, the Company pre-paid $10.0 million of principal payments and no further quarterly mandatory principal payments are required until the final payment of $342.0 million due on August 28, 2020. The annual effective interest rate on the First Lien Credit Agreement including original issue discount and amortization of debt issuance costs was 4.7% at March 31, 2015.

There were no amounts outstanding under the Revolver as of March 31, 2015. The interest rate on amounts outstanding under the Revolver is floating, based on LIBOR (with a floor of 1%), plus 225 basis points. In addition, CBP pays a facility fee of 50 basis points per annum on the total Revolver. Availability under the Revolver, based on draws and outstanding letters of credit and non-existence of violations of covenants, was $46.4 million at March 31, 2015.

 

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Total cash interest paid for the three months ended March 31, 2015 and March 31, 2014 was $3.5 million and $6.6 million, respectively.

The table below shows the future minimum principal payments due under the First Lien Credit Agreement.

 

(in thousands)    Amount Due  

2015

     —     

2016

     —     

2017

     —     

2018

     —     

2019

     —     

Thereafter

   $ 341,988   

Under the terms of the First Lien Credit Agreement, the Company is required to comply with certain covenants, including among others, a limitation of indebtedness, limitation on liens, and limitations on certain cash distributions. One single financial covenant governs all of the Company’s debt and applies only if the outstanding borrowings of the Revolver plus outstanding letters of credit are greater than $12.5 million as of the end of the quarter. The financial covenant is a total leverage ratio calculation, in which total debt less outstanding cash is divided by adjusted earnings before interest, depreciation and amortization. If the financial covenant were applicable, it would require a leverage ratio below 6.0 as of March 31, 2015. As the sum of outstanding borrowings under the Revolver and outstanding letters of credit were less than $12.5 million at March 31, 2015, the financial covenant was not applicable for the quarter.

14. Derivative Instruments

The Company uses derivative instruments to manage selected commodity price and interest rate exposures. The Company does not use derivative instruments for speculative trading purposes, and typically does not hedge beyond two years. Cash flows from derivative instruments are included in net cash provided by operating activities in the consolidated statements of cash flows.

Commodity Derivative Instruments

As of March 31, 2015, the Company had 1,125 thousand millions of British Thermal Units (“mmBTUs”) in aggregate notional amount outstanding natural gas swap contracts to manage natural gas price exposures. All of these contracts mature by October 31, 2015. The Company elected to designate these derivative instruments as cash flow hedges in accordance with FASB Accounting Standards Codification (“ASC”) 815-20, Derivatives—Hedging . For derivative contracts designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is recorded to accumulated other comprehensive income, and is reclassified to earnings when the underlying forecasted transaction affects earnings. The ineffective portion of changes in the fair value of the derivative is recorded in cost of goods sold. The net unrealized loss that remained in accumulated other comprehensive income (loss), as of March 31, 2015 was $0.8 million, which is net of a tax amount of $0.5 million. No ineffectiveness was recorded on these contracts during the fiscal year 2014 and the first quarter of 2015. Gains and losses on these contracts that are designated as cash flow hedges are reclassified into earnings when the underlying forecasted transactions affect earnings. The Company reassesses the probability of the underlying forecasted transactions occurring on a quarterly basis.

On a pre-tax basis, for the quarter ended March 31, 2015, approximately $0.1 million of gains were recognized in other comprehensive income for the commodity contracts. For the same period, the amount of gain reclassified from accumulated other comprehensive income into income was nominal. As of March 31, 2015, $0.8 million was recorded in other current liabilities.

Interest Rate Derivative Instrument

At March 31, 2015, the Company had an interest rate cap on three month U.S. Dollar LIBOR of 2% for a notional amount of $204.4 million, representing 59.8% of the principal amount outstanding under the First Lien Credit Agreement as of March 31, 2015. The notional amount of the interest rate cap declines by $0.5 million each quarter through December 31, 2015. The objective of the hedge is to protect the cash flows from adverse extreme market interest rate changes for a portion of the First Lien Credit Agreement through March 31, 2016. Changes in the fair value of the interest rate cap are expected to be perfectly effective in offsetting the changes in cash flow of interest payments attributable to fluctuations for three month U.S. Dollar LIBOR interest rates above 2%. The hedge is being accounted for as a cash flow hedge.

Changes in the time value of the interest rate cap are reflected directly in earnings through “other income / expense” in non-operating income. CBP recorded a $0.03 million loss for the three months ended March 31, 2015. The fair value of the time value of the interest rate cap was $0 as of March 31, 2015.

 

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Counterparty Risk

The Company is exposed to credit losses in the event of nonperformance by the counterparties to the Company’s derivative instruments. As of March 31, 2015, the Company’s derivatives were in a $0.8 million net liability position. All of the Company’s counterparties have investment grade credit ratings; accordingly, the Company anticipates that the counterparties will be able to fully satisfy their obligations under the contracts. The Company’s agreements outline the conditions upon which it or the counterparties are required to post collateral. As of March 31, 2015, the Company had no collateral posted with its counterparties related to the derivatives.

15. Segment Reporting

Segment information is presented in accordance with ASC 280, Segment Reporting , which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about products and geographic areas. The Company’s primary reportable segment is wallboard which represented approximately 96% and 95% of the Company’s revenues for the first quarter of 2015 and 2014, respectively. This segment produces wallboard for the commercial and residential construction sectors. The Company also operates other business activities, primarily finishing products, which complement the Company’s full range of wallboard products.

Revenues from the major products sold to external customers include gypsum wallboard and finishing products.

The Company’s two geographic areas consist of the United States and Canada for which it reports net sales, fixed assets and total assets.

The Company evaluates operating performance based on profit or loss from operations before certain adjustments as shown below. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. The Company did not provide asset information by segment as the Company’s Chief Operating Decision Maker does not use such information for purposes of allocating resources and assessing segment performance.

Reportable segment information consists of the following:

 

(in thousands)    Three Months
Ended
March 31, 2015
     Three Months
Ended
March 31, 2014
 

Net Sales:

     

Wallboard

     88,743         82,918   

Other

     3,433         4,055   
  

 

 

    

 

 

 

Total net sales

  92,176      86,973   
  

 

 

    

 

 

 

Operating income (loss):

Wallboard

  7,778      6,356   

Other

  124      (75
  

 

 

    

 

 

 

Total operating income (loss)

  7,902      6,281   
  

 

 

    

 

 

 

Adjustments:

Interest Expense

  (4,221   (14,176

Gain (loss) from Equity Investment

  59      —     

Other non-operating expenses

  (448   (5,186
  

 

 

    

 

 

 

Income (loss) before income tax benefit

  3,292      (13,081
  

 

 

    

 

 

 

Depreciation and Amortization

Wallboard

  12,835      13,583   

Other

  294      300   
  

 

 

    

 

 

 

Total depreciation and amortization

  13,129      13,883   
  

 

 

    

 

 

 

16. Share-Based Compensation

In conjunction with the Initial Public Offering, the Company granted certain employees and independent members of the Board of Directors an aggregate of 142,000 stock options and 75,000 shares of restricted stock that vest over four years. The fair value of stock options was determined using the Black Scholes option pricing model with the following assumptions: (a) a risk free interest rate assumption of 2.15%, based on the U.S. Treasury yield curve in effect at the time of the grant; (b) a dividend yield of 0% as the Company currently has no plans to pay a dividend; (c) a volatility assumption of 50.34%, based on historical volatilities of comparable publicly traded companies, and (d) an expected life of 6.25 years based on the assumption that the options will be exercised evenly from time of vesting to the expiration date.

 

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On March 2, 2015, the Company granted certain employees and independent members of the Board of Directors 62,070 Restricted Stock Units (“RSUs”) and 40,050 RSUs that are subject to certain performance conditions (“PRSUs”). Of the 62,070 RSUs, 7,580 fully vest after one year, and 54,490 vest ratably over four years. The PRSUs vest on December 31, 2017, with the exact number of PRSUs vested subject to the achievement of certain performance conditions through December 31, 2016. The number of PRSUs earned will vary from 0% to 200% of the number of PRSUs awarded, depending on our performance relative to a cumulative two year EBITDA target for fiscal years 2015 and 2016. The fair value of each RSU and PRSU is equal to the market price of our common stock at the date of the grant.

The following table summarizes RSA, RSU and PRSU activity for the three months ending March 31, 2015:

 

     Number of RSAs      Number of RSUs      Number of PRSUs      Weighted Average
Grant Date Value
 

Non-Vested, December 31, 2014

     55,000         —           —         $ 14.00   

Granted

     —           62,070         40,050       $ 21.07   

Forfeited

     (1,500      —           —         $ 14.00   

Vested

     (13,750      —           —         $ 14.00   
  

 

 

    

 

 

    

 

 

    

Non-Vested, March 31, 2015

  39,750      62,070      40,050    $ 19.09   

The following table summarizes stock option activity for the three months ending March 31, 2015:

 

     Number of
Shares
     Weighted
Average
Exercise
Price
     Aggregate
Intrinsic Value
     Weighted
Average
Remaining
Contractual
Term (in Years)
 

Oustanding, January 1, 2015

     142,000       $ 14.00         

Granted

     —           —           

Forefeited

     (1,444    $ 14.00         

Exercised

     —           —           
  

 

 

          

Outstanding, March 31, 2015

  140,556    $ 14.00    $ 1,207,376      8.86   
  

 

 

          

Exercisable, March 31, 2015

  80,500    $ 14.00    $ 691,495      8.86   

Vested and Expected to Vest, March 31, 2015

  140,556    $ 14.00    $ 1,207,376      8.86   

Unearned compensation related to stock options as of March 31, 2015 of $0.4 million will be recognized over a weighted average remaining period of approximately three years. Compensation expense of $0.1 million was recorded for share-based awards for the three months ended March 31, 2015 and 2014.

Employee Stock Purchase Plan

Effective February 18, 2015, subject to approval by the Company’s stockholders at the Company’s upcoming 2015 Annual Stockholder Meeting to be held on May 20, 2015, the Company adopted an Employee Stock Purchase Plan (“ESPP”), that will enable employees to purchase the Company’s shares at a discount. The ESPP authorizes the issuance of up to 600,000 shares of the Company’s common stock, but actual shared issued will depend on plan participation. Shares issued under the ESPP will reduce, on a share-for-share basis, the number of shares of the Company’s common stock already available for issuance pursuant to the Company’s 2014 Stock Incentive Plan. Employees contribute to the ESPP through payroll deductions over a twelve month offering period and are limited to the lower of 10% of the employee’s salary or $10,000 per employee. The first offering period will commence on May 1, 2015.

17. Earnings (Loss) Per Share

Basic earnings (loss) per share is based on the weighted average number of shares of common stock outstanding assuming the 32,304 for one stock split occurred as of January 1, 2014 and taking into account the issuance of 11,765,000 new shares on February 10, 2014 in connection with the Initial Public Offering. Diluted earnings and loss per share is based on the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding restricted stock, restricted stock units and stock options.

 

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Earnings (Loss) Per Share

 

(in thousands, except per share data)    Three Months
Ended
March 31, 2015
     Three Months
Ended
March 31, 2014
 

Net income (loss)(in thousands)

   $ 2,020       $ (8,623

Weighted average shares outstanding - basic

     44,077         39,494   

Dilutive effect of stock options

     16         —     
  

 

 

    

 

 

 

Weighted average shares outstanding - diluted

  44,093      39,494   

Net income per common share:

Basic

$ 0.05    $ (0.22

Diluted

$ 0.05    $ (0.22

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with “Risk Factors,” “Forward-Looking Statements,” “Selected Historical Financial and Operating Data,” and our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2014 filed with the Securities and Exchange Commission on February 25, 2015 (the “2014 10-K”) and elsewhere in this Quarterly Report on Form 10-Q, as applicable.

Overview

We are a leading manufacturer of gypsum wallboard and complementary finishing products in the eastern United States and eastern Canada. We operate highly efficient and automated manufacturing facilities that produce a full range of gypsum wallboard products for our diversified customer base. We sell our products in the new residential, repair and remodel (“R&R”) and commercial construction markets. We believe our operating efficiencies, favorable plant locations, manufacturing expertise and focus on delivering superior customer service position us to benefit from an anticipated increase in gypsum wallboard demand as the housing market recovers from historic lows.

Our primary reportable segment is wallboard, which accounted for approximately 96% and 95% of our net sales in the three months ended March 31, 2015 and March 31, 2014, respectively. We also operate other business activities, primarily finishing products, which complement our full range of wallboard products. See Part I, Item 1, Financial Information – Notes to Consolidated Financial Statements, Note 15, Segment Reporting.

Due to our limited history as a stand-alone company and changes in connection with our Initial Public Offering, the historical financial information included in this Quarterly Report on Form 10-Q is not necessarily indicative of our financial position, results of operations and cash flows in the future.

Paper and synthetic gypsum are our principal wallboard raw materials. Paper constitutes our most significant input cost and the most significant driver of our variable manufacturing costs. Energy costs, consisting of natural gas and electricity, are the other key input costs. In total, manufacturing cash costs represented 61% of our costs of goods sold for both the three months ended March 31, 2015 and 2014. Depreciation and amortization represented 18% and 19% of our costs of goods sold for the three months ended March 31, 2015 and March 31, 2014, respectively. Distribution costs to deliver product to our customers represented the remaining portion of our costs of goods sold, or approximately 21% and 20% of our costs of goods sold for the three months ended March 31, 2015 and March 31, 2014, respectively.

Variable manufacturing costs, including inputs such as paper, gypsum, natural gas, and other raw materials, represented 65% and 67% of our manufacturing cash costs for the three months ended March 31, 2015 and March 31, 2014, respectively. Fixed production costs excluding depreciation and amortization consisted of labor, maintenance, and other costs that represented 35% and 33% of manufacturing cash costs for the three months ended March 31, 2015 and March 31, 2014, respectively.

We currently purchase substantially all of our paperboard liner from Seven Hills, a joint venture between the Company and Rock-Tenn Company (“RockTenn”). Under the agreement with Seven Hills, the price of paper adjusts based on changes in the underlying costs of production of the paperboard liner, of which the two most significant are recovered waste paper and natural gas. The largest waste paper source used by the operation is old cardboard containers (known as OCC). Seven Hills has the capacity to supply us with approximately 75% of our paper needs at our full capacity utilization and substantially all of our needs at current capacity utilization on market-based pricing terms that we consider favorable. We believe we can also purchase additional paper on the spot market at competitive prices.

 

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Results of Operations

The table below highlights our results of operations for the three months ended March 31, 2015 and March 31, 2014 ( in thousands, except per share data and mill net sales price ):

 

     Three Months
Ended
March 31, 2015
     Three Months
Ended
March 31, 2014
 

Net Sales

   $ 92,176       $ 86,973   

Costs, expenses and other income:

     

Cost of goods sold

     71,675         73,196   

Selling and administrative

     8,428         7,496   

Long Term Incentive Plan funded by Lone Star

     4,171         —     
  

 

 

    

 

 

 

Total costs and operating expenses

  84,274      80,692   
  

 

 

    

 

 

 

Operating income (loss)

  7,902      6,281   

Other expense, net

  (448   (5,186

Interest expense, net

  (4,221   (14,176
  

 

 

    

 

 

 

Income (loss) before earnings on equity method investment and income tax

  3,233      (13,081

Earnings from equity method investment

  59      —     
  

 

 

    

 

 

 

Income (loss) before income tax

  3,292      (13,081

Income tax (expense) benefit

  (1,272   4,458   
  

 

 

    

 

 

 

Net income (loss)

$ 2,020    $ (8,623
  

 

 

    

 

 

 

Net income (loss) per common share:

Basic

$ 0.05    $ (0.22

Diluted

$ 0.05    $ (0.22

Weighted average shares outstanding:

Basic

  44,076,513      39,493,722   

Diluted

  44,092,900      39,493,722   

Other Financial and Operating Data:

EBITDA (1)

$ 21,031    $ 20,164   

Adjusted EBITDA (1)

$ 25,202    $ 20,164   

Capital expenditures and software purchased or developed

$ 1,017    $ 1,284   

Wallboard sales volume (MSF)

  469      438   

Mill net sales price (2)

$ 157.46    $ 157.32   

 

(1) EBITDA and Adjusted EBITDA are non-GAAP measures. See “Reconciliation of Non-GAAP Measures” below for how we calculate and define EBITDA and Adjusted EBITDA as non-GAAP measures, reconciliations thereof to operating income, the most directly comparable GAAP measure, and a description as to why we believe these measures are important.
(2) Mill net sales price represents average selling price per thousand square feet net of freight and delivery costs.

 

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Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014

Net Sales. Net sales increased by $5.2 million, up 6.0% from $87.0 million for the three months ended March 31, 2014, to $92.2 million for the three months ended March 31, 2015. The increase was primarily attributable to the increase in volume, which contributed approximately $5.8 million of additional net sales. Total volume grew 7.0% compared to the prior year period, mostly driven by a U.S. volume increase of 6.2%, and to a lesser extent by Canadian volumes. The increase in the average net selling price for gypsum wallboard had a $1.1 million favorable impact on net sales at constant exchange rates. An unfavorable $1.1 million impact of foreign currency, and $0.6 million in lower sales of our other products contributed to the remaining difference.

C ost of Goods Sold. Cost of goods sold decreased $1.5 million, down 2.1 % from $73.2 million for the three months ended March 31, 2014, to $71.7 million for the three months ended March 31, 2015. Approximately $1.2 million of the decrease in cost of goods sold was due to lower amortization. Lower input costs, primarily energy, decreased costs by $2.1 million, and favorable foreign exchange rates reduced costs by an additional $1.0 million. Lower sales volumes of our non-wallboard products reduced cost of goods sold by $0.6 million. Higher wallboard volumes partially offset the decrease by approximately $2.9 million, and the combined freight and fixed costs rose $0.5 million.

Selling and Administrative Expense. Selling and administrative expense increased $0.9 million, up 12.4% to $8.4 million for the three months ended March 31, 2015 compared to $7.5 million for the three months ended March 31, 2014. This increase was primarily driven by $0.4 million in higher amortization for the recently implemented information technology system and $0.4 million in professional fees for the secondary public offering in the first quarter of 2015.

Long Term Incentive Plan Funded by Lone Star. Under the LSF8 Gypsum Holdings, LP. Long Term Incentive Plan (the “LTIP”), certain of our officers and the estate of our former CEO are eligible to receive payments from LSF8 Gypsum Holdings, L.P., an affiliate of Lone Star Funds (“LSF8”), in the event of a monetization event, as further described in our 2014 10-K. LSF8 is responsible for funding any payments under the LTIP. The secondary public offering in March 2015 triggered a monetization event for the first time and resulted in aggregate payments of $4.2 million. As these payments arose out of employment with the Company, the $4.2 million expense was recorded on the Company’s books in the first quarter of 2015 and will also be deductible for tax purposes. The funding of the $4.2 million is recorded as a capital contribution from the LSF8 in the statement of cash flows under financing activities .

Operating (Loss) Income. Operating income of $7.9 million for the three months ended March 31, 2015 increased by $1.6 million from operating income of $6.3 million for the three months ended March 31, 2014. The difference was driven mostly by $5.2 million higher net sales and $1.5 million lower cost of goods sold, offset by $0.9 million higher selling and administrative expense and the $4.2 million expense related to the LTIP.

Other (Expense) Income, Net.  Other (expense) income, net, was a net expense of $0.4 million for the three months ended March 31, 2015, significantly lower than the other (expense) income, net, of $5.2 million in the prior year period. The decrease is primarily due to non-recurring costs incurred in the first quarter 2014, including the prepayment premium of $3.1 million for the repayment of the Second Lien Term Loan and $2.0 million for the payment of termination fees to affiliates of Lone Star.

Interest Expense, Net. Interest expense was $4.2 million for the three months ended March 31, 2015, compared to $14.2 million for the prior year period, and relates to the First Lien Credit Agreement. This decrease was driven by higher non-recurring costs that occurred in 2014 and not in 2015, lower borrowings during the first quarter of 2015 and a reduced interest rate on the First Lien Credit Agreement. The non-recurring costs include a write-off of the original issue discount and deferred financing fees associated with the early repayment of the Second Lien Term Loan on February 10, 2014. The Company prepaid $59.9 million in the course of 2014 and $10 million during the first quarter of 2015, in each case under the First Lien Credit Agreement. In May 2014, the interest rate on the First Lien Credit Agreement was reduced by 0.5% due to reaching lower leverage ratios as outlined in the First Lien Credit Agreement. In August 2014, the interest rate on the First Lien Credit Agreement was further reduced by 0.25% due to a ratings upgrade by Moody’s (See Note 13, Debt, in the Notes to the unaudited financial statements). As a result, the effective interest rate on the First Lien Credit Agreement as of March 31, 2015 was 4.72% and the effective interest rate on the Revolver was 3.25%.

Income Tax Benefit (Expense). Income tax expense was $1.3 million for the three months ended March 31, 2015, compared to an income tax benefit of $4.5 million in the prior year period.

Net Income (Loss) . Net income for the three months ended March 31, 2015 was $2.0 million, compared to a net loss of $8.6 million for the three months ended March 31, 2014. The improvement was primarily driven by higher sales and lower interest costs.

 

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Reconciliation of Non-GAAP Measures

EBITDA and Adjusted EBITDA have been presented in this Quarterly Report on Form 10-Q as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We have presented EBITDA and Adjusted EBITDA as supplemental performance measures because we believe that they facilitate a comparative assessment of our operating performance relative to our performance based on our results under GAAP while isolating the effects of some items that vary from period to period without any correlation to core operating performance and eliminate certain charges that we believe do not reflect our operations and underlying operational performance. Management also believes that EBITDA and Adjusted EBITDA are useful to investors because they present a better reflection of our performance as an independent company following the Acquisition and allow investors to view our business through the eyes of management and the Board of Directors, facilitating comparison of results across historical periods.

EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate EBITDA and Adjusted EBITDA in the same manner as we do. EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered in isolation or as alternatives to operating income determined in accordance with GAAP or any other financial statement data presented as indicators of financial performance or liquidity, each as calculated and presented in accordance with GAAP.

The following table reconciles the non-GAAP measures to GAAP measures:

 

         Three Months
Ended

March 31, 2015
       Three Months
Ended

March 31, 2014
 

Operating Income—GAAP Measure

     $ 7,902         $ 6,281   

Adjustments:

         

Depreciation and amortization

       13,129           13,883   
    

 

 

      

 

 

 

EBITDA—Non-GAAP Measure

  21,031      20,164   

Long Term Incentive Plan funded by Lone Star

(a)   4,171      —     
    

 

 

      

 

 

 

Adjusted EBITDA—Non-GAAP Measure

$ 25,202    $ 20,164  
    

 

 

      

 

 

 

 

(a) Represents expense recognized pursuant to the LTIP. All amounts are funded by LSF8, an affiliate of Lone Star.

Liquidity and Capital Resources

Since the Acquisition, our primary sources of liquidity are cash on hand, cash from operations, and borrowings under the debt financing arrangements that we entered into in connection with the Acquisition. We believe these sources will be sufficient to fund our planned operations and capital expenditures. See Part I, Item 1, Financial Information – Notes to Consolidated Financial Statements, Note 13, Debt, and the 2014 10-K for a more detailed discussion of our debt financing arrangements.

The following table sets forth a summary of the net cash provided by (used in) operating, investing and financing activities for the Company for the three months ended March 31, 2015 and March 31, 2014:

 

     Three Months
Ended
March 31, 2015
     Three Months
Ended
March 31, 2014
 

Net cash provided by (used in) operating activities

   $ 10,122       $ (15,941

Net cash used in investing activities

     (803      (1,284

Net cash (used in) provided by financing activities

     (5,829      8,816   

Effect of foreign exchange rates

     (612      (357
  

 

 

    

 

 

 

Net change in cash and cash equivalents

$ 2,878    $ (8,766 )
  

 

 

    

 

 

 

 

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Net Cash Provided By (Used In) Operating Activities

Net cash provided by operating activities was $10.1 million for the three months ended March 31, 2015. Net cash used in operating activities for the three months ended March 31, 2014 was $15.9 million. This improvement was primarily due to the net income in the current period relative to the net loss for the same period last year.

Net Cash Used In Investing Activities

Net cash used in investing activities was $0.8 million and $1.3 million for the three months ended March 31, 2015 and March 31, 2014, respectively. Net cash used in investing activities for the three months ended March 31, 2015 reflects an aggregate of $1.0 million in capital expenditures and software purchased or developed, partially offset by $0.2 million in distributions received from our equity investment in Seven Hills. The decrease as compared to the three months ended March 31, 2014 was primarily due to lower expenditures for software purchased or developed.

Net Cash Provided By (Used In) Financing Activities

Net cash used in financing activities was $5.8 million for the three months ended March 31, 2015. Net cash provided by financing activities was $8.8 million for the three months ended March 31, 2014. The Company made a voluntary prepayment of $10.0 million on the First Lien Credit Agreement in the first quarter 2015. The next required mandatory principal payment on the First Lien Credit Agreement is the amount due at maturity on August 28, 2020. In the first quarter 2014, net proceeds of $151.4 million from the Initial Public Offering were used to repay a portion of the Second Lien Credit Agreement of $155 million.

Critical Accounting Policies

The preparation of our financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods presented. Our 2014 10-K includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the first three months of 2015.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements.” These forward-looking statements are included throughout this Quarterly Report on Form 10-Q, and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity, capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements in this Quarterly Report on Form 10-Q. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:

 

    cyclicality in our markets, especially the new residential construction market;

 

    the highly competitive nature of our industry and the substitutability of competitors’ products;

 

    disruptions in our supply of synthetic gypsum due to regulatory changes or coal-fired power plants switching to natural gas;

 

    changes to environmental and safety laws and regulations requiring modifications to our manufacturing systems;

 

    disruptions to our supply of paperboard liner;

 

    potential losses of customers;

 

    changes in affordability of energy and transportation costs;

 

    material disruptions at our facilities or the facilities of our suppliers;

 

    changes in, cost of compliance with or the failure or inability to comply with governmental laws and regulations, in particular environmental regulations;

 

    our involvement in legal and regulatory proceedings;

 

    our ability to attract and retain key management employees;

 

    disruptions in our information technology systems;

 

    labor disruptions;

 

    seasonal nature of our business;

 

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    the effectiveness of our internal control over financial reporting;

 

    increased costs and demands on management as a public company;

 

    our limited public company operating experience;

 

    our relationship, and actual and potential conflicts of interest, with Lone Star; and

 

    additional factors discussed under the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” in our 2014 10-K, as applicable.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include those described in “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

 

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Table of Contents
Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we are exposed to financial risks such as changes in interest rates, foreign currency exchange rates, and commodity price risk associated with our input costs. We use derivative instruments to manage certain commodity price and interest rate exposures. We do not use derivative instruments for speculative trading purposes, and we typically do not hedge beyond two years. See Note 14, Derivative Instruments, to the Notes to the unaudited financial statements for additional information regarding our financial exposures.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our outstanding debt, and cash and cash equivalents. As of March 31, 2015, we had $18.5 million in cash and cash equivalents. The interest expense associated with First Lien Credit Agreement and any loans under the Revolver will vary with market rates.

Our exposure to market risk for changes in interest rates related to our outstanding debt is somewhat mitigated as the First Lien Term Loan and the Revolver have a LIBOR floor of 1%. A rise of current interest rate levels to above the 1% floor would be required to increase our interest expense and a reduction in interest rates would have no impact on our interest expense. As of March 31, 2015, we elected to use three month LIBOR with a rate of 0.25%. A hypothetical 1% increase in interest rates would have increased interest expense by approximately $0.2 million for the three months ended March 31, 2015.

At March 31, 2014, the Company entered into an interest rate cap on three months US Dollar LIBOR of 2% for a notional amount of $206.5 million, which represented one-half of the principal amount due under our First Lien Credit Agreement at March 31, 2014. The notional amount of the interest rate cap declines by approximately $0.5 million each quarter through December 31, 2015, and was $204.4 million as of March 31, 2015. The objective of the hedge is to protect our cash flows for a portion of the First Lien Credit Agreement from adverse extreme market interest rate changes through March 31, 2016. As U.S. Dollar LIBOR interest rates remain below 2%, the contract had a fair value of $0 at March 31, 2015.

The return on our cash equivalents balance was less than one percent. Therefore, although investment interest rates may further decrease in the future, the corresponding impact to our interest income, and likewise to our income and cash flow, would not be material.

Foreign Currency Risk

Approximately 9% and 10% of our sales for the three months ended March 31, 2015 and March 31, 2014, respectively, were in Canada. As a result, we are exposed to movements in foreign exchange rates between the U.S. dollar and Canadian dollar. We estimate that a 1% change in the exchange rate between the U.S. and Canadian currencies would impact net sales by approximately $0.1 million based on 2015 results for the three months ended March 31, 2015. This may differ from actual results depending on the level of sales volumes in Canada. During the reported periods we did not use foreign currency hedges to manage this risk.

Commodity Price Risk

Some of our key production inputs, such as paper and natural gas, are commodities whose prices are determined by the market’s supply and demand for such products. Price fluctuations on our key input costs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are affected by factors such as global economic conditions, changes in or disruptions to industry production capacity, changes in inventory levels and other factors beyond our control.

We use natural gas swap contracts to manage our exposure to fluctuations in commodity prices associated with anticipated purchases of natural gas. Currently, a portion of our anticipated purchases of natural gas for 2015 is hedged. The aggregate notional amount of these hedge contracts in place as of March 31, 2015 was 1,125 thousand mmBTUs. We review our positions regularly and make adjustments as market and business conditions warrant. The fair value of the outstanding quarter-end contracts was an unrealized loss of $0.8 million as of March 31, 2015.

Seasonality

Sales of our wallboard products are, similar to many building products, seasonal in that sales are generally slightly higher from spring through autumn when construction activity is greatest in our markets.

 

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Table of Contents
Item 4. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.

The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

We have been from time to time, and may in the future become, party to litigation or other legal proceedings that we consider to be part of the ordinary course of our business. We are not currently involved in any legal proceedings that could be reasonably expected to have a material adverse effect on our business or our results of operations. We may become involved in material legal proceedings in the future.

In March 2015, a group of homebuilders commenced a lawsuit in the Northern District of California against us and other U.S. wallboard manufacturers alleging that such manufacturers had conspired to fix the price of wallboard in violation of antitrust and unfair competition laws. The complaint also alleges that the manufacturers agreed to abolish the use of “job quotes” and agreed to restrict the supply of wallboard in order to support the allegedly collusive price increases. We deny any wrongdoing of the type alleged in the complaint, believe we have meritorious defenses to the allegations and will vigorously defend ourselves in this case. The case has been transferred to the Eastern District of Pennsylvania for coordinated and consolidated pretrial proceedings with existing antitrust litigation in that district. We do not believe the lawsuit will have a material adverse effect on our financial condition, results of operation or liquidity.

 

Item 1A. Risk Factors

We are subject to risks and uncertainties that could cause our actual results to differ materially from the expectations expressed in the forward looking statements. Factors that could cause our actual results to differ from expectations are described under Item 1A. Risk Factors in the 2014 10-K, to which there were no material changes during the period covered by this Quarterly Report on Form 10-Q. However, although not material, we have elected to update our risk factor regarding labor disruptions to reflect that we reached agreement on the terms for our collective bargaining agreements with the two unions representing our unionized employees in the first quarter of 2015.

Labor disruptions or cost increases that could adversely affect our business

A work stoppage at one of our facilities could cause us to lose sales, incur increased costs and adversely affect our ability to meet customers’ needs. A plant shutdown or a substantial modification to employment terms could negatively impact us. Approximately 14% of our 538 employees were unionized as members of two unions as of December 31, 2014. During the first quarter of 2015, we reached agreement on the terms for new collective bargaining agreements with these two unions. These agreements will expire on November 30, 2017. We may also experience labor cost increases or disruptions in our non-union facilities in circumstances in which we must compete for employees with necessary skills and experience or in tight labor markets. Any such cost increases, work stoppages or disruptions could have a material adverse effect on our business, financial condition, results of operations and cash flows by limiting production, sales volumes and profitability.

 

Item 6. Exhibits

 

10.1# Form of Grant Notice for 2014 Stock Incentive Plan Restricted Stock Unit Award
10.2# Form of Grant Notice for 2014 Stock Incentive Plan Restricted Stock Award
10.3# Form of Grant Notice for 2014 Stock Incentive Plan Nonqualified Stock Option Award
10.4# Form of Grant Notice for 2014 Stock Incentive Plan Incentive Stock Option Award
10.5# Form of Grant Notice for 2014 Stock Incentive Plan Performance-Based Restricted Stock Unit Award
10.6# Employment Agreement, dated as of March 24, 2015, by and between Continental Building Products Operating Company, LLC and James Bachmann
10.7# Amendment No. 1 to Continental Building Products, Inc. 2014 Stock Incentive Plan
31.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

  # Denotes management compensatory plan or arrangement.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Continental Building Products, Inc.
By: /s/ James Bachmann
Name: James Bachmann
Title: President, Chief Executive Officer and Acting Chief Financial Officer

Date: May 6, 2015

 

26

Exhibit 10.1

CONTINENTAL BUILDING PRODUCTS, INC.

GRANT NOTICE FOR 2014 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD

FOR GOOD AND VALUABLE CONSIDERATION, Continental Building Products, Inc. (the “Company”), hereby grants to Participant named below the number of restricted stock units specified below (the “Award”). Each restricted stock unit represents the right to receive one share of the Company’s common stock, par value $0.001 (the “Common Stock”), upon the terms and subject to the conditions set forth in this Grant Notice, the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”) and the Standard Terms and Conditions (the “Standard Terms and Conditions”) promulgated under such Plan, each as amended from time to time. This Award is granted pursuant to the Plan and is subject to and qualified in its entirety by the Standard Terms and Conditions.

 

Name of Participant:

  

Grant Date:

  

Number of restricted stock units:

  

Vesting Schedule:

  

By accepting this Grant Notice, Participant acknowledges that he or she has received and read, and agrees that this Award shall be subject to, the terms of this Grant Notice, the Plan and the Standard Terms and Conditions.

 

CONTINENTAL BUILDING PRODUCTS, INC.      
      Participant Signature
By        
Title:         Address (please print):
       
       
       


CONTINENTAL BUILDING PRODUCTS, INC.

STANDARD TERMS AND CONDITIONS FOR

RESTRICTED STOCK UNITS

These Standard Terms and Conditions apply to the Award of restricted stock units granted pursuant to the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”), which are evidenced by a Grant Notice or an action of the Committee that specifically refers to these Standard Terms and Conditions. In addition to these Terms and Conditions, the restricted stock units shall be subject to the terms of the Plan, which are incorporated into these Standard Terms and Conditions by this reference. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.

 

1. TERMS OF RESTRICTED STOCK UNITS

Continental Building Products, Inc. (the “Company”), has granted to the Participant named in the Grant Notice provided to said Participant herewith (the “Grant Notice”) an award of a number of restricted stock units (the “Award” or the “Restricted Stock Units”) with each Restricted Stock Unit representing the right to receive one share of the Company’s common stock, par value $0.001 (the “Common Stock”) specified in the Grant Notice. The Award is subject to the conditions set forth in the Grant Notice, these Standard Terms and Conditions, and the Plan, each as amended from time to time. For purposes of these Standard Terms and Conditions and the Grant Notice, any reference to the Company shall include a reference to any Subsidiary.

 

2. VESTING OF RESTRICTED STOCK UNITS

The Award shall not be vested as of the Grant Date set forth in the Grant Notice and shall be forfeitable unless and until otherwise vested pursuant to the terms of the Grant Notice and these Standard Terms and Conditions. After the Grant Date, subject to termination or acceleration as provided in these Standard Terms and Conditions and the Plan, the Award shall become vested as described in the Grant Notice with respect to that number of Restricted Stock Units as set forth in the Grant Notice. Restricted Stock Units that have vested and are no longer subject to forfeiture are referred to herein as “Vested RSUs.” Restricted Stock Units awarded hereunder that are not vested and remain subject to forfeiture are referred to herein as “Unvested RSUs.” Notwithstanding anything contained in these Standard Terms and Conditions to the contrary, [upon a Participant’s Termination of Employment due to Participant’s death, disability or retirement after age 65, or upon a Termination of Employment by the Company without Cause within 24 months following the occurrence of a Change in Control, all Unvested RSUs shall become vested on the date of such Termination of Employment. Upon a Participant’s Termination of Employment for any other reason, including a Termination of Employment by the Company without Cause that occurs prior to the occurrence of a Change in Control, any then Unvested RSUs held by the Participant shall be forfeited and canceled as of the date of such Termination of Employment. For purposes hereof, a Change in Control (as defined in the Plan) will not be deemed to occur until such date as the Company is no longer a controlled company of Lone Star Fund VIII (U.S.), L.P.

 

2


3. RIGHTS AS STOCKHOLDER

Participant shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any RSUs unless and until shares of Common Stock settled for such RSUs shall have been issued by the Company to Participant (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). Notwithstanding the foregoing, from and after the Grant Date and until the earlier of (a) the time when the RSUs become nonforfeitable and payable in accordance with the terms hereof or (b) the time when the Participant’s right to receive Common Stock upon payment of RSUs is forfeited, on the date that the Company pays a cash dividend (if any) to holders of Common Stock generally, the Participant shall be entitled to a number of additional whole RSUs determined by dividing (i) the product of (A) the dollar amount of the cash dividend paid per share of Common Stock on such date and (B) the total number of RSUs (including dividend equivalents paid thereon) previously credited to the Participant as of such date, by (ii) the Fair Market Value per share of Common Stock on such date. Such dividend equivalents (if any) shall be subject to the same terms and conditions and shall be settled or forfeited in the same manner and at the same time as the RSUs to which the dividend equivalents were credited.

 

4. RESTRICTIONS ON RESALES OF SHARES

The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any shares of Common Stock issued pursuant to Vested RSUs, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and other holders and (c) restrictions as to the use of a specified brokerage firm for such resales or other transfers.

 

5. INCOME TAXES

To the extent required by applicable federal, state, local or foreign law, the Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of the grant or vesting of the RSUs. The Company shall not be required to issue shares or to recognize the disposition of such shares until such obligations are satisfied.

 

6. NON-TRANSFERABILITY OF AWARD

The Participant understands, acknowledges and agrees that, except as otherwise provided in the Plan or as permitted by the Committee, the Award may not be sold, assigned, transferred, pledged or otherwise directly or indirectly encumbered or disposed of other than by will or the laws of descent and distribution.

 

3


7. OTHER AGREEMENTS SUPERSEDED

The Grant Notice, these Standard Terms and Conditions and the Plan constitute the entire understanding between the Participant and the Company regarding the Award. Any prior agreements, commitments or negotiations concerning the Award are superseded.

 

8. LIMITATION OF INTEREST IN SHARES SUBJECT TO RESTRICTED STOCK UNITS

Neither the Participant (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Participant shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan or subject to the Grant Notice or these Standard Terms and Conditions except as to such shares of Common Stock, if any, as shall have been issued to such person in connection with the Award. Nothing in the Plan, in the Grant Notice, these Standard Terms and Conditions or any other instrument executed pursuant to the Plan shall confer upon the Participant any right to continue in the Company’s employ or service nor limit in any way the Company’s right to terminate the Participant’s employment at any time for any reason.

 

9. GENERAL

 

  (a) In the event that any provision of these Standard Terms and Conditions is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of these Standard Terms and Conditions shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.

 

  (b) The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of these Standard Terms and Conditions, nor shall they affect its meaning, construction or effect.

 

  (c) These Standard Terms and Conditions shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors and assigns.

 

  (d) These Standard Terms and Conditions shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of law.

 

  (e) In the event of any conflict between the Grant Notice, these Standard Terms and Conditions and the Plan, the Grant Notice and these Standard Terms and Conditions shall control. In the event of any conflict between the Grant Notice and these Standard Terms and Conditions, the Grant Notice shall control.

 

  (f) All questions arising under the Plan or under these Standard Terms and Conditions shall be decided by the Committee in its total and absolute discretion.

 

4


10. ELECTRONIC DELIVERY

By executing the Grant Notice, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, and the Restricted Stock Units via Company web site or other electronic delivery.

 

5

Exhibit 10.2

CONTINENTAL BUILDING PRODUCTS, INC.

GRANT NOTICE FOR 2014 STOCK INCENTIVE PLAN

RESTRICTED STOCK AWARD

FOR GOOD AND VALUABLE CONSIDERATION, Continental Building Products, Inc. (the “Company”), hereby grants to Participant named below the number of restricted shares of the Company’s common stock, par value $0.001 (the “Common Stock”) specified below (the “Award”), upon the terms and subject to the conditions set forth in this Grant Notice, the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”) and the Standard Terms and Conditions (the “Standard Terms and Conditions”) promulgated under such Plan, each as amended from time to time. This Award is granted pursuant to the Plan and is subject to and qualified in its entirety by the Standard Terms and Conditions.

 

Name of Participant:

  

Grant Date:

  

Number of restricted stock units:

  

Vesting Schedule:

  

By accepting this Grant Notice, Participant acknowledges that he or she has received and read, and agrees that this Award shall be subject to, the terms of this Grant Notice, the Plan and the Standard Terms and Conditions.

 

CONTINENTAL BUILDING PRODUCTS, INC.      
      Participant Signature
By        
Title:         Address (please print):
       
       
       


CONTINENTAL BUILDING PRODUCTS, INC.

STANDARD TERMS AND CONDITIONS FOR

RESTRICTED STOCK

These Standard Terms and Conditions apply to the Award of restricted stock granted pursuant to the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”), which are evidenced by a Grant Notice or an action of the Committee that specifically refers to these Standard Terms and Conditions. In addition to these Terms and Conditions, the restricted stock shall be subject to the terms of the Plan, which are incorporated into these Standard Terms and Conditions by this reference. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.

 

1. TERMS OF RESTRICTED STOCK

Continental Building Products, Inc. (the “Company”), has granted to the Participant named in the Grant Notice provided to said Participant herewith (the “Grant Notice”) an award of a number of restricted shares (the “Award” or the “Restricted Stock”) of the Company’s common stock, par value $0.001 (the “Common Stock”) specified in the Grant Notice. The Award is subject to the conditions set forth in the Grant Notice, these Standard Terms and Conditions, and the Plan, each as amended from time to time. For purposes of these Standard Terms and Conditions and the Grant Notice, any reference to the Company shall include a reference to any Subsidiary.

 

2. VESTING OF RESTRICTED STOCK

The Award shall not be vested as of the Grant Date set forth in the Grant Notice and shall be forfeitable unless and until otherwise vested pursuant to the terms of the Grant Notice and these Standard Terms and Conditions. After the Grant Date, subject to termination or acceleration as provided in these Standard Terms and Conditions and the Plan, the Award shall become vested as described in the Grant Notice with respect to that number of shares of Restricted Stock as set forth in the Grant Notice. Shares of Restricted Stock that have vested and are no longer subject to forfeiture are referred to herein as “Vested Shares.” Shares of Restricted Stock awarded hereunder that are not vested and remain subject to forfeiture are referred to herein as “Unvested Shares.” Notwithstanding anything contained in these Standard Terms and Conditions to the contrary, [upon a Participant’s Termination of Employment due to Participant’s death, disability or retirement after age 65, or upon a Termination of Employment by the Company without Cause within 24 months following the occurrence of a Change in Control, all Unvested Shares shall become vested on the date of such Termination of Employment. Upon a Participant’s Termination of Employment for any other reason, including a Termination of Employment by the Company without Cause that occurs prior to the occurrence of a Change in Control, any then Unvested Shares held by the Participant shall be forfeited and canceled as of the date of such Termination of Employment. For purposes hereof, a Change in Control (as defined in the Plan) will not be deemed to occur until such date as the Company is no longer a controlled company of Lone Star Fund VIII (U.S.), L.P.

 

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3. RIGHTS AS STOCKHOLDER

From and after the Grant Date, the Participant shall have all of the ownership, voting rights, dividend rights and all other rights of a stockholder of the Company with respect to the Restricted Stock, except that (i) such rights as to Unvested Shares shall terminate upon the forfeiture of such Unvested Shares as and to the extent specifically provided in Section 2 above and (ii) dividends payable in cash shall, with respect to any Unvested Shares, be automatically reinvested in additional shares of Common Stock at a purchase price per share equal to the Fair Market Value of a share of Common Stock on the date such dividend is paid; provided, however that any fractional share shall be rounded up to a whole share. Any additional shares of Common Stock accrued for the Participant through dividends on Unvested Shares, whether through reinvestment or through a dividend paid in shares of Common Stock, shall be subject to the same restrictions on transferability and risk of forfeiture as the Unvested Shares with respect to which they were distributed.

 

4. RESTRICTIONS ON RESALES OF SHARES

The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any Vested Shares, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and other holders and (c) restrictions as to the use of a specified brokerage firm for such resales or other transfers.

 

5. INCOME TAXES

To the extent required by applicable federal, state, local or foreign law, the Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of the grant or vesting of the Restricted Stock. The Company shall not be required to issue shares or to recognize the disposition of such shares until such obligations are satisfied.

 

6. NON-TRANSFERABILITY OF UNVESTED SHARES

The Participant understands, acknowledges and agrees that, except as otherwise provided in the Plan or as permitted by the Committee, the Unvested Shares may not be sold, assigned, transferred, pledged or otherwise directly or indirectly encumbered or disposed of other than by will or the laws of descent and distribution.

 

7. OTHER AGREEMENTS SUPERSEDED

The Grant Notice, these Standard Terms and Conditions and the Plan constitute the entire understanding between the Participant and the Company regarding the Restricted Stock. Any prior agreements, commitments or negotiations concerning the Restricted Stock are superseded.

 

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8. LIMITATION OF INTEREST IN SHARES SUBJECT TO RESTRICTED STOCK

Neither the Participant (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Participant shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan or subject to the Grant Notice or these Standard Terms and Conditions except as to such shares of Common Stock, if any, as shall have been issued to such person in connection with the Award. Nothing in the Plan, in the Grant Notice, these Standard

Terms and Conditions or any other instrument executed pursuant to the Plan shall confer upon the Participant any right to continue in the Company’s employ or service nor limit in any way the Company’s right to terminate the Participant’s employment or service at any time for any reason.

 

9. GENERAL

 

  (a) In the event that any provision of these Standard Terms and Conditions is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of these Standard Terms and Conditions shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.

 

  (b) The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of these Standard Terms and Conditions, nor shall they affect its meaning, construction or effect.

 

  (c) These Standard Terms and Conditions shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors and assigns.

 

  (d) These Standard Terms and Conditions shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of law.

 

  (e) In the event of any conflict between the Grant Notice, these Standard Terms and Conditions and the Plan, the Grant Notice and these Standard Terms and Conditions shall control. In the event of any conflict between the Grant Notice and these Standard Terms and Conditions, the Grant Notice shall control.

 

  (f) All questions arising under the Plan or under these Standard Terms and Conditions shall be decided by the Committee in its total and absolute discretion.

 

10. ELECTRONIC DELIVERY

By executing the Grant Notice, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, and the Restricted Stock via Company web site or other electronic delivery.

 

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Exhibit 10.3

CONTINENTAL BUILDING PRODUCTS, INC.

GRANT NOTICE FOR 2014 STOCK INCENTIVE PLAN

NONQUALIFIED STOCK OPTIONS

FOR GOOD AND VALUABLE CONSIDERATION, Continental Building Products, Inc. (the “Company”), hereby grants to Participant named below the nonqualified stock option (the “Option”) to purchase any part or all of the number of shares of its common stock, par value $0.001 per share (the “Common Stock”), that are covered by this Option, as specified below, at the Exercise Price per share specified below and upon the terms and subject to the conditions set forth in this Grant Notice, the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”) and the Standard Terms and Conditions (the “Standard Terms and Conditions”) promulgated under such Plan, each as amended from time to time. This Option is granted pursuant to the Plan and is subject to and qualified in its entirety by the Standard Terms and Conditions.

 

Name of Participant:

  

Grant Date:

  

Number of Shares of Common Stock covered by Option:

  

Exercise Price Per Share:

   $

Expiration Date:

  

Vesting Schedule:

  

This Option is not intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. By accepting this Grant Notice, Participant acknowledges that he or she has received and read, and agrees that this Option shall be subject to, the terms of this Grant Notice, the Plan and the Standard Terms and Conditions.

 

CONTINENTAL BUILDING PRODUCTS, INC.      
      Participant Signature
By        
Title:         Address (please print):
       
       
       


CONTINENTAL BUILDING PRODUCTS, INC.

STANDARD TERMS AND CONDITIONS FOR

NONQUALIFIED STOCK OPTIONS

These Standard Terms and Conditions apply to the Options granted pursuant to the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”), which are identified as nonqualified stock options and are evidenced by a Grant Notice or an action of the Committee that specifically refers to these Standard Terms and Conditions. In addition to these Terms and Conditions, the Option shall be subject to the terms of the Plan, which are incorporated into these Standard Terms and Conditions by this reference. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.

1. Terms of Option

Continental Building Products, Inc. (the “Company”), has granted to the Participant named in the Grant Notice provided to said Participant herewith (the “Grant Notice”) a nonqualified stock option (the “Option”) to purchase up to the number of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), set forth in the Grant Notice. The exercise price per share and the other terms and subject to the conditions of the Option are set forth in the Grant Notice, these Standard Terms and Conditions (as amended from time to time), and the Plan. For purposes of these Standard Terms and Conditions and the Grant Notice, any reference to the Company shall include a reference to any Subsidiary.

2. Nonqualified Stock Option

The Option is not intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) and will be interpreted accordingly.

3. Exercise of Option

The Option shall not be exercisable as of the Grant Date set forth in the Grant Notice. After the Grant Date, to the extent not previously exercised, and subject to termination or acceleration as provided in these Standard Terms and Conditions and the Plan, the Option shall be exercisable only to the extent it becomes vested, as described in the Grant Notice or the terms of the Plan, to purchase up to that number of shares of Common Stock as set forth in the Grant Notice, provided that (except as set forth in Section 4(a) below) the Participant remains employed with the Company and does not experience a Termination of Employment. The vesting period and/or exercisability of an Option may be adjusted by the Committee to reflect the decreased level of employment during any period in which the Participant is on an approved leave of absence or is employed on a less than full time basis.

To exercise the Option (or any part thereof), the Participant shall deliver to the Company a “Notice of Exercise” in a form specified by the Committee, specifying the number of whole shares of Common Stock the Participant wishes to purchase and how the Participant’s shares of Common Stock should be registered (in the Participant’s name only or in the Participant’s and the Participant’s spouse’s names as community property or as joint tenants with right of survivorship).

 

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The exercise price (the “Exercise Price”) of the Option is set forth in the Grant Notice. The Company shall not be obligated to issue any shares of Common Stock until the Participant shall have paid the total Exercise Price for that number of shares of Common Stock. The Exercise Price may be paid in Common Stock, cash or a combination thereof, including an irrevocable commitment by a broker to pay over such amount from a sale of the Common Stock issuable under the Option, the delivery of previously owned Common Stock, withholding of shares of Common Stock deliverable upon exercise of the Option (but only to the extent share withholding is made available to the Participant by the Company), or in such other manners as may be permitted by the Committee.

Fractional shares may not be exercised. Shares of Common Stock will be issued as soon as practical after exercise. Notwithstanding the above, the Company shall not be obligated to deliver any shares of Common Stock during any period when the Company determines that the exercisability of the Option or the delivery of shares of Common Stock hereunder would violate any federal, state or other applicable laws.

4. Expiration of Option

The Option shall expire and cease to be exercisable as of the earlier of (i) the Expiration Date set forth in the Grant Notice or (ii) the date specified below in connection with the Participant’s Termination of Employment:

 

  (a) If the Participant’s Termination of Employment is by reason of death, Disability or Retirement, or by the Company without Cause within 24 months following the occurrence of a Change in Control, the Participant (or the Participant’s estate, beneficiary or legal representative) may exercise the entire Option (regardless of whether then vested or exercisable) until the date that is twelve (12) months following the date of such Termination of Employment. “Disability” shall mean, as determined by the Committee in its discretion exercised in good faith, a physical or mental condition of a Participant that would entitle him or her to payment of disability income payments under the Company’s long-term disability insurance policy or plan for employees as then in effect; or in the event that a Participant is not covered, for whatever reason under the Company’s long-term disability insurance policy or plan for employees or in the event the Company does not maintain such a long-term disability insurance policy, “Disability” means a permanent and total disability as defined in section 22(e)(3) of the Code. A determination of Disability may be made by a physician selected or approved by the Committee and, in this respect, Participants shall submit to an examination by such physician upon request by the Committee. “Retirement” shall mean, unless otherwise set forth in an employment agreement or other written agreement between the Company and the applicable Participant, (i) for employees: retirement from active employment with the Company and its Subsidiaries: (A) at or after age 55 with 5 years of service recognized by the Company or (B) at or after age 50 with 80 points (with points meaning the sum of the Participant’s age and years of service recognized by the Company at the time of retirement). The determination of the Committee as to an individual’s Retirement shall be conclusive on all parties, and (ii) for non-employee directors: retirement from active service with the Company after having served as a non-employee director for at least an aggregate of three full years (excluding any service while a full-time employee of the Company).

 

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(b) If the Participant’s Termination of Employment is for any reason other than death, Disability, Retirement, by the Company without Cause within 24 months following the occurrence of a Change in Control or Cause, the Participant may exercise any portion of the Option that is vested and exercisable at the time of such Termination of Employment until the date that is three (3) months following the date of such Termination of Employment. Any portion of the Option that is not vested and exercisable at the time of such Termination of Employment (after taking into account any accelerated vesting under Section 15 of the Plan or any other agreement between the Participant and the Company) shall be forfeited and canceled as of the date of such Termination of Employment.

(c) If the Participant’s Termination of Employment is by the Company for Cause, the entire Option, whether or not then vested and exercisable, shall be immediately forfeited and canceled as of the date of such Termination of Employment.

(d) For purposes hereof, a Change in Control (as defined in the Plan) will not be deemed to occur until such date as the Company is no longer a controlled company of Lone Star Fund VIII (U.S.), L.P.

5. Restrictions on Resales of Shares Acquired Pursuant to Option Exercise

The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any shares of Common Stock issued as a result of the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and other optionholders and (c) restrictions as to the use of a specified brokerage firm for such resales or other transfers.

6. Income Taxes

The Company shall not deliver shares of Common Stock in respect of the exercise of any Option unless and until the Participant has made arrangements satisfactory to the Company to satisfy applicable withholding tax obligations. Unless the Participant pays the withholding tax obligations to the Company by cash or check in connection with the exercise of the Option (including an irrevocable commitment by a broker to pay over such amount from a sale of the Common Stock issuable under the Option), withholding may be effected, at the Company’s option, withholding Common Stock issuable in connection with the exercise of the Option (provided that shares of Common Stock may be withheld only to the extent that such withholding will not result in adverse accounting treatment for the Company). The Participant acknowledges that the Company shall have the right to deduct any taxes required to be withheld by law in connection with the exercise of the Option from any amounts payable by it to the Participant (including, without limitation, future cash wages).

 

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7. Non-Transferability of Option

Except as permitted by the Committee or as permitted under the Plan, the Participant may not assign or transfer the Option to anyone other than by will or the laws of descent and distribution and the Option shall be exercisable only by the Participant during his or her lifetime. The Company may cancel the Participant’s Option if the Participant attempts to assign or transfer it in a manner inconsistent with this Section 7.

8. Other Agreements Superseded

The Grant Notice, these Standard Terms and Conditions and the Plan constitute the entire understanding between the Participant and the Company regarding the Option. Any prior agreements, commitments or negotiations concerning the Option are superseded.

9. Limitation of Interest in Shares Subject to Option

Neither the Participant (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Participant shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan or subject to the Grant Notice or these Standard Terms and Conditions except as to such shares of Common Stock, if any, as shall have been issued to such person upon exercise of the Option or any part of it. Nothing in the Plan, in the Grant Notice, these Standard Terms and Conditions or any other instrument executed pursuant to the Plan shall confer upon the Participant any right to continue in the Company’s employ or service nor limit in any way the Company’s right to terminate the Participant’s employment at any time for any reason.

10. No Liability of Company

The Company and any affiliate which is in existence or hereafter comes into existence shall not be liable to the Participant or any other person as to: (a) the non-issuance or sale of shares of Common Stock as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; and (b) any tax consequence expected, but not realized, by the Participant or other person due to the receipt, exercise or settlement of any Option granted hereunder.

11. General

(a) In the event that any provision of these Standard Terms and Conditions is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of these Standard Terms and Conditions shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.

(b) The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of these Standard Terms and Conditions, nor shall they affect its meaning, construction or effect.

(c) These Standard Terms and Conditions shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors and assigns.

 

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(d) These Standard Terms and Conditions shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of law.

(e) In the event of any conflict between the Grant Notice, these Standard Terms and Conditions and the Plan, the Grant Notice and these Standard Terms and Conditions shall control. In the event of any conflict between the Grant Notice and these Standard Terms and Conditions, the Grant Notice shall control.

(f) All questions arising under the Plan or under these Standard Terms and Conditions shall be decided by the Committee in its total and absolute discretion.

(g) Notwithstanding anything herein or in the Plan to the contrary, no adjustments to the Option and/or any of the terms hereof shall be made pursuant to Section 15 of the Plan or otherwise in connection with the transactions to be consummated subsequent to Grant Date but prior to the consummation of the Company’s initial public offering.

12. Electronic Delivery

By executing the Grant Notice, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, the Option and the Common Stock via Company web site or other electronic delivery.

 

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Exhibit 10.4

CONTINENTAL BUILDING PRODUCTS, INC.

GRANT NOTICE FOR 2014 STOCK INCENTIVE PLAN

INCENTIVE STOCK OPTIONS

FOR GOOD AND VALUABLE CONSIDERATION, Continental Building Products, Inc. (the “Company”), hereby grants to Participant named below the incentive stock option (the “Option”) to purchase any part or all of the number of shares of its common stock, par value $0.001 per share (the “Common Stock”), that are covered by this Option, as specified below, at the Exercise Price per share specified below and upon the terms and subject to the conditions set forth in this Grant Notice, the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”) and the Standard Terms and Conditions (the “Standard Terms and Conditions”) promulgated under such Plan, each as amended from time to time. This Option is granted pursuant to the Plan and is subject to and qualified in its entirety by the Standard Terms and Conditions.

 

Name of Participant:

  

Grant Date:

  

Number of Shares of Common Stock covered by Option:

  

Exercise Price Per Share:

   $

Expiration Date:

  

Vesting Schedule:

  

This Option is intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended. By accepting this Grant Notice, Participant acknowledges that he or she has received and read, and agrees that this Option shall be subject to, the terms of this Grant Notice, the Plan and the Standard Terms and Conditions.

 

CONTINENTAL BUILDING PRODUCTS, INC.      
      Participant Signature
By        
Title:         Address (please print):
       
       
       


CONTINENTAL BUILDING PRODUCTS, INC.

STANDARD TERMS AND CONDITIONS FOR

INCENTIVE STOCK OPTIONS

These Standard Terms and Conditions apply to the Options granted pursuant to the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”), which are identified as incentive stock options and are evidenced by a Grant Notice or an action of the Committee that specifically refers to these Standard Terms and Conditions. In addition to these Terms and Conditions, the Option shall be subject to the terms of the Plan, which are incorporated into these Standard Terms and Conditions by this reference. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.

1. Terms of Option

Continental Building Products, Inc. (the “Company”), has granted to the Participant named in the Grant Notice provided to said Participant herewith (the “Grant Notice”) an incentive stock option (the “Option”) to purchase up to the number of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), set forth in the Grant Notice. The exercise price per share and the other terms and subject to the conditions of the Option are set forth in the Grant Notice, these Standard Terms and Conditions (as amended from time to time), and the Plan. For purposes of these Standard Terms and Conditions and the Grant Notice, any reference to the Company shall include a reference to any Subsidiary.

2. Incentive Stock Option

The Option is intended to be an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) and will be interpreted accordingly. Section 422 of the Code provides, among other things, that the Participant shall not be taxed upon the exercise of a stock option that qualifies as an incentive stock option provided the Participant does not dispose of the shares of Common Stock acquired upon exercise of such option until the later of two years after such option is granted to the Participant and one year after such option is exercised. Notwithstanding anything to the contrary herein, Section 422 of the Code provides that incentive stock options (including, possibly, the Option) shall not be treated as incentive stock options if and to the extent that the aggregate fair market value of shares of Common Stock (determined as of the time of grant) with respect to which such incentive stock options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and its subsidiaries) exceeds $100,000, taking options into account in the order in which they were granted. Thus, if and to the extent that any shares of Common Stock issued under a portion of the Option exceeds the foregoing $100,000 limitation, such shares shall not be treated as issued under an incentive stock option pursuant to Section 422 of the Code.

3. Exercise of Option

The Option shall not be exercisable as of the Grant Date set forth in the Grant Notice. After the Grant Date, to the extent not previously exercised, and subject to termination or acceleration as provided in these Standard Terms and Conditions and the Plan, the Option shall be exercisable only to the extent it becomes vested, as described in the Grant Notice or the terms of the Plan, to

 

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purchase up to that number of shares of Common Stock as set forth in the Grant Notice, provided that (except as set forth in Section 4(a) below) the Participant remains employed with the Company and does not experience a Termination of Employment. The vesting period and/or exercisability of an Option may be adjusted by the Committee to reflect the decreased level of employment during any period in which the Participant is on an approved leave of absence or is employed on a less than full time basis.

To exercise the Option (or any part thereof), the Participant shall deliver to the Company a “Notice of Exercise” in a form specified by the Committee, specifying the number of whole shares of Common Stock the Participant wishes to purchase and how the Participant’s shares of Common Stock should be registered (in the Participant’s name only or in the Participant’s and the Participant’s spouse’s names as community property or as joint tenants with right of survivorship).

The exercise price (the “Exercise Price”) of the Option is set forth in the Grant Notice. The Company shall not be obligated to issue any shares of Common Stock until the Participant shall have paid the total Exercise Price for that number of shares of Common Stock. The Exercise Price may be paid in Common Stock, cash or a combination thereof, including an irrevocable commitment by a broker to pay over such amount from a sale of the Common Stock issuable under the Option, the delivery of previously owned Common Stock, withholding of shares of Common Stock deliverable upon exercise of the Option (but only to the extent share withholding is made available to the Participant by the Company), or in such other manners as may be permitted by the Committee.

Fractional shares may not be exercised. Shares of Common Stock will be issued as soon as practical after exercise. Notwithstanding the above, the Company shall not be obligated to deliver any shares of Common Stock during any period when the Company determines that the exercisability of the Option or the delivery of shares of Common Stock hereunder would violate any federal, state or other applicable laws.

4. Expiration of Option

The Option shall expire and cease to be exercisable as of the earlier of (i) the Expiration Date set forth in the Grant Notice or (ii) the date specified below in connection with the Participant’s Termination of Employment:

(a) If the Participant’s Termination of Employment is by reason of death, Disability or Retirement, or by the Company without Cause within 24 months following the occurrence of a Change in Control, the Participant (or the Participant’s estate, beneficiary or legal representative) may exercise the entire Option (regardless of whether then vested or exercisable) until the date that is twelve (12) months following the date of such Termination of Employment. “Disability” shall mean, as determined by the Committee in its discretion exercised in good faith, a physical or mental condition of a Participant that would entitle him or her to payment of disability income payments under the Company’s long-term disability insurance policy or plan for employees as then in effect; or in the event that a Participant is not covered, for whatever reason under the Company’s long-term disability insurance policy or plan for employees or in the event the Company does not maintain such a long-term disability insurance policy, “Disability” means a permanent and total disability as defined in section 22(e)(3) of the Code. A determination of

 

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Disability may be made by a physician selected or approved by the Committee and, in this respect, Participants shall submit to an examination by such physician upon request by the Committee. “Retirement” shall mean, unless otherwise set forth in an employment agreement or other written agreement between the Company and the applicable Participant, (i) for employees: retirement from active employment with the Company and its Subsidiaries: (A) at or after age 55 with 5 years of service recognized by the Company or (B) at or after age 50 with 80 points (with points meaning the sum of the Participant’s age and years of service recognized by the Company at the time of retirement). The determination of the Committee as to an individual’s Retirement shall be conclusive on all parties, and (ii) for non-employee directors: retirement from active service with the Company after having served as a non-employee director for at least an aggregate of three full years (excluding any service while a full-time employee of the Company).

(b) If the Participant’s Termination of Employment is for any reason other than death, Disability, Retirement, by the Company without Cause within 24 months following the occurrence of a Change in Control or Cause, the Participant may exercise any portion of the Option that is vested and exercisable at the time of such Termination of Employment until the date that is three (3) months following the date of such Termination of Employment. Any portion of the Option that is not vested and exercisable at the time of such Termination of Employment (after taking into account any accelerated vesting under Section 15 of the Plan or any other agreement between the Participant and the Company) shall be forfeited and canceled as of the date of such Termination of Employment.

(c) If the Participant’s Termination of Employment is by the Company for Cause, the entire Option, whether or not then vested and exercisable, shall be immediately forfeited and canceled as of the date of such Termination of Employment.

(d) For purposes hereof, a Change in Control (as defined in the Plan) will not be deemed to occur until such date as the Company is no longer a controlled company of Lone Star Fund VIII (U.S.), L.P.

5. Restrictions on Resales of Shares Acquired Pursuant to Option Exercise

The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any shares of Common Stock issued as a result of the exercise of the Option, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and other optionholders and (c) restrictions as to the use of a specified brokerage firm for such resales or other transfers.

6. Income Taxes

The Company shall not deliver shares of Common Stock in respect of the exercise of any Option unless and until the Participant has made arrangements satisfactory to the Company to satisfy applicable withholding tax obligations. Unless the Participant pays the withholding tax obligations to the Company by cash or check in connection with the exercise of the Option (including an irrevocable commitment by a broker to pay over such amount from a sale of the Common Stock issuable under the Option), withholding may be effected, at the Company’s

 

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option, withholding Common Stock issuable in connection with the exercise of the Option (provided that shares of Common Stock may be withheld only to the extent that such withholding will not result in adverse accounting treatment for the Company). The Participant acknowledges that the Company shall have the right to deduct any taxes required to be withheld by law in connection with the exercise of the Option from any amounts payable by it to the Participant (including, without limitation, future cash wages).

7. Non-Transferability of Option

Except as expressly provided herein or as otherwise permitted by the Committee, the Participant may not assign or transfer the Option to anyone other than by will or the laws of descent and distribution and the Option shall be exercisable only by the Participant during his or her lifetime. The Company may cancel the Participant’s Option if the Participant attempts to assign or transfer it in a manner inconsistent with this Section 7.

8. Other Agreements Superseded

The Grant Notice, these Standard Terms and Conditions and the Plan constitute the entire understanding between the Participant and the Company regarding the Option. Any prior agreements, commitments or negotiations concerning the Option are superseded.

9. Limitation of Interest in Shares Subject to Option

Neither the Participant (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Participant shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan or subject to the Grant Notice or these Standard Terms and Conditions except as to such shares of Common Stock, if any, as shall have been issued to such person upon exercise of the Option or any part of it. Nothing in the Plan, in the Grant Notice, these Standard Terms and Conditions or any other instrument executed pursuant to the Plan shall confer upon the Participant any right to continue in the Company’s employ or service nor limit in any way the Company’s right to terminate the Participant’s employment at any time for any reason.

10. No Liability of Company

The Company and any affiliate which is in existence or hereafter comes into existence shall not be liable to the Participant or any other person as to: (a) the non-issuance or sale of shares of Common Stock as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; and (b) any tax consequence expected, but not realized, by the Participant or other person due to the receipt, exercise or settlement of any Option granted hereunder.

11. General

(a) In the event that any provision of these Standard Terms and Conditions is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of these Standard Terms and Conditions shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.

 

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(b) The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of these Standard Terms and Conditions, nor shall they affect its meaning, construction or effect.

(c) These Standard Terms and Conditions shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors and assigns.

(d) These Standard Terms and Conditions shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of law.

(e) In the event of any conflict between the Grant Notice, these Standard Terms and Conditions and the Plan, the Grant Notice and these Standard Terms and Conditions shall control. In the event of any conflict between the Grant Notice and these Standard Terms and Conditions, the Grant Notice shall control.

(f) All questions arising under the Plan or under these Standard Terms and Conditions shall be decided by the Committee in its total and absolute discretion.

(g) Notwithstanding anything herein or in the Plan to the contrary, no adjustments to the Option and/or any of the terms hereof shall be made pursuant to Section 15 of the Plan or otherwise in connection with the transactions to be consummated subsequent to Grant Date but prior to the consummation of the Company’s initial public offering.

12. Electronic Delivery

By executing the Grant Notice, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, the Option and the Common Stock via Company web site or other electronic delivery.

 

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Exhibit 10.5

CONTINENTAL BUILDING PRODUCTS, INC.

GRANT NOTICE FOR 2014 STOCK INCENTIVE PLAN

PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD

FOR GOOD AND VALUABLE CONSIDERATION, Continental Building Products, Inc. (the “Company”), hereby grants to Participant named below the number of performance-based restricted stock units specified below (the “Award”), at the target level of performance. Each restricted stock unit represents the right to receive one share of the Company’s common stock, par value $0.001 (the “Common Stock”), upon the terms and subject to the conditions set forth in this Grant Notice, the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”) and the Standard Terms and Conditions (the “Standard Terms and Conditions”) promulgated under such Plan, each as amended from time to time. This Award is granted pursuant to the Plan and is subject to and qualified in its entirety by the Standard Terms and Conditions.

 

Name of Participant:

Grant Date:

Target Number of Performance-

Based Restricted Stock Units

(“PRSUs”):

Performance Period:

[ NOTE : This shall specify the two-year performance period.]

Vesting Schedule:

The PRSUs shall vest as follows:

 

•       100% of the PRSUs shall become earned at the end of the Performance Period if the Company achieves two-year cumulative EBITDA of [ ] (“Target EBITDA”);

 

•       50% of the PRSUs shall become earned at the end of the Performance Period if the Company achieves 85% of Target EBITDA (the “Threshold Amount”);

 

•       200% of the PRSUs shall become earned at the end of the Performance Period if the Company achieves 115% of Target EBITDA (the “Maximum Amount”);

 

Provided, however, that the number of PRSUs that becomes earned shall be calculated based on linear interpolation for achievement between the Threshold Amount and Maximum Amount, with no PRSUs becoming earned for achievement below the Threshold Amount and no more than 200% of PRSUs becoming earned for achievement of the Maximum Amount.


  

 

Such earned PRSUs, if any, will only vest subject to continued employment through [    ] (the “Vesting Date”). [ NOTE : This date should be one year following the end of the two-year performance period.]

 

As used herein, “EBITDA” means Consolidated EBITDA as defined in the First Lien Credit Agreement dated as of August 30, 2013 among the Company and certain lenders party thereto.

By accepting this Grant Notice, Participant acknowledges that he or she has received and read, and agrees that this Award shall be subject to, the terms of this Grant Notice, the Plan and the Standard Terms and Conditions.

 

CONTINENTAL BUILDING PRODUCTS, INC.      
      Participant Signature
By        
Title:         Address (please print):
       
       
       

 

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CONTINENTAL BUILDING PRODUCTS, INC.

STANDARD TERMS AND CONDITIONS FOR

PERFORMANCE-BASED RESTRICTED STOCK UNITS

These Standard Terms and Conditions apply to the Award of performance-based restricted stock units granted pursuant to the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “Plan”), which are evidenced by a Grant Notice or an action of the Committee that specifically refers to these Standard Terms and Conditions. In addition to these Terms and Conditions, the performance-based restricted stock units shall be subject to the terms of the Plan, which are incorporated into these Standard Terms and Conditions by this reference. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.

 

1. TERMS OF RESTRICTED STOCK UNITS

Continental Building Products, Inc. (the “Company”), has granted to the Participant named in the Grant Notice provided to said Participant herewith (the “Grant Notice”) an award of a target number of performance-based restricted stock units (the “Award” or the “PRSUs”) with each PRSU representing the right to receive one share of the Company’s common stock, par value $0.001 (the “Common Stock”) specified in the Grant Notice. The Award is subject to the conditions set forth in the Grant Notice, these Standard Terms and Conditions, and the Plan, each as amended from time to time. For purposes of these Standard Terms and Conditions and the Grant Notice, any reference to the Company shall include a reference to any Subsidiary.

 

2. VESTING OF PERFORMANCE-BASED RESTRICTED STOCK UNITS

The Award shall not be vested as of the Grant Date set forth in the Grant Notice and shall be forfeitable unless and until otherwise vested pursuant to the terms of the Grant Notice and these Standard Terms and Conditions. After the Grant Date, subject to termination or acceleration as provided in these Standard Terms and Conditions and the Plan, the Award shall become vested as described in the Grant Notice with respect to that number of PRSUs as set forth in the Grant Notice. PRSUs that have vested and are no longer subject to forfeiture are referred to herein as “Vested PRSUs.” PRSUs awarded hereunder that are not vested and remain subject to forfeiture are referred to herein as “Unvested PRSUs.” Vested PRSUs shall be settled by the delivery of shares of Common Stock on the applicable vesting date.

Notwithstanding anything contained in these Standard Terms and Conditions to the contrary, upon a Participant’s Termination of Employment by the Company without Cause or due to Participant’s death, disability or retirement after age 65, in each case, that occurs after completion of the Performance Period but prior to the Vesting Date, a pro-rated number of earned PRSUs shall become vested on the date of such Termination of Employment based on the number of days Participant was employed during the period commencing on the Grant Date and ending on the Vesting Date, and any remaining earned but Unvested PRSUs shall be forfeited and canceled as of the date of such Termination of Employment; provided, however, that if such Termination of Employment is a Termination of Employment without Cause within 24 months following

 

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the occurrence of a Change in Control, all earned PRSUs shall become vested. Upon a Participant’s Termination of Employment by the Company without Cause or due to Participant’s death, disability or retirement after age 65, in each case, that occurs prior to completion of the Performance Period, a pro-rated number of earned PRSUs shall become vested on the date that the Committee certifies the Company’s performance over the Performance Period (based on actual performance of the entire Performance Period) based on the number of days Participant was employed during the period commencing on the Grant Date and ending on the Vesting Date, and any remaining Unvested PRSUs shall be forfeited and canceled as of the date of such certification; provided, however that if such Termination of Employment is a Termination of Employment without Cause within 24 months following the occurrence of a Change in Control, the target number of PRSUs shall vest in full upon the date of such Termination of Employment. Upon a Participant’s Termination of Employment for any other reason, any then Unvested PRSUs held by the Participant shall be forfeited and canceled as of the date of such Termination of Employment. For purposes hereof, a Change in Control (as defined in the Plan) will not be deemed to occur until such date as the Company is no longer a controlled company of Lone Star Fund VIII (U.S.), L.P.

 

3. RIGHTS AS STOCKHOLDER

Participant shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any PRSUs unless and until shares of Common Stock settled for such PRSUs shall have been issued by the Company to Participant (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). Notwithstanding the foregoing, from and after the Grant Date and until the earlier of (a) the time when the PRSUs become nonforfeitable and payable in accordance with the terms hereof or (b) the time when the Participant’s right to receive Common Stock upon payment of PRSUs is forfeited, on the date that the Company pays a cash dividend (if any) to holders of Common Stock generally, the Participant shall be entitled to a number of additional whole PRSUs determined by dividing (i) the product of (A) the dollar amount of the cash dividend paid per share of Common Stock on such date and (B) the total number of PRSUs (including dividend equivalents paid thereon) previously credited to the Participant as of such date, by (ii) the Fair Market Value per share of Common Stock on such date. Such dividend equivalents (if any) shall be subject to the same terms and conditions and shall be settled or forfeited in the same manner and at the same time as the PRSUs to which the dividend equivalents were credited.

 

4. RESTRICTIONS ON RESALES OF SHARES

The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any shares of Common Stock issued pursuant to Vested PRSUs, including without limitation (a) restrictions under an insider trading policy, (b) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and other holders and (c) restrictions as to the use of a specified brokerage firm for such resales or other transfers.

 

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5. INCOME TAXES

To the extent required by applicable federal, state, local or foreign law, the Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of the grant or vesting of the PRSUs. The Company shall not be required to issue shares or to recognize the disposition of such shares until such obligations are satisfied.

 

6. NON-TRANSFERABILITY OF AWARD

The Participant understands, acknowledges and agrees that, except as otherwise provided in the Plan or as permitted by the Committee, the Award may not be sold, assigned, transferred, pledged or otherwise directly or indirectly encumbered or disposed of other than by will or the laws of descent and distribution.

 

7. OTHER AGREEMENTS SUPERSEDED

The Grant Notice, these Standard Terms and Conditions and the Plan constitute the entire understanding between the Participant and the Company regarding the Award. Any prior agreements, commitments or negotiations concerning the Award are superseded.

 

8. LIMITATION OF INTEREST IN SHARES SUBJECT TO PERFORMANCE-BASED RESTRICTED STOCK UNITS

Neither the Participant (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Participant shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan or subject to the Grant Notice or these Standard Terms and Conditions except as to such shares of Common Stock, if any, as shall have been issued to such person in connection with the Award. Nothing in the Plan, in the Grant Notice, these Standard Terms and Conditions or any other instrument executed pursuant to the Plan shall confer upon the Participant any right to continue in the Company’s employ or service nor limit in any way the Company’s right to terminate the Participant’s employment at any time for any reason.

 

9. GENERAL

 

  (a) In the event that any provision of these Standard Terms and Conditions is declared to be illegal, invalid or otherwise unenforceable by a court of competent jurisdiction, such provision shall be reformed, if possible, to the extent necessary to render it legal, valid and enforceable, or otherwise deleted, and the remainder of these Standard Terms and Conditions shall not be affected except to the extent necessary to reform or delete such illegal, invalid or unenforceable provision.

 

  (b) The headings preceding the text of the sections hereof are inserted solely for convenience of reference, and shall not constitute a part of these Standard Terms and Conditions, nor shall they affect its meaning, construction or effect.

 

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  (c) These Standard Terms and Conditions shall inure to the benefit of and be binding upon the parties hereto and their respective permitted heirs, beneficiaries, successors and assigns.

 

  (d) These Standard Terms and Conditions shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to principles of conflicts of law.

 

  (e) In the event of any conflict between the Grant Notice, these Standard Terms and Conditions and the Plan, the Grant Notice and these Standard Terms and Conditions shall control. In the event of any conflict between the Grant Notice and these Standard Terms and Conditions, the Grant Notice shall control.

 

  (f) All questions arising under the Plan or under these Standard Terms and Conditions shall be decided by the Committee in its total and absolute discretion.

 

10. ELECTRONIC DELIVERY

By executing the Grant Notice, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, and the PRSUs via Company web site or other electronic delivery.

 

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Exhibit 10.6

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “ Agreement ”) is entered into as of March 24, 2015 (the “ Effective Date ”) between Continental Building Products Operating Company, LLC (together with its parent, Continental Building Products, Inc., the “ Company ”) and James W. Bachmann (the “ Executive ”) (each of the foregoing individually a “ Party ” and collectively the “ Parties ”).

WHEREAS, the Company wishes to employ the Executive and the Executive wishes to be employed by the Company, in each case, on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment . The Executive’s employment hereunder shall commence on the Effective Date and end on the date the Executive’s employment is terminated pursuant to Section 4 hereof (the “ Employment Period ”). During the Employment Period, the Executive will devote his full business time and use his best efforts to advance the business and welfare of the Company and its subsidiaries and affiliates and will not engage in (i) any other employment or business activities, or (ii) any other activities for any direct or indirect remuneration that would be harmful or detrimental to the business and affairs of the Company or that would interfere with his duties hereunder. The foregoing, however, shall not preclude the Executive from serving on civic or charitable boards or committees or managing personal investments, so long as such activities do not interfere with the performance of the Executive’s responsibilities hereunder.

2. Position . During the Employment Period, the Executive shall serve as President and Chief Executive Officer of the Company, and shall report directly to the Board of Directors of the Company. During the Employment Period, the Executive shall also serve in such other capacities as may be reasonably requested from time to time by the Board of Directors of the Company (the “ Board ”) consistent with the Executive’s position and shall render such other services for the Company as the Board may from time to time reasonably request and as shall be consistent with the Executive’s position and responsibilities.

3. Compensation .

(a) Base Salary . During the Employment Period, the Executive shall receive a base salary at a rate of $425,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company, subject to review from time to time as determined by the Board or a committee thereof (the “ Base Salary ”).

(b) Bonus . With respect to each fiscal year ending during the Employment Period, in addition to the Base Salary, the Executive may be eligible to earn an annual cash performance bonus based upon the achievement of performance targets established by the Board (or a committee thereof). The target amount for such annual cash performance bonus is 100% of Base Salary.

(c) Participation in Benefit Plans . During the Employment Period, the Executive shall be entitled to receive all perquisites and participate in all benefit plans and programs maintained by the Company that are available generally to its senior executives; provided, however, that the Executive’s right to participate in such plans and programs shall not affect the Company’s right to amend or terminate the general applicability of such perquisites, plans and programs. The Company may, in its sole discretion and from time to time, amend, eliminate or establish additional benefit programs as it deems appropriate.

(d) Expenses . The Company shall reimburse the Executive for all reasonable travel and other business expenses incurred by him in the performance of his duties to the Company in accordance with the Company’s applicable expense reimbursement policies and procedures.

 

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4. Termination of Employment . Subject to the further provisions of this Section 4, the Employment Period and the Executive’s employment hereunder may be terminated by either Party at any time and for any or no reason; provided, however, that the Company and the Executive will be required to give written notice of any termination of the Executive’s employment as set forth in this Section 4. Notwithstanding any other provision of this Agreement, the provisions of this Section 4 shall exclusively govern the Executive’s rights to compensation and benefits upon termination of employment with the Company.

(a) Notice of Termination . Any termination or resignation of the Executive’s employment by the Company or by the Executive, as applicable, under this Section 4 (other than termination of employment as a result of the Executive’s death) shall be communicated by a written notice (a “ Notice of Termination ”) to the other Party hereto (i) indicating whether the termination is for or without Cause or the resignation is for or without Good Reason, (ii) indicating the specific termination provision in this Agreement relied upon, (iii) except with respect to a termination by the Company without Cause or by reason of the Executive’s resignation without Good Reason, setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iv) specifying a date of termination (the “ Date of Termination ”), which, if submitted by the Executive, shall be thirty (30) days following the date of such notice (or the first business day following the last day of the Cure Period, in the case of Executive’s resignation for Good Reason, or such other date as mutually agreed by the Company and the Executive).

(b) Accrued Rights . Upon a termination of the Executive’s employment for any reason, the Executive (or the Executive’s estate) shall be entitled to receive the sum of the Executive’s Base Salary through the Date of Termination not theretofore paid; any expenses owed to the Executive under Section 3(d); and any amount arising from the Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements (including without limitation, any disability or life insurance benefit plans, programs or arrangements), which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the “ Accrued Rights ”).

(c) Termination by the Company without Cause or Resignation For Good Reason . If the Executive’s employment shall be terminated by the Company without Cause (and not by reason of Executive’s death or Disability) or by the Executive for Good Reason, then, in addition to the Accrued Rights, the Company shall (subject to the Executive’s execution, within twenty-one (21) days following the Date of Termination, of a waiver and general release of claims in a form provided by the Company, and such general release of claims becoming effective and irrevocable in accordance with its terms) (i) continue to pay to the Executive, in accordance with the Company’s regular payroll practice following the Date of Termination, the Executive’s Base Salary for a period of 24 months; provided , that the Company shall not be obligated to make any such payments described in this Section 4(c) after the date the Executive first violates any of the restrictive covenants set forth in this Agreement (including Section 5 hereof), and (ii) pay in accordance with its customary procedures, a pro-rata portion of Executive’s bonus, based on Executive’s performance during the period of the year in which Executive was employed by the Company (the “Bonus”). Following the Executive’s termination of employment by the Company without Cause (and not by reason of Executive’s death or Disability) or the Executive for Good Reason, except as set forth in this Section 4(c), the Executive shall have no further rights to any compensation or any other benefits under this Agreement.

(d) Termination by the Company for Cause; Resignation Without Good Reason . If the Executive’s employment shall be terminated by the Company for Cause or upon the Executive’s resignation without Good Reason, the Executive shall only be entitled to receive the Accrued Rights. Following the Executive’s termination of employment by the Company for Cause or upon the Executive’s resignation without Good Reason, except as set forth in this Section 4(d), the Executive shall have no further rights to any compensation or any other benefits under this Agreement.

(e) Disability or Death . The Employment Period and the Executive’s employment hereunder shall terminate immediately upon the Executive’s death and may be terminated by the Company if the Executive becomes or is reasonably expected to be (in the good faith judgment of the Board) physically or mentally incapacitated and is therefore unable for a period of 60 consecutive days or for an aggregate of four months in any twelve consecutive month period to perform the essential functions of Executive’s position, with or without a reasonable accommodation (such incapacity is hereinafter referred to as “ Disability ”), in each case, in a manner consistent with applicable state and federal law. Upon termination of the Executive’s employment hereunder by reason of his Disability or death, the Executive or the Executive’s estate (as the case may be) shall only be entitled to receive the Accrued Rights, the Bonus, plus such additional payments, if any, as determined by the Board in its sole discretion. Following the termination of the Executive’s employment by reason of the Executive’s Disability or death, except as set forth in this Section 4(e), the Executive shall have no further rights to any compensation or any other benefits under this Agreement.

(f) Return of Property . Upon cessation of the Executive’s employment with the Company for any reason, whether voluntary or involuntary, the Executive shall immediately deliver to the Company (i) all physical, computerized, electronic or other types of records, documents, proposals, notes, lists, files and any and all other materials, including computerized and electronic information, that refers, relates or otherwise pertains to the Company or any subsidiary of the Company (or business dealings thereof) that are in the Executive’s possession, subject to the Executive’s control or held by the Executive for others; and (ii) all property or equipment that the Executive has been issued by the Company or any subsidiary of the Company during the course of his employment

 

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or property or equipment thereof that the Executive otherwise possesses, including any computers, cellular phones, pagers and other devices. The Executive acknowledges that he is not authorized to retain any physical, computerized, electronic or other types of copies of any such physical, computerized, electronic or other types of records, documents, proposals, notes, lists, files or materials, and is not authorized to retain any other property or equipment of the Company or any subsidiary of the Company. The Executive further agrees that the Executive will immediately forward to the Company (and thereafter destroy any electronic copies thereof) any business information relating to the Company or any subsidiary of the Company that has been or is inadvertently directed to the Executive following the Executive’s last day of the Executive’s employment. The provisions of this Section 4(f) are in addition to any other written obligations on the subjects covered herein that the Executive may have with the Company and its subsidiaries, and are not meant to and do not excuse such obligations. Upon the termination of his employment with the Company and its subsidiaries, the Executive shall, upon the Company’s request, promptly execute and deliver to the Company a certificate (in form and substance satisfactory to the Company) to the effect that the Executive has complied with the provisions of this Section 4(f).

(g) Resignation of Offices . Promptly following any termination of the Executive’s employment with the Company (other than by reason of the Executive’s death), the Executive shall promptly deliver to the Company reasonably satisfactory written evidence of the Executive’s resignation from all positions that the Executive may then hold as an employee or officer of the Company or any subsidiary of the Company. The Executive shall forfeit payment of any amounts otherwise due pursuant to this Section 4 until the Executive has complied with the provisions of this Section 4(g).

(h) Further Assurances; Cooperation . Following the termination of the Executive’s employment with the Company, the Executive shall execute any and all documents to secure the Company’s right to any Work Product (as defined in Section 5(b)), and the Executive agrees to make himself available as reasonably practical with respect to, and to use reasonable efforts to cooperate in conjunction with, any litigation or investigation arising from events that occurred during the Executive’s employment with the Company and its subsidiaries (whether such litigation or investigation is then pending or subsequently initiated) involving the Company or any subsidiary of the Company, including providing testimony and preparing to provide testimony if so requested by the Company. The Company shall promptly reimburse the Executive for any reasonable travel and other expenses incurred in connection with cooperation provided under this Section 4(h) in accordance with this Company’s applicable expense reimbursement policies and procedures.

5. Restrictive Covenants .

(a) Confidential Information . During the course of the Executive’s employment with the Company, the Executive will be given access to and receive Confidential Information (as defined below) regarding the business of the Company and its affiliates. The Executive agrees that the Confidential Information constitutes a protectable business interests of the Company and its affiliates and covenants and agrees that at all times during the Executive’s employment with the Company, and at all times following the Executive’s termination, the Executive will not, directly or indirectly, disclose any Confidential Information. As used in this Agreement, the term “ Confidential Information ” means any and all confidential, proprietary or trade secret information of the Company or an affiliate not within the public domain, whether disclosed, directly or indirectly, verbally, in writing (including electronically) or by any other means in tangible or intangible form, including that which is conceived or developed by the Executive, applicable to or in any way related to: (i) the present or future business of the Company or its affiliates; (ii) the research and development of the Company or its affiliates; or (iii) the business of any client or vendor of the Company or its affiliates. Such Confidential Information includes the following property or information of the Company or its affiliates, by way of example and without limitation, trade secrets, processes, formulas, data, program documentation, customer lists, designs, drawings, algorithms, source code, object code, know-how, improvements, inventions, licenses, techniques, all plans or strategies for marketing, development and pricing, business plans, financial statements, profit margins and all information concerning existing or potential clients, suppliers or vendors. Confidential Information of the Company also means all similar information disclosed to any member of the Company by third parties that is subject to confidentiality obligations. The Company shall not be required to advise the Executive specifically of the confidential nature of any such information, nor shall the Company be required to affix a designation of confidentiality to any tangible item, in order to establish and maintain its confidential nature. Notwithstanding the preceding to the contrary, Confidential Information shall not include general industry information or information that is publicly available or readily discernable from publicly available product or literature; information that the Executive lawfully acquires from a source other than the Company or its affiliates or any client or vendor of any member of the Company or its affiliates (provided that such source is not bound by a confidentiality agreement with any member of the Company or its affiliates); information that is required to be disclosed pursuant to any law, regulation, rule of any governmental body or authority, or stock exchange, or court order; or information that reflects employee’s own skills, knowledge, know-how and experience gained prior to employment or service and outside of any connection to or relationship with the Company or any of its affiliates.

(b) Intellectual Property Ownership . The Executive hereby assigns to the Company all rights, including, without limitation, copyrights, patents, trade secret rights, and other intellectual property rights associated with any ideas, concepts, techniques, inventions, processes, works of authorship, Confidential Information or trade secrets (i) developed or created by the Executive, solely or jointly with others, during the course of performing work for or on behalf of the Company or any subsidiary of the Company, whether as an employee or independent contractor, at any time during the Employment Period, (ii) that the Executive conceives, develops, discovers or makes in whole or in part during the Executive’s employment by the Company that relate to the

 

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business of the Company or any subsidiary of the Company or the actual or demonstrably anticipated research or development of the Company or any subsidiary of the Company, (iii) that the Executive conceives, develops, discovers or makes in whole or in part during or after the Executive’s employment by the Company that are made through the use of any of the equipment, facilities, supplies, trade secrets or time of the Company or any subsidiary of the Company, or that result from any work the Executive performs for the Company or any subsidiary of the Company or (iv) developed or created by the Executive, solely or jointly with others, at any time before the Employment Period, that relate to or involve the Company’s businesses (including, but not limited to, the business of the Company (as defined in Section 5(c) below)) (collectively, the “ Work Product ”). Without limiting the foregoing, to the extent possible, all software, compilations and other original works of authorship included in the Work Product will be considered a “work made for hire” as that term is defined in Title 17 of the United States Code. If, notwithstanding the foregoing, the Executive for any reason retains any right, title or interest in or relating to any Work Product, the Executive agrees promptly to assign, in writing and without any requirement of further consideration, all such right, title, and interest to the Company. Upon request of the Company at any time during or after the Employment Period, the Executive will take such further actions, including execution and delivery of instruments of conveyance, as may be appropriate to evidence, perfect, record or otherwise give full and proper effect to any assignments of rights under or pursuant to this Agreement. The Executive will promptly disclose to the Company any such Work Product in writing.

(c) Agreement Not to Compete . The Executive acknowledges that the Company has spent significant time, effort and resources protecting its Confidential Information and customer goodwill. The Executive further acknowledges that the Confidential Information is of significant competitive value to the Company the industry in which it competes, and that the use or disclosure, even if inadvertent, of such Confidential Information for the benefit of a competitor would cause significant damage to the legitimate business interests of the Company. Accordingly, in order to protect the legitimate business and customer goodwill interests of the Company, to protect that Confidential Information against inappropriate use or disclosure, and in consideration for the Executive’s employment and the benefits provided to the Executive (including, without limitation, the benefits payable to the Executive pursuant to this Agreement, the Executive agrees that during the period commencing on the Effective Date and ending on the date that is twelve (12) months after the Date of Termination (the “ Restricted Period ”), without the prior written consent of the Company (which consent shall not be unreasonably withheld, conditioned, or delayed) the Executive shall not directly or indirectly (including, without limitation, as an employee, officer, director, owner, consultant, manager, or independent contractor) compete with the Company or any subsidiary or affiliate of the Company (collectively, the “ Company Group ”) within any state, province or region in any country in which the Company Group conducts business as of the Date of Termination. For the purposes of this Section 5(c), the business of the Company Group shall include any business in any state, province or region in any country in which the Company Group conducts business as of the Date of Termination that manufactures and/or sells (i) wallboard for interior and exterior applications, (ii) joint compounds and/or (iii) other related products. The foregoing, however, shall not prevent the Executive’s passive ownership of up to five percent (5%) or less of the equity securities of any publicly traded company.

(d) Agreement Not to Solicit Employees . The Executive agrees that, during the Restricted Period, the Executive shall not, directly or indirectly solicit, recruit or hire any person who either currently is, or as of the Date of Termination is, an employee of the Company or an affiliate for purposes of providing Competitive Services (provided, however, that the foregoing provision shall not prohibit solicitations made by the Executive to the general public or general solicitations to persons employed in the building products business). For purposes of this Agreement, “Competitive Services” means products and services of the manner and kind provided by the Company to any customer during the one-year period preceding Executive’s termination of employment with the Company.

(e) Agreement Not to Solicit Business Contacts . The Executive agrees that, during the Restricted Period, the Executive will not directly or indirectly, for the purposes of providing Competitive Services, (i) solicit or encourage any client, customer, bona fide prospective client or customer, supplier, licensee, licensor, landlord or other business relation of the Company and/or any of its subsidiaries (each a “ Business Contact ”) to terminate or diminish its relationship with them; or (ii) seek to persuade any such Business Contact to conduct with anyone else any business or activity conducted or, to the Executive’s knowledge, under consideration by the Company and/or any of its subsidiaries as of the Date of Termination that such Business Contact conducts or could conduct with the Company and/or any of its subsidiaries.

(f) Non-Disparagement . The Executive shall not, while employed by the Company or at any time thereafter, disparage the Company (or any affiliate) in any way that materially and adversely affects the goodwill, reputation or business relationships of the Company or an affiliate with the public generally, or with any of its customers, vendors or employees.

(g) Enforcement . The Executive acknowledges that he has carefully read and considered all the terms and conditions of this Agreement, including the restraints imposed upon him pursuant to this Section 5. The Executive agrees that each of the restraints contained herein are necessary for the protection of the goodwill, Confidential Information and other legitimate interests of the Company; that each and every one of these restraints is reasonable in respect to subject matter, length of time and geographic area; and that these restraints, individually or in the aggregate, will not prevent him from obtaining other suitable employment during the period in which the Executive is bound by such restraints. The Executive further acknowledges that, were he to breach any of the covenants of the Executive contained in this Section 5, the damage to the Company would be irreparable. The Executive therefore agrees that the Company, in addition to any other remedies available to them, shall be entitled to injunctive relief against any breach or threatened breach by the Executive of any of said covenants.

 

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6. Severability . If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

7. Mutual Drafting . Each Party has had the opportunity to be represented by counsel of its choice in negotiating this Agreement. This Agreement shall therefore be deemed to have been negotiated and prepared at the joint request, direction and construction of the Parties, at arm’s length, with the advice and participation of counsel, and shall be interpreted in accordance with its terms without favor to either Party, and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any of the provisions of this Agreement.

8. Section 409A of the Internal Revenue Code . Notwithstanding anything contained in this Agreement to the contrary, to the maximum extent permitted by applicable law, amounts payable to the Executive pursuant to Section 4 are intended to be made in reliance upon Treas. Reg. § 1.409A-1(b)(4) (short-term deferral). No amounts payable under this Agreement upon the Executive’s termination of employment shall be payable unless the Executive’s termination of employment constitutes a “separation from service” within the meaning of Treas. Reg. § 1.409A-1(h). The Company and the Executive intend that their exercise of authority or discretion under this Agreement shall comply with Section 409A of the Internal Revenue Code of 1986, as amended (“ Section 409A ”). If any provision of this Agreement does not satisfy the requirements of Section 409A, such provision shall nevertheless be applied in a manner consistent with those requirements. If any provision of this Agreement would subject the Executive to additional tax or interest under Section 409A, the Company shall reform the provision. However, the Company shall maintain to the maximum extent practicable the original intent of the applicable provision without subjecting the Executive to additional tax or interest, and the Company shall not be required to incur any additional compensation expense as a result of the reformed provision. In no event whatsoever shall the Company be liable for any tax, interest or penalties that may be imposed on the Executive under Section 409A. Notwithstanding the foregoing, no particular tax result for Executive with respect to any income recognized by Executive in connection with this Agreement is guaranteed. Neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold the Executive harmless from any or all such taxes, interest, or penalties, or liability for any damages related thereto. The Executive acknowledges that he has been advised to obtain independent legal, tax or other counsel in connection with Section 409A. Each payment under this Agreement is intended to be a “separate payment” and not a series of payments for purposes of Section 409A. Any payments or reimbursements of any expenses provided for under this Agreement shall be made in accordance with Treas. Reg. § 1.409A-3(i)(1)(iv). All references in this Agreement to Section 409A include rules, regulations, and guidance of general application issued by the Department of the Treasury under Section 409A.

9. Governing Law and Jurisdiction . This Agreement shall be construed and enforced under and be governed in all respects by the laws of the Commonwealth of Virginia, without regard to the conflict of laws principles thereof. The Company and the Executive hereby consent and submit to the exclusive personal jurisdiction and exclusive venue of the United States District Court for the Eastern District of Virginia, Alexandria Division for resolution of any and all claims, causes of action or disputes arising out of or directly or indirectly related to this Agreement.

10. Assignment . Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of the Executive to any affiliate or in the event that the Company shall after the Effective Date effect a reorganization, consolidate with or merge into, any entity or transfer all or substantially all of its properties or assets to any entity. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, their respective successors, executors, administrators, heirs and permitted assigns.

11. Waiver . No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving Party. The failure of either Party to require the performance of any term or obligation of this Agreement, or the waiver by either Party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

12. Notices . Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person, consigned to a reputable national courier service or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at his last known address on the books of the Company or, in the case of the Company, at its principal place of business, attention of the Legal Department or to such other address as any Party may specify by notice to the other actually received.

13. Entire Agreement . This Agreement constitutes the entire agreement among the Parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the Parties with respect to such subject matter, including without limitation any previous employment agreements entered into between Executive and the Company or any of its affiliates.

 

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14. Amendment . This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company.

15. Headings . The headings and captions in this Agreement are for convenience only, and in no way define or describe the scope or content of any provision of this Agreement.

16. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

17. Definitions . Words or phrases that are initially capitalized or are within quotation marks shall have the meanings provided in this Section and as provided elsewhere herein. For purposes of this Agreement, the following definitions apply:

(a) “ Cause ” shall be deemed to exist if any of the following items shall apply:

(i) a breach of any agreement between the Executive and the Company or any affiliate, including, without limitation, a breach by the Executive of the Executive’s obligations under this Agreement or the Award Agreement; (ii) intentional misconduct as an officer or employee of the Company (but acts in the nature of bad business judgment shall not be considered “misconduct” for this purpose) or a material violation by the Executive of material written policies of the Company or specific written directions of the person or persons to whom the Executive reports and under whose direction the Executive is subject (other than any such failure resulting from the Executive’s short-term incapacity due to physical or mental illness, and provided further that if the Executive voluntarily terminates his or her employment for Good Reason, this type of refusal shall not be deemed a violation of specific written directions for purposes of this clause (ii)); (iii) a breach of any fiduciary duty which the Executive owes to the Company or any affiliate in his capacity as an employee or officer or member of the board of directors of such entity; (iv) the conviction or plea of guilty or no contest by the Executive with respect to (A) a felony, or (B) embezzlement, dishonesty, a crime involving moral turpitude, or intentional and actual fraud or (C) driving under the influence (or any similar related offense); (v) the use of illicit drugs or other illicit substances or the addiction to licit drugs or other substances; or (vi) an unexplained absence from work for more than ten (10) consecutive days in any twelve (12) month period (vacation, reasonable personal leave, reasonable sick leave and Disability excepted). Notwithstanding the immediately preceding paragraph, the Executive’s employment will be deemed to have been terminated for Cause if it is determined subsequent to Executive’s termination of employment that grounds for termination of his employment for Cause existed at the time of Executive’s termination of employment.

(b) “ Good Reason ” shall be deemed to exist if, without the Executive’s consent: (i) there is a material diminution in the duties, responsibilities, or authority, or reporting relationship of the Executive to whom the Executive reports and under whose direction the Executive is subject; (ii) the Company or an affiliate requires the Executive to move the Executive’s principal business location as of the Effective Date to another location, and the distance between the Executive’s former residence and new principal business location is at least seventy-five (75) miles greater than the distance between the Executive’s residence and former principal business location; or (iii) there is a reduction in the Executive’s then Base Salary or annual cash performance bonus target amount, other than a reduction which is part of a general cost reduction affecting at least ninety percent (90%) of similarly situated employees and which does not exceed ten percent (10%) of the Executive’s then Base Salary and annual cash performance bonus target amount in the aggregate when combined with any such prior reductions. In each such case of Good Reason, the Executive shall provide the Company with written notice of the grounds for a Good Reason termination, and the Company shall have a period of thirty (30) days to cure after receipt of the written notice (the “ Cure Period ”). Resignation by the Executive following the Company’s cure or before the expiration of the Cure Period shall constitute a voluntary resignation and not a termination or resignation for Good Reason. If the alleged Good Reason event has not been cured at the end of the Cure Period, the Participant’s termination of employment for Good Reason will be effective on the first business day following the last day of the Cure Period.

(c) “ Award Agreement ” shall mean the Award Agreement dated as of September 16, 2013 by and between Executive and LSF8 Gypsum Holdings, L.P., as from time to time amended, supplemented, restated or otherwise modified.

[Remainder of page is intentionally blank.]

 

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IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound hereby, have hereunto set their hands under seal, effective as of the Effective Date.

 

EXECUTIVE
By: /s/ James W. Bachmann
Name: James W. Bachmann
Title: Chief Executive Officer

 

CONTINENTAL BUILDING PRODUCTS OPERATING COMPANY, LLC
By: /s/ Timothy Power
Name: Timothy Power
Title: SVP & General Counsel

SIGNATURE PAGE TO EMPLOYMENT AGREEMENT

Exhibit 10.7

AMENDMENT NO. 1 TO THE

CONTINENTAL BUILDING PRODUCTS, INC.

2014 STOCK INCENTIVE PLAN

Pursuant to the authority granted to the Board of Directors of Continental Building Products, Inc. under the Continental Building Products, Inc. 2014 Stock Incentive Plan (the “ Plan ”), the Plan is hereby amended as follows, effective as of May 5, 2015:

1. Section 16 of the Plan is amended to read in its entirety as follows:

 

  16. Transferability

Each Award may not be sold, transferred for value, pledged, assigned, or otherwise alienated or hypothecated by a Participant other than by will or the laws of descent and distribution, and each Option or Stock Appreciation Right shall be exercisable only by the Participant during his or her lifetime. Notwithstanding the foregoing, (i) outstanding Options may be exercised following the Participant’s death by the Participant’s beneficiaries or as permitted by the Committee and (ii) a Participant may transfer or assign an Award as a gift to an entity wholly owned by such Participant (an “ Assignee Entity ”), provided that such Assignee Entity shall be entitled to exercise assigned Options and Stock Appreciation Rights only during lifetime of the assigning Participant (or following the assigning Participant’s death, by the Participant’s beneficiaries or as otherwise permitted by the Committee) and provided further that such Assignee Entity shall not further sell, pledge, transfer, assign or otherwise alienate or hypothecate such Award.

Except as modified hereby, the Plan shall remain in full force and effect and unmodified.

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, James Bachmann, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Continental Building Products, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2015

 

/s/ James Bachmann
James Bachmann

President, Chief Executive Officer and Acting Chief Financial Officer

( Principal Executive Officer and Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Continental Building Products, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, James Bachmann, President, Chief Executive Officer and Acting Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to his knowledge:

 

  (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 6, 2015 /s/ James Bachmann
James Bachmann
President, Chief Executive Officer and Acting Chief Financial Officer
( Principal Executive Officer and Principal Financial Officer)